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A   TREATISE 


OH    TUB  '"<— i 

LAW  OF  PRIVATE  COR^BttTIONS 


BY 

HENRY  OSBORN   TAYLOR 

in 

OF  THE  NEW  YORK  BAH 


FIFTH  EDITION 


THE  BANKS  LAW  PUBLISHING  CO. 

21  MURRAY  STREET,  NEW  YORK 
1905 


r 


Entered  according  tp;Jl<cVof  Congress,  in  the  year  1384, 

By  HENRY**0.  TAYLOR, 
•ftt^Jje  Office  of  the  LibrariaH*»f.fcongress  at  Washington. 


Entertd  according  te  A.oI  of  Congress,  in  the  year  1888, 

By  HENRY  O.  TAYLOR, 
in  the  Office  of  the  Librarian  of  Congress  at  Washington. 


Entered  according  to  Act  of  Congress,  in  the  year  1894, 

By  HENRY  O.  TAYLOR, 
in  the  Office  of  the  Librarian  of  Congress  at  Washington. 


Entered  according  to  Act  of  Congress,  in  the  year  1898, 
By  HENRY  O.  TAYLOR, 
In  the  Office  of  the  Librarian  of  Congress  at  Washington. 


Copyright  1902 
By  The  Banks  Law  Publishing  Co. 


PEEFACE  TO  THE  FIFTH  EDITION. 


The  preface  to  the  third. edition  refers  to  certain  features  of 
corporation  law  which  are  still  of  present  interest.  Besides 
these,  the  matter  of  '  trusts  and  monopolies '  has  been  for  some 
years  of  great  importance.  Its  latest  phase  is  the  '  Securities 
Company,'  which  is  briefly  discussed  in  §  309d  of  this  edition. 
The  decisions  of  the  higher  courts  regarding  the  legality  of 
this  plan  are  awaited  with  interest.  It  may  be  remarked  in 
passing  that  the  term  '  trust-fund,'  as  applied  to  the  capital  of 
a  corporation,  is  falling  into  disfavor. 

Mr.  J.  Alfred  Kay,  the  sole  surviving  member  of  the  publish- 
ing firm  of  Kay  &  Brother,  died  in  January.  I  take  this  op- 
portunity to  record  my  esteem  for  that  high-minded  gentleman. 
Mr.  Kay  published  the  previous  four  editions  of  this  book.  It 
has  now  been  transferred  to  The  Banks  Law  Publishing 
Company,  who  have  spared  neither  pains  nor  money  in  the 
preparation  of  this  edition.  On  my  part  the  work  has  been 
done  with  care.  Some  eight  hundred  selected  cases  of  the  last 
four  years  upon  corporation  law  have  been  inserted.  The  book 
has  been  thoroughly  examined,  and  has  been  revised  wherever 
recent  adjudications  have  suggested  some  modification  of  state- 
ment. 

My  sincere  thanks  are  due  to  Professor  Robert  D.  Petty,  of 
the  New  York  Law  School,  for  many  valuable  suggestions, 
which  I  have  utilized  in  this  edition  ;  and  to  my  brother  Howard 
Taylor  for  writing  an  appendix  on  the  present  methods  of 
forming  corporations. 

H.  O.  Taylor. 

New  York,  September,  1902. 

iii 


740027 


PREFACE  TO  THE  THIRD  EDITION. 


It  is  generally  recognized  that,  while  legislatures  may 
endeavor  to  direct,  courts  should  follow  the  business  habits  of 
the  people,  and,  without  thwarting  what  custom  has  found 
convenient,  render  decisions  in  accordance  with  scientifically 
adjusted  principles  of  justice.  Even  then  the  law  must  be 
somewhat  behind  the  practice  of  the  business  community  ;  for 
questions  cannot  be  litigated  until  the  transactions  giving  rise 
to  them  have  been  engaged  in,  and  although  business  men 
seek  to  act  with  reference  to  the  law,  occasions  for  novel 
methods  of  business  continually  arise,  and  novel  questions 
come  before  the  courts.  It  is  clear,  moreover,  that  though  a 
court  bring  the  decision  of  the  novel  point  within  recognized 
legal  principles,  some  extension  or  modification  of  the  law  has 
occurred.  And  thus  courts  continually  change  the  law  by  en- 
deavoring to  keep  it  abreast  of  the  people's  life. 

In  deciding  a  case,  judges  apply  the  rules  which  best  fit 
the  facts.  These  rules  will  usually  depend  on  broader  legal 
principles  lying  back  of  them,  one  stage  further  from  direct 
application  to  the  case.  Consequently,  novel  facts  tend  to 
modify  the  rules  directly  applied  to  them,  and  have  less  effect 
on  legal  principles  in  the  background ;  and  it  may  be  that 
through  application  to  novel  instances  of  fact,  the  more  special 
rules  of  law  will  become  so  modified  as  no  longer  to  accord 
with  the  broader  principle  from  which  they  were  originally 
deduced.  And  when  special  rules  cease  to  accord  with  the 
general  rule  once  back  of  them,  —  if  no  further  convenient 
rules  can  be  drawn  from  the  general  rule, — it  drops  from  the 
body  of  the  law,  to  which  it  is  no  longer  organic,  unless  it 
chance  to  be  expressed  in  some  apt  phrase.  Thus  it  is  at 
present  with  the  rule  or  fiction  that  a  corporation  is  a  legal 
person :  it  still  represents  a  convenient  phrase,  nay,  a  con- 
venient point  of  view ;  but  it  is  dead  as  a  principle  because 
legal  propositions  are  no  longer  deduced  from  it,  nor  is  it  in 

v 


PREFACE    TO    THE    THIRD    EDTTTON. 

logical  connection  with  the  great  mass  of  legal  rules  which 
have  been  called  forth  by  controversies  relating  to  railroad  and 
other  business  corporations.1 

However,  though  it  is  proper  for  the  law  to  follow  closely, 
and  so  to  conform  itself  as  to  facilitate  the  transaction  of  busi- 
ness, there  are  further  considerations.  The  law  takes  cogni- 
zance of  public  policy,  it  refuses  to  sanction  acts  contra  bonos 
mores  ;  for  example,  dishonest  modes  of  business.  The  law  has 
heretofore  regarded  the  amount  of  stock  named  in  the  charter 
or  articles  of  incorporation  as  a  representation  of  the  amount 
of  its  capital,  and  the  further  representation  which  is  made  when 
stock  is  increased  is  of  the  same  character.  Heretofore  courts 
have  refused  to  recognize  fictitious  payments  for  stock ;  that 
is  to  say,  they  have  refused  to  sanction  the  organization  or 
prosecution  of  corporate  enterprises  on  the  basis  of  misrepre- 
sentation. The  reasoning  of  the  Supreme  Court  of  the  United 
States  in  Handley  v.  Stutz,2  and  of  the  Minnesota  Court  in 
Hospes  v.  Northwestern  Manufacturing  Co.,3  is  strongly  put. 
The  former  case  emphasizes  the  inconvenience  it  would  cause 
if  corporations  could  not  issue  stock  below  par  ;  the  latter  case 
asserts  that  it  is  all  a  question  of  actual  fraud,  and  if  any  sub- 
sequent creditors  have  been  misled  by  the  fictitious  issue,  the 
court  will  consider  their  rights.  But  these  decisions  tend  to 
remove  the  element  of  honesty  from  the  fundamental  reason  for 
corporate  organization,  which  is,  that  liability  may  not  extend 
beyond  the  funds  subscribed.  For  they  ignore  the  fact  that 
stock  and  subscriptions  to  stock  constitute  capital,  and  that 
there  is  no  true  analogy  between  the  issue  of  stock  and  the 
borrowing  of  money  on  the  best  terms  the  borrower  can  make ; 
and  they  ignore  the  fact  that  the  amount  of  stock  originally 
set  is  a  representation  of  the  amount  of  the  corporation's 
capital,  and  that  a  subsequent  issue  of  stock  is  a  representa- 
tion that  this  capital — whether  impaired  by  loss  or  not — is 
thereby  to  be  added  to  by  a  definite  amount.  Are  courts  to 
recognize  as  valid,  because  usual,  this  method  of  organizing 
and  carrying  on  corporate  business  by  the  issue  of  "  bonus  "  or 
partly  paid  stock  ?     Are  they  prepared  to  say  that  the  formal 

1  See  the  judicial  utterances  in  People  v.  North  River  Sugar  Refining  Co., 
and  State  v.  Standard  Oil  Co.,  post,  §  51,  note. 

2  Post,  §  5226.  8  Post,  §  7026. 

vi 


PREFACE    TO    THE   THIRD    EDITION. 

misrepresentation  involved  in  such  an  issue  is  proper  because 
widely  known  to  be  untrue  ?  State  legislatures  show  a 
sounder  sense  of  ethics  in  forbidding  the  issue  of  stock  except 
for  a  full  par  equivalent.  But  have  courts  fairly  seconded 
the  legislative  intent  ?  or  have  they,  in  endeavoring  to  recog- 
nize common  business  methods,  made  these  statutes  of  no 
effect  ? 

The  above  seem  to  the  writer  features  of  present  interest  in 
corporation  law.  There  is  another, — the  matter  of  ultra 
vires.  Here  courts  throughout  the  United  States  disagree, 
and  their  disagreement  is  more  pronounced  in  their  reasonings 
than  in  their  decisions.  This  means  that  they  have  not  yet 
reached  satisfactory  principles  by  which  these  cases  may  be 
decided.  Sometimes  a  court  avoids  the  matter  by  saying  "  the 
principle  is  well  settled,"  or  "the  doctrine  of  ultra  vires  is 
never  to  be  applied  when  it  would  not  advance  the  ends  of 
justice."  But  this  rustic  method  is  not  always  adopted,  and 
undoubtedly  the  courts  and  the  profession  know  that  some 
time  and  in  some  way  the  rules  relating  to  ultra  vires  trans- 
actions must  be  thought  out  and  based  on  principles  and  prop- 
ositions which  will  not  on  analysis  disclose  contradictions  and 
solecisms  of  reasoning. 

H.  O.  Taylor. 

New  Yobk,  June,  1894. 

vii 


PREFACE  TO  THE  FIRST  EDITION. 


The  object  of  this  Treatise  is  to  give  an  accurate  statement 
of  the  law  regulating  business  enterprises  which  are  prosecuted 
through  the  instrumentality  of  corporate  organization ;  to  de- 
fine the  rights  and  liabilities  of  the  different  classes  of  persons 
interested ;  and  to  treat  of  those  rights  and  liabilities  accord- 
ing to  the  manner  in  which  they  come  before  the  courts  for 
determination.  To  accomplish  this  the  writer,  having  briefly 
noticed  the  views  regarding  corporations  held  in  the  Roman 
and  in  the  older  common  law,  submits  in  the  third  and  fourth 
chapters  an  analysis  of  the  idea  of  a  corporation,  with  some 
remarks  on  the  resemblances  between  corporations  and  certain 
other  legal  institutions.  There  follows,  in  the  fifth  and  sixth 
chapters,  a  discussion  of  the  rights  and  liabilities  arising 
through  the  promotion  and  formation  of  a  corporation.  These 
chapters,  which  to  a  large  extent  are  of  an  introductory  char- 
acter, are  succeeded  by  a  detailed  discussion  of  corporate 
powers,  and  the  legal  effect  of  acts  done  by  or  on  behalf  of 
a  corporation  in  occasioning  legal  relations  between  it  and 
outsiders.  The  subsequent  portion  of  the  work  treats  of  the 
rights  and  liabilities  of  the  persons  having  interests  in  the 
corporate  enterprise,  treats,  that  is  to  say,  of  the  legal  rela- 
tions subsisting  with  respect  to  it.  These  relations  fall  under 
three  heads :  First,  those  between  the  corporation  on  the  one 
hand,  and,  on  the  other,  the  state,  the  shareholders,  the  officers, 
or  the  creditors  of  the  corporation.  Secondly,  those  between 
the  different  classes  of  persons  interested, — between  share- 
holders and  officers,  between  shareholders  and  creditors,  and 
between  officers  and  creditors.  Thirdly,  those  among  persons 
of  the  same  class ;  that  is,  among  shareholders,  among  officers, 
and  among  creditors. 

It  is  the  opinion  of  the  writer  that  the  fiction  of  the  "  legal 
person"  has  outlived  much  of  its  usefulness,  and  is  no  longer 
adequate  for  the  purposes  of  an  accurate  treatment  of  the  legal 

ix 


PREFACE   TO   THE    FIRST    EDITION. 

relations  arising  through  the  prosecution  of  a  corporate  enter- 
prise. By  dismissing  this  fiction,  a  clearer  view  may  be  had  of 
the  actual  human  beings  interested,  whose  rights  may  then  be 
determined  without  unnecessary  mystification.  There  will  re- 
main the  body  corporate,  an  organized  body  of  men,  exercising, 
directly  or  through  agents,  certain  authority  in  a  certain 
manner ;  there  will  remain  the  individual  shareholders,  the 
corporate  officers  and  agents,  the  creditors  of  the  corporation, 
and  the  public.  To  litigation  arising  from  transactions  respect- 
ing corporate  interests  there  must  be  parties.  The  parties  may 
be  the  corporation  on  the  one  hand,  standing  often  as  the 
representative  of  the  rights  of  all  persons  in  the  corporate 
enterprise,  and,  on  the  other,  some  outsider,  or  the  state,  or 
some  shareholder,  officer,  or  creditor ;  or  the  plaintiffs  may  be 
shareholders,  the  defendants  officers,  or  the  plaintiff  a  creditor, 
the  defendant  a  shareholder.  Suits  may  also  be  prosecuted  in 
which  names  of  shareholders  or  of  creditors  appear  on  both  sides 
of  the  case.  And  the  result  of  the  suit  will  be  affected  by  the 
position  occupied  by  the  parties  towards  the  transaction  oc- 
casioning the  litigation. 

In  view  of  these  considerations,  the  arrangement  adopted  in 
this  Treatise  is  thought  suited  to  an  accurate  exposition  of 
corporation  law. 

H.  O.  Taylor. 

New  York,  May  1,  1884. 
X 


TABLE  OF  CONTENTS. 


CHAPTER  I. 

SECTION 

The  Idea  of  a  Corporation  in  the  Roman  Law       .  1-9 

CHAPTER  II. 
The  Idea  of  a  Corporation  in  the  Common  Law     .      10-22/" 

CHAPTER  III. 
Analysis  of  the  Idea  of  a  Corporation  .         .         .         23-51 

CHAPTER  IV. 

Resemblances  between  Corporations  and  certain 

other  Legal  Institutions 52-71 

CHAPTER  V. 
Legal  Relations  arising  through  the  Promotion 

of  a  Corporation 72-90 

CHAPTER  VI. 

Legal  Relations  Consequent  upon  an  Agreement 
to  take  Shares  in  the  Stock  of  a  Corporation  to 
be  Organized 91-112 

CHAPTER  VII. 
Legal  Effect  of  Acts  done  by  or  on  behalf  of 
a  Corporation. 

Preliminary 113-119 

PART 

I.  Construction  of  Corporate  Powers      .        .     120-166 

II.  Acts  within  the  Corporate  Powers      .         .     167-263 

III.  Acts  beyond  the  Corporate  Powers     .         .     264-334 

xi 


xn 


TABLE   OF   CONTENTS. 


IV.  Liability  of  a  Corporation  for  the  Torts  of 

its  Agents  and  Servants    ....     335-378 
V.  1.  Legal  Effect  of  Acts  done  without  the 

State  incorporating  the  Corporation    .     379-402 

2.  Status  of  a  Body  of  Men  incorporated  by 

the  Legislation  of  two  or  more  States     403-409 

3.  Citizenship  of  Corporations  with  respect  ' 

to  the  Jurisdiction  of  the  Federal  Courts     410-413 

4.  Succession 414-418 

5.  Consolidation 419-427 

6.  Dissolution 428-437 

CHAPTER  VIII. 
Relations  between  the  State  and  the  Corpora- 
tion ;  including  Relations  between  the  State 
and  (a)  Shareholders,  (b)  Officers,  and  (c)  Cred- 
itors of  the  Corporation 438-507 

CHAPTER  IX. 
Legal   Relations  between  the  Corporation  and 

its  Shareholders 508-611 

CHAPTER  X. 
Legal  Relations  between  the  Corporation  and  its 

Officers '.        .     612-650 

CHAPTER  XL 

Legal  Relations  between  the  Corporation  and  its 

Creditors 651-682 

CHAPTER  XII. 

Legal  Relations  between  Shareholders  and  Offi- 
cers of  a  Corporation 683-699 


CHAPTER  XIII. 
Legal  Relations  between  Shareholders  and  Cred- 
itors of  a  Corporation  .....     700-751 


TABLE   OF   CONTENTS.  xiii 

SECTION 

CHAPTER  XIV. 
Legal  Relations  between  Officers  and  Creditors 
of  a  Corporation 752-775 

CHAPTER  XV. 
Legal  Relations   among  the  Shareholders  of  a 
Corporation 776-801 

CHAPTER  XVI. 
Legal  Relations  among  the  Officers  of  a  Corpo- 
ration          802-809 

CHAPTER  XVII. 

Legal  Relations  among  the  Creditors  of  a  Corpo- 
ration          810-826 

Appendix.     Present  Methods  of  forming  a  Corpo- 
ration. 


THE 


LAW  OF  PRIVATE  CORPORATIONS. 


CHAPTER  I. 


THE   IDEA  OF  A  CORPORATION  IN  THE  ROMAN    LAW.1 


Early  Roman  view,  §  1. 

A  corporation  not  a  person,  §  2. 

Later  Roman  view,  §  3. 

Special  authority  to  form  a  corpora- 
tion necessary  only  in  later  times, 
§4. 


Varieties  of  Roman  corporations,  §  5. 
Illegal    corporations.      Dissolution, 

§6. 
Corporate  capacities,  §  7. 
Corporate  management,  §  8. 
Hereditas  jacens,  §  9. 


§  1.  In  the  early  periods  of  the  Roman  law,  the  idea  of  a 
corporation  seems  to  have  been  that  of  a  collection  of 
individuals  among  whom,  as  well  as  between  whom  maii^iaw10" 
and  outsiders,  existed  certain  special  legal  relations. 
If  the  notion  of  a  corporate  whole  or  unit  was  present  at  all, 
it  existed  in  a  rudimentary  shape,  and  was  of  slight  importance. 
The  basis  of  this  view  lies  in  the  names  of  many  of  the  older 
and  more  prominent  of  the  Roman  corporations  ;  names  which 
were  no  other  than  the  names  of  the  members ;  as,  for  instance, 
gentiles,  virglnes  vestales,  socii  vectigalium  publicoj'iim.  The 
property,  consequently,  of  these  corporations  was  spoken  of  as 
if  it  belonged  to  the  members,  as  agri  virginum  vestaliuvi.2 
Later  the  term  universitas  became  the  generic  name  for  cor- 
porations of  all  kinds,3  a  term  which  seems  to  have  conveyed 


1  See  Digest,  iii.  4,  Quod  cuiuscum- 
que  uuiversitatis  nomine  vel  contra 
earn  agatur ;  Digest,  xlvii.  22,  De 
collegiisetcorporibus;  Savigny,  Sys- 
tem des  heutigen  Romischen  Rechts, 
vol.  ii.  §§  85-102;  Windscheid,  Lehr- 
buch  des  Pandektenrecbts,  i.  §§  57- 
62  ;    Pucbta,    Pandekten,   §§   25-28  ; 

1 


Arndts,  Pandekten,  §§  41-47;  Brinz, 
Pandekten,  §  35  and  §§  59-63. 

2  See  Ibering,  Gbeist  des  Romis- 
chen Rechts,  iii.  Theil,  note  468  to  p. 
344. 

3  The  Rubric  of  Title  4,  liber  iii., 
of  the  Digest  reads:  "Quod  cuius- 
cum-que  universitatis  nomine,"  etc. 


§3.] 


THE   LAW   OF   PRIVATE  CORPORATIONS.      [CHAP.  I. 


in  the  main  the  notion  of  a  collection  of  individuals  as  opposed 
to  the  notion  of  a  singularis  persona,  or  one  individual.1 

§  2.  Gaius,  in  his  division  of  persons,2  which  was  afterwards 
followed  in  the  Digest  of  Justinian,3  never  hints  at 

A  corpora-  ° 

tion  not  a  corporations ;  and,  indeed,  the  statement  may  be 
hazarded  that  in  no  place  in  the  Pandects  are  corpo- 
rations said  to  be  persons ;  though  it  is  said  that  for  certain 
purposes  they  are  to  be  treated  as  such,  personoe  vicefungitur} 
It  seems  probable,  moreover,  that  the  law  did  not  create  this 
approach  to  a  personification  of  corporations,  but  received  it 
from  the  people,  tolerating  the  fiction  through  deference  to  the 
popular  view. 

§  3.  Nevertheless,  though  the  Roman  law  never  regarded  a 
corporation  as  a  person  begotten  of  itself,  and  only 
said  that  for  certain  purposes  the  law  would  treat  it 
as  such,  yet  in  the  periods  of  the  later  and  more  fully 
developed  law  a  corporation  was  regarded  as  a  something,  as  a 
corporate  whole  or  unit,  distinct  from  its  members.5  To  this 
corporate  whole,  and  not  to  the  individual  members,  attached 
the  corporate  rights  and  liabilities.  "  If  anything  is  owed  to  a 
corporation  it  is  not  owed  to  the  members  individually  ;  nor  do 
they  owe  what  it  owes." 6    Consequently,  the  existence  and 


Later  Ro- 
man view. 


See  Savigny,  System,  etc.,  ii.  p.  261. 
The  term  seems  not  to  have  been  in 
use  much  before  the  time  of  Cicero. 
Corpus&nd  collegium  were  also  used, 
the  former  more  generally  than  the 
latter. 

1See  Dig.,  iv.  2,  lex  9,  §  1.  Cor- 
porations sole  did  not  exist  at  Rome. 
"Neratius  Pi  iscus  deems  that  three 
may  make  a 'collegium,'  and  this 
opinion  is  to  be  followed."  Dig., 
1.  16,  lex  85.  Still  the  scope  of  the 
applicability  of  this  passage  is  not 
clear. 

2  Gai.  i.  9  et  seq. 

8  Dig.,  i.  5,  lex  3. 

4  Dig.,  xlvi.  1,  lex  22. 

6  See  Savigny,  System,  ii.  pp.  236- 
240. 

6  Si  quid  universitati  debetur,  sin- 
gulis non  debetur;  nee  quod  debet 

2 


universitas  singuli  debent.  Dig.,  iii. 
4,  lex  7,  §  1.  See  also  Dig.,  i.  8,  lex 
6,  §  1.  "  Das  Wesen  aller  Corporatio- 
nen  besteht  darin,  dass  das  Subject 
der  Rechte  nicht  in  der  einzelnen 
Mitgliedern  (selbst  nicht  in  alien 
Mitgliedern  zusammengenommen) 
besteht,  sondern  in  dem  idealen 
Ganzen,"  Savigny,  System,  ii.  144. 
"  Eine  Juristische  Person  ist  eine 
nicht  wirklich  existirende,  nur  vor- 
gestellte  Person,  welsche  als  subject 
von  Rechten  und  Verbindlichkeiten 
behandelt  wild."  Windscheid,  Pan- 
dekten,  i.  p.  147  ;  see  ib.  p.  150.  See, 
also,  Sav.,  ii.  284-288  ;  Dig.,  iii.  4, 
lex  1,  §  1  ;  Dig.,  i.  8,  lex  6,  §  1  ;  Dig., 
xlviii.  18,  lex  1,  §  7;  Dig.,  xl.  3,  leges 
1,  2,  and  3  ;  Dig.,  ii.  4,  lex  10,  §  4  ; 
Dig.,  vii.  1,  lex  56.  The  statement 
in  the  text  seems  to  be  upheld  by  the 


CHAP.  I.]   CORPORATIONS  IN  THE  ROMAN  LAW. 


[§5. 


identity  of  the  corporation  were  not  affected  by  the  change  of 
even  all  its  members.1 

§  4.  There  is  no  reason  to  believe  that  any  special  authoriza- 
tion from  the  state  was  necessary  in  the  early  time   special  au- 
in  order  to  form  a  corporation.     Under  the  Empire,   *hori*y to 
however,  a  special  permission  from  the  state  became   poration 

o  i      i  i  'i  necessary 

necessary;2   and,    by    the   pagan   emperors,   it   was   only  in  lat- 
granted  with  great  reluctance.3     The  requiring  of  a   er  times' 
special  permission,  as  well  as  the  reluctance  of  the  emperors  to 
grant  it,  seems  to  have  been  due  to  the  evils  arising  from  un- 
authorized and  seditious  societies. 

§  5.  The  first  corporations  at  Rome  were  formed  for  the 
regulation  of  trade  and  purposes  of  religion.4     Under 

Varieties  of 

the  Republic  municipal  corporations  come  promi-  Roman  cor- 
nently  into  view,  while  the  proportionate  import-  poia  lons' 
ance  of  religious  corporations  diminishes.  The  latter  re- 
mained comparatively  few  in  number  until  the  conversion  of 
the  Empire  to  Christianity,  to  which  event  was  due  the  aboli- 
tion of  the  general  rule  that  a  religious  corporation  could  take 
propert}^  as  heres,  that  is,  through  universal  succession,  only  by 
virtue  of  a  privilege  specially  conferred.5     This  rule  had  not 


great  weight  of  authority;  still  Iher- 
iug,  a  distinguished  jurist,  says  that 
the  members  were  the  true  subjects 
of  the  corporate  rights  and  liabilities 
according  to  the  Roman  law,  and 
that  the  corporation  itself  was  only 
the  form  which  the  mass  of  these 
rights  and  liabilities  assumed  to- 
wards outsiders.  This  form  disap- 
peared when  determining  the  legal 
relations  of  the  members  among 
themselves.  Ihering,  Gheist,  etc., 
iii.,  Theil,  pp.  219-220,  343-344.  An- 
other writer  thinks  the  Roman  law 
did  not  regard  the  property  of  a  cor- 
poration as  belonging  to  a  person, 
but  to  a  universitas,  i.  e.,  to  no  one; 
as  res  nullius.  1  Brinz,  Pandekten, 
196.  See  Gai.  i.  9,  and  Dig.,  i.  8,  lex 
1  pr. 

1  "  In  decurionibus  vel  aliis  univer- 
sitatibus  nihil  refert,  utrum  omnes 


idem  maneant  an  pars  meneat  vel 
omnes  immutati  sint;  sed  si  univer- 
sitas ad  unum  redit,  magis  admit- 
titur  posse  eum  convenire,  et  con- 
veniri  cum  jus  omnium  in  unum 
recciderit  et  stet  nomen  universita- 
tis."     Dig.,  iii.  4,  lex  7,  §  2. 

2  Dig.,  iii.  4,  lex  1  pr. 

8  See  Pliny,  Epist.  b.  10,  letters  42, 
43. 

4  Sav.,  System,  ii.  p.  246. 

6  The  principles  of  the  (pagan)  Ro- 
man law  on  this  point  are  expressed 
by  Ulpian,  xxii.  §6:  "We  cannot 
make  gods  our  heirs,  save  those  to 
whom  a  decree  of  the  senate  or  a 
rescript  of  the  emperor  has  granted 
this  privilege."  "  Es  war  dem  Chris- 
tenthum  vorbehalten,"  says  Savigny, 
"  die  Menschenliebe  an  sich  zu  einem 
wichtigen  Gegenstand  der  Thatigkeit 
zu  erhebeu,  und  in  dauernden,  unab- 


§7.] 


THE   LAW   OF   PRIVATE  CORPORATIONS.      [CHAP.  I. 


prevented  them,  however,  from  receiving  legacies  or  enjoying 
revenues  through  fidei  commissce,  or  trusts,  created  in  their 
favor.1 

§  6.  If  the  objects  of  incorporation  were  illegal,  the  corpora- 
tion was  liable  to  be  dissolved  by  the  state,2  which 
illegal  cor-    alwavs  had  the  power  to  dissolve  corporations,  even 

porations.  .  *  r  r  ' 

Dissoiu-  against  the  will  of  the  members;  though  the  mem- 
bers, without  the  consent  of  the  state,  could  not 
bring  about  a  dissolution 3  any  more  than  they  could  incorpo- 
rate themselves.  Moreover,  a  dissolution  of  the  corporation 
was  not  effected  by  the  death  of  all  its  members.4 

§  7.  The  right  of  a  corporation  to  make  by-laws  for  the 
regulation  of  its  affairs  appears  to  be  as  old  as  the 
SS.  Twelve  Tables;5  and,  not  unlikely,  the  right  to  sue 
and  be  sued  is  equally  ancient.6  A  municipal  cor- 
poration could  have  jiossessio,  and,  therefore,  could  acquire  pro- 
prietas  through  usucapio?  And  a  municipal  corporation,  more- 
over, through  its  constitutional  representatives,  could  acquire 
rights  and  incur  obligations.  But,  if  its  representatives  bor- 
rowed money  on  its  behalf,  it  was  liable  to  repay  only  the  part 
actually  applied  to  its  use.8  Execution  against  a  corporation 
took  place  in  the  same  manner  (by  a  missio  in  possessio?ie?n)  as 
against  the  property  of  au  individual.9  Criminal  law  did  not 
apply  to  corporations ; 10  neither  could  they  be  held  liable  in 


hangigen  Anstalten  gleichsam  zu  ver- 
korpern."  System,  ii.  264.  After 
Constantine  pia  corpora  could  take  as 
heres,  through  universal  succession. 
Sav.,  System,  ii.  301,  308;  and  by  a 
law  of  the  Emperor  Leo,  A.  D.  469, 
municipal  corporations  received  the 
same  privilege.  See  Codex,  vi.  lex 
24,  §  12. 

1  Dig.,  xxxviii.  3,  lex  1;  and  Sav., 
System,  ii.  305,  and  authorities  there 
cited. 

2  But  on  dissolution  of  the  corpora- 
tion, the  members  could  divide  the 
corporate  funds  among  themselves. 
Dig.,  xlvii.  22,  lex  3  pr.  See  Sav., 
System,  ii.  257,  note  o. 

8  Sav.,  System,  ii.  280. 


4  Sav.,  System,  ii.  280. 

5"Gaius,  libro  quarto  ad  legem 
duodecem  tabularum.  Sodales  sunt, 
qui  eiusdem  collegii  sunt,  quam 
Graeci  erect,  peiav  vocant.  His  autem 
potestatem  facit  lex  pactionem  quam 
velint  sibi  ferre,  dum  ne  quid  ex  pub- 
lica  lege  corrumpant.  Sed  haec  lex 
videtur  ex  lege  Solonis  translata 
esse."     Dig.,  xlvii.  22,  lex  4. 

6  Dig.,  iii.  4,  lex  7  pr.  See  Dig., 
iii.  4,  lex  2. 

7  Dig.,  xli.  2,  lex  2. 

8  Dig.,  xii.  1,  lex  27;  see  Sav.,  Sys- 
tem, ii.  294. 

9  See  Sav.,  System,  ii.  297. 

10  Sav.,  System,  ii,  312. 


CHAP.  I.]        CORPORATIONS    IN    THE    ROMAN   LAW. 


[§9. 


actions  arising  ex  delicto,  unless  they  had  been  enriched  through 
the  wrong.1 

§  8.  As  to  the  management  of  the  affairs  of  corporations 
under  the  Roman  law,  little  is  known  ;  and  the  few   „ 

t-»  i      •  i  •  •  Corporate 

passages  in  the  randects  relating  to  this  topic  seem   manage- 
applicable  only  to  municipal  corporations.2    For  the 
transaction  of  important  business,  the  presence  of  two-thirds 
of  the  members  seems  to  have  been  necessary  to  constitute  a 
quorum,  which  number  present,  a  majority  vote  was  decisive.3 
§  9.  From  the  Roman  rule  that  the  heres  succeeded  to  the 
legal  personality  of  the  deceased  arose  the  peculiar 
conception  of  what  many  maintain  to  have  been  re-  '.'■ -?®r®^ltas 
garded  by  the  Roman  law  as  a  legal  person,  hereditas 
jacens.     This  was  the  sum  of  the  rights  and  liabilities  of  the 
deceased  at  the  time  of  his  death,  regarded  as  subsisting  by 
itself  as  a  unit  or  a  whole,  until  it  should  be  determined  who 
was  to  be  the  heres ;  "  hereditas  personae  vice  fungitur,  sicuti 
municipium  et  decurio  et  societas." 4 


1  Sav.,  System,  ii.  317.  "  But  it  is 
doubted  whether  an  action  for  fraud 
lies  against  cities.  I  think  it  should 
not  He;  for  how  can  a  city  be  guilty 
of  fraud?  But  if  the  city  has  been 
enriched  through  the  fraud  of  its  of- 
ficers, I  think  an  action  should  lie." 
Dig.,  iv.  3  lex  15,  §  1.  See  Grotius, 
De  Jure  Belli,  ii.  xxi.  7. 

2  It  is  possible  that  some  of  the 
passages  already  cited  as  applicable 


generally,  were  intended  by  the  au- 
thors of  them  to  refer  to  municipal 
corporations  only. 

3  See  Sav.,  System,  ii.  324  et  seq. 
Dig.,  1.  9,  leges  2  and  3  ;  Codex,  x. 
31,  lex  45;  Dig.,  1.  1,  lex  19;  Dig., 
iii.  4,  leges  3  and  4;  Grotius,  De  Jure 
Belli,  ii.  v.  17. 

*  Dig.,  xlvi.  1,  lex  21;  Dig.,  xli.  3, 
lex  15  pr.  See  Sav.,  System,  ii. 
365. 


§12.] 


THE   LAW   OF   PRIVATE   CORPORATIONS.    [CHAP.  II. 


CHAPTER  II. 


THE  IDEA  OF  A  CORPORATION  IN  THE  COMMON  LAW.1 


Relation  of  the  common  to  the  Ro- 
man law,  §  10. 

Coke's  idea  of  a  corporation,  §§  11- 
13. 

Blackstone's  idea  of  a  corporation, 
§§  14,  15. 

Perpetual  succession,  §  16. 

Capacity  to  sue  and  use  a  seal,  §  17. 


Capacity  to  hold  lands,  §  18. 

Capacity  to  make  by-laws,  §  19. 

Dissolution,  §  20. 

Doctrine  that  a  corporation  is  a  per- 
son, §§  21,  22. 

Classification  of  Corporations,  §§  22a 
-22/. 


§  10.  The  early  common  law  of  corporations  was  largely 
Relation  of  k°rrowe(l  from  the  Roman  law.2  In  the  Roman 
the  com-       system,  however,  there  are  not  to  be  found  the  fan- 

mon  to  the  .  .  .  . 

Roman  tastic  structures  ot  split  hairs,  with  which  the  com- 
mon lawyers,  aided  by  the  philosophers  of  the  schools 
delighted  to  adorn  their  system  of  jurisprudence.  The  "  myste- 
rious," "intangible,"  "invisible,"  "immortal,"  though  "soul- 
less "  qualities  of  corporations  are  the  creatures  of  the  common 
law. 

§  11.  In  Coke  on  Littleton  and  Coke's  Reports,  the  common 

law  is  embodied  as  in  no  other  volumes.     It  is,  there- 

of°a  corpo-     fore,  in  the  main,  Coke's  conception  of  a  corporation 

ration.  which  is  given  in  this  chapter,  the  modifications  and 

developments  of  later  authorities  being  briefly  noted. 

§  12.  "  A  body  politic,"  says  Coke,  "  is  a  body  to  take  in  suc- 
cession, framed  (as  to  that  capacity)  by  policy,  and  therefore  it 
is  called  by  Littleton  a  body  politic  ;  and  it  is  called  a  corpora- 
tion or  a  body  incorporate,  because  the  persons  are  made  into  a 
body,  and  of  a  capacity  to  take  and  grant,  etc." 3 


1  See  Case  of  Sutton's  Hospital,  10 
Rep.  1  ;  Comyn's  Digest,  Title 
"  Franchise;  "  Coke  on  Lit.,  Thom- 
as's Ed.,  Book  I.  chap.  xiii.  ;  Viner's 
Rolle's  and  Bacon's  Abridgments, 
Title  "Corporation  ;  "  Kyd  on  Cor- 
porations, Introduction  ;  Black- 
stone's  Com.,  Book  I.  chap,  xviii.; 
2    Kent's     Com.,    Lecture     xxxiii. ; 


Angell  and  Ames  on  Corporations, 
Introduction  and  chaps,  i.,  ii.,  and 
iii. 

2  E.  g.,  the  passage  in  Bracton,  f.  7, 
concerning  the  ownership  of  public 
buildings  is  quoted  from  the  Ins.  of 
Justinian,  ii.  1,  §  6. 

8  Co.  Litt.,  250  a. 


CHAP.  II.]  CORPORATIONS  IN  THE  COMMON  LAW.      [§  12. 

"  And  it  is  to  be  known  that  every  corporation,  or  incorpo- 
ration, or  body  politic  or  incorporate,  which  are  all  one,  either 
stands  upon  one  sole  person,  as  the  king,  bishop,  parson,  etc,  or 
aggregate  of  many,  as  mayor,  commonalty,  dean,  and  chapter, 
etc.,  and  these  are  in  the  civil  law  called  universitas  sive  col- 
legium. Now  it  is  to  be  seen  what  things  are  of  the  essence  of 
a  corporation.1  1.  Lawful  authority  of  incorporation,  and  that 
may  be  by  four  means,  sc.  by  the  common  law,  as  the  king 
himself,  etc. ;  by  authority  of  parliament ;  by  the  king's  char- 
ter;2 and  by  prescription.  The  2d,  which  is  of  the  essence  of 
the  incorporation,  are  persons  to  be  incorporated,  and  that  in 
two  manners,  sc.  persons  natural,  or  bodies  incorporate  and 
political.  3.  A  name  by  which  they  are  incorporated.3  4.  Of 
place,  for  without  a  place  no  incorporation  can  be  made.  5.  By 
words  sufficient  in  law,  but  not  restrained  to  any  certain,  legal, 
and  prescript  form  of  words."4 

" .  .  .  .  When  a  corporation  is  duly  created  all  other  inci- 
dents are  tacitly  annexed.  And  for  direct  authority  in  this 
point  in  22  E.  4,  Grants,  30,  it  is  held  by  Brian,  chief  justice, 
and  Choke,  that  corporation  is  sufficient  without  the  words  to 
implead  and  be  impleaded,  etc.,  and  therefore  divers  clauses 
subsequent  in  the  charters  are  not  of  necessity,  but  only  de- 
claratory, and  might  well  have  been  left  out,  as  1.  By  the  same 
to  have  authority,  ability,  and  capacity  to  purchase,  but  no 
clause  is  added  that  they  may  alien,  etc.,  and  it  need  not,  for 
it  is  incident.  2.  To  sue  and  be  sued,  implead  and  be  im- 
pleaded. 3.  To  have  a  seal,  that  is  also  declaratory,  for  when 
they  are  incorporated  they  may  make  or  use  what  seal  they 
will.5    4.  To  restrain  them  from  aliening  or  devising  but  in 


1  "  To  the  essence  of  a  ...  .  body 
corporate  two  things  are  only  req- 
uisite, sc.  an  incorporation  and  a 
gift,  and  not  any  words  of  fundare, 
exegire,  and  stabilere,  or  words  to 
that  effect."  Case  of  Sutton's  Hos- 
pital,  10  Rep.  28  a. 

2  Compare  Franklin  Bridge  Co.  v. 
Wood,  14  Ga.  80. 

3  "  A  corporation  is  a  body  politic, 
consisting  of  material  bodies,  which, 
joined  together,  must  have  a  name 


to  do  things  that  concern  their  cor- 
poration, or  otherwise  there  is  no 
corporation."  Viner's  Abridgment, 
Tit.  Corp.  (A.  2.)  1. 

*  Sutton's  Hosp.,  10  Rep.  29  b. 

5  "  A  corporation  cannot  do  an  act 
in  pais  without  their  common  seal, 
yet  they  may  do  an  act  upon  record." 
Viner's  Abt.,  Tit.  Corp.  (G.  2.)  9; 
see  Com.  Dig.  Franchise,  F.  13,  and 
1  Kyd,  259-268. 


§  13.]  THE    LAW   OF    PRIVATE   CORPORATIONS.     [CHAP.  II. 

certain  form  ;  that  is  an  ordinance  testifying  the  king's  desire, 
but  it  is  but  a  precept  and  does  not  bind  in  law.  5.  That  the 
survivors  shall  be  a  corporation,  that  is  a  good  clause  to  oust 
doubts  and  questions  which  might  arise,  the  number  being  cer- 
tain. 6.  If  the  revenues  increase,  that  they  shall  be  used  to 
increase  the  number  of  the  poor,  etc.,  that  is  but  explanatory. 

7.  To  be  visited  by  the  governors,  that  is  also  explanatory. 

8.  To  make  ordinances ;  that  is  requisite  for  the  good  order 
and  government  of  the  poor,  etc.,  but  not  to  the  essence  of  the 
incorporation.  ...  10.  The  license  to  purchase  in  mortmain  is 
necessary  for  the  maintenance  and  support  of  the  poor,  for 
without  revenues  they  cannot  live,  and  without  a  license  in 
mortmain  they  cannot  lawfully  purchase  revenues,  and  yet 
that  is  not  of  the  essence  of  the  corporation,  for  the  corpora- 
tion is  perfect  without  it." ' 

"  And  it  is  great  reason  that  an  hospital,  etc.,  in  expectancy 
or  intendment,  or  nomination,  should  be  sufficient  to  support 
the  name  of  an  incorporation,  when  the  corporation  itself  is 
only  in  abstracto ;  .  .  .  .  for  a  corporation  aggregate  of  many 
is  invisible,  immortal,  and  rests  only  in  intendment  and  con- 
sideration of  the  law  ;  and  therefore  in  39  H.  6, 13  b.  14,  a  dean 
and  chapter  cannot  have  predecessor  nor  successor,  21  E.  4,  27 
(72)  a,  and  30  E.  3,  15.  They  cannot  commit  treason  nor  be 
outlawed  nor  excommunicate,  for  they  have  no  souls,2  neither 
can  they  appear  in  person,  but  by  attorney.  A  corporation  ag- 
gregate of  many  cannot  do  fealty,  for  an  invisible  body  can 
neither  be  in  person  nor  swear ;  and  ....  it  is  not  subject  to 
imbecilities,  death  of  the  body  and  divers  other  cases.  A  thing 
which  is  not  in  esse  but  apparent  expectancy  is  regarded  in 
law.3  ....  So  note,  reader,  a  difference  between  an  estate  or 
interest,  which  none  can  take  without  present  capacity,  and  a 
power,  liberty  or  franchise,  or  thing  newly  created,  which  may 
take  effect  mfuturo."* 

§  13.  By  implication  as  well  as  by  express  words  could  a 


i  lb.  30  b  and  31  a. 

2  Tbat  corporations  have  no  souls 
was  clearly  demonstrated  before  the 
days  df  railroads.  "  None  can  create 
souls  but  God;  but  the  king  creates 
corporations;  therefore  they  have  no 


souls  ....  and  this  was  the  opinion 
of  Manwood,  chief  baron,  touching 
corporations."  Tippling  v.  Pexall,  2 
Buls.  233. 

3  Sutton's  Hosp.,  10  Rep.  32  b. 

*  lb.  27  b. 


CHAP.  II.]      CORPORATIONS    IN   THE   COMMON    LAW.  [§  14. 

corporation  be  created ;  for,  "  it  is  well  observed,  that  in  old 
times  the  inhabitants  or  burgesses  of  a  town  or  borough  were 
incorporated  when  the  king  granted  to  them  to  have  gildam 
mercatoriam."  1 

§  14.  A  century  and  a  half  after  the  time  of  Coke,  Black- 
stone   speaks  of   the  nature  of  corporations   some- 
what in  detail.     "  As  all  personal  rights,"  says  he,   Son?s  idea 
"  die  with  the  persons,  and  as  the  necessary  forms   ot*  corP»- 

r  .    .  *•  ration. 

of  investing  a  series  of  individuals,  one  after  an- 
other, with  the  same  identical  rights,  would  be  very  inconven- 
ient, if  not  impracticable,  it  has  been  found  necessary,  where  it 
is  for  the  advantage  of  the  public  to  have  any  particular  rights 
kept  on  foot  and  confirmed,  to  constitute  artificial  persons  who 
may  maintain  a  perpetual  succession,  and  enjoy  a  kind  of  legal 
immortality.  These  artificial  persons  are  called  bodies  politic, 
bodies  corporate  (corpora  corporata),  or  corporations." 2 

Again,  says  Blackstone,  "The  name  of  the  corporation  is  the 
very  being  of  its  constitution ;"  and,  he  continues,  "  the  rights, 
capacities,  and  incapacities,  which  are  necessarily  and  insepara- 
bly incident  to  every  corporation,  which  incidents,  as  soon  as  a 
corporation  is  duly  elected,  are  tacitly  annexed  of  course  are : 
(1)  To  have  perpetual  succession  ....  and,  therefore,  all 
aggregate  corporations  have  a  power  necessarily  implied  of 
electing  members  in  the  room  of  such  as  go  off.  (2)  To  sue 
and  be  sued,  implead  or  be  impleaded,  grant  or  receive  by  its 
corporate  name,  and  do  all  other  acts  as  natural  persons  may. 
(3)  To  purchase  lands  and  hold  them  for  the  benefit  of  them- 
selves and  their  successors,  which  two  are  consequential  to  the 
former.  (4)  To  have  a  common  seal  .  .  .  .  (5)  To  make 
by-laws  or  private  statutes  for  the  better  government  of  the 


1  lb.  30  a.  "  By  special  words  the 
king  may  make  a  limited  corpora- 
tion for  a  special  purpose;  as  if  the 
king  grants  probis  hominibus  de  Is- 
lington et  successoribus  suis  render- 
ing a  rent;  this  is  a  corporation  to 
render  the  rent  to  the  king,  and  not 
otherwise."  Viner's  Abt.,  Tit.  Corp., 
G.  3;  see,  also,  Stebbins  v.  Jennings, 
10  Pick.  172,  188.     "  A  corporation 


is  good  without  limiting  any  number 
certain  of  persons  to  be  of  the  cor- 
poration." Viner's  Abt.,  Tit.  Corp., 
F.  9.  "  And  one  corporation  may 
be  made  out  of  another  corporation." 
Sutton's  Hosp.,  10  Rep.  31  b;  see  ib. 
33  b. 

2 1  Bl.  ConL,  467. 


§  16.]  THE    LAW   OF    PRIVATE   CORPORATIONS.    [CHAP.  II. 


Perpetual 
succession 


corporation,  which  are  binding  on  themselves,  unless  contrary 
to  the  law  of  the  realm,  and  then  they  are  void."  l 

§  15.  Blackstone's  statements  are  usually  noteworthy  for 
their  perspicuity  rather  than  their  logic.  Throughout  his 
enumeration  of  the  ordinary  incidents  of  corporations,  it  is  ap- 
parent, by  his  indiscriminate  use  of  singular  and  plural  pro- 
nouns, that  he  is  not  able  wholly  to  make  up  his  mind  whether 
the  capacities  enumerated  attach  to  the  corporation  as  a  unit, 
or  to  the  members. 
§  16.  As  Coke  says :  "  A  body  politic  is  a  body  to  take  in 
succession  ; " 2  so  Blackstone  regards  the  capacity  of 
perpetual  succession  as  the  quality  which,  more  than 
any  other,  constitutes  the  corporation  what  it  is,  and 
differentiates  it  from  what  it  is  not.  "  This  is  the  very  end  of 
its  incorporation,"  says  he,  "  for  there  cannot  be  a  succession 
forever  without  an  incorporation."3  Mainly  to  this  quality, 
then,  is  due  the  artificial  personality  of  the  corporation.4 
But  is  it  entirely  clear  how  this  quality  is  a  quality  of  the  cor- 
poration at  all '{  for,  as  Coke  himself  says,  "  A  dean  and  chap- 
ter cannot  have  a  predecessor  nor  a  successor." 5 

Perpetual  succession  of  whom  ?  how  ?  and  to  what  ?  Appar- 
ently of  the  members,  who,  by  fulfilling  conditions  prescribed 
by  the  charter,  succeed  to  the  rights  and  duties  of  former  mem- 
bers, or  acquire  similar  rights  and  incur  similar  duties.  These 
rights  and  duties  relate  to  the  corporate  property,  purpose, 
and  to  the  capacity  of  corporate  action  ;  in  fact  to  the  corpo- 
ration.    On  the  other  hand,  the  corporation  has  certain  rights, 


1 1  Black.  Com.,  475,  476  ;  Kent 
adds  a  sixth,  the  power  of  amotion 
or  removal  of  members.  2  Kent, 
Com., 278;  De  Yturbideu.  Metropoli- 
tan Club,  11  D.  C.  App.  Ca.  180. 

2  Supra,  §  12. 

8  1  Bl.  Com.,475. 

4  "The  distinguishing  feature,  far 
above  all  others,  is  the  capacity  con- 
ferred by  which  a  perpetual  succes- 
sion of  different  persons  shall  be  re- 
garded in  the  law  as  one  and  the 
same  body,  and  may  at  all  times  act 
in  fulfillment  of  the  objects  of  asso- 
ciation as  a  single    individual.    In 

10 


this  way  a  legal  existence,  a  body 
corporate,  an  artificial  being,  is  con- 
stituted." Nelson,  C.  J.,  in  Thomas 
v.  Dakin,  22  Wend.  71. 

5  Supra,  §12.  "Succession,  how- 
ever, is  a  property  of  the  individuals 
who  exercise  the  corporate  rights. 
They  succeed  each  other.  But  to 
say  that  the  corporation  itself  has 
perpetual  succession,  which  is  the 
expression  in  general  use,  and  suffi- 
ciently accurate  for  general  pur- 
poses, appears  to  be  a  solecism." 
S.  A.  Foote,  arguendo,  in  Thomas  v. 
Dakin,  22  Wend.  32. 


CHAP.  II.]      CORPORATIONS    IN    THE   COMMON   LAW.  [§  17. 

to  which  duties  on  the  part  of  its  members  correspond.  These 
duties  are  the  objects  of  the  rights  of  which  the  corporation  is 
the  subject  or  possessor.  Towards  outsiders,  however,  the 
corporation  appears  as  the  only  subject  of  rights,  outsiders 
taking  no  cognizance  of  the  legal  relations  between  the  corpo- 
ration and  its  members.  Indeed,  a  common  law  corporation,  as 
it  appears  towards  the  outside  world,  may  be  compared  to  the 
human  body,  which  remains,  as  a  whole,  continuously  the 
same,  while  the  particles  of  matter  composing  it  change  from 
day  to  day.  The  outside  world  perceives  no  change  in  the 
particles ;  it  does  not  even  see  thein  ;  and  so  can  take  no  cogni- 
zance of  their  relations  to  the  body  as  a  whole.  Accordingly, 
it  would  seem  that  in  so  far  as  a  corporation  is  to  be  regarded 
as  a  person,  or  as  a  whole,  distinct  from  the  members,  the  at- 
tribute of  perpetual  succession  denotes  the  quality  of  remain- 
ing the  same  while  the  succession  of  its  members  goes  on.  And 
the  same  what?  as  to  its  members,  the  same  object  of  rights 
belonging  to  them,  as  well  as  the  same  subject  of  rights  which 
have  for  their  objects  duties  on  the  part  of  the  members ;  as  to 
the  outside  world,  the  same  subject  or  object,  as  the  case  may 
be,  of  rights  subsisting  between  outsiders  and  the  corpora- 
tion.1 

§  17.  The  second  and  fourth  of  the  ordinary  incidents  of  cor- 
porations mentioned  by  Blackstone,  the  capacitv  to 

ii  i    •      ,  t  i  Capacity  to 

sue  and  be  sued  in  the  corporate  name,  and  to  use  a  sue  and  use 
corporate  seal,  are  legal  contrivances  adapted,  the  asea" 
one  to  facilitate  the  enforcing  of  corporate  rights  and  liabili- 
ties, the  other  to  facilitate  corporate  action.  These  two  inci- 
dents may  be  thought  out  without  conceiving  the  corporation 
to  be  a  person,  though  by  retaining  this  fiction  one  may  dis- 
pense with  looking  deeper  into  the  matter  to  discern  who  it 
really  is  that  acquires  rights  and  incurs  liabilities  through  the 
use  of  the  corporate  seal,  and  who  it  is  whose  rights  and 
liabilities  are  enforced  by  suits  in  the  name  of  the  corpora- 
tion. 


1  These  remarks  are  offered  merely 
as  an  attempt  to  analyze  the  mean- 
ing attached  by  the  common  law 
lawyers  to  the  term  "  perpetual  suc- 


cession," a  term  which,  as  used  by 
them,  is  not  susceptible  of  clear 
analysis. 

11 


§  22.]  THE  LAW  OF  PRIVATE  CORPORATIONS.      [CHAP.  II. 

§  18.  The  third  of  the  ordinary  incidents — the  right  to  pur- 
„    ,  , ,        chase  and  hold  lands  for  the  benefit  of  themselves  and 

To  hold  , 

lands.  successors — is  of  importance.    r  or  this,  as  Coke  says,1 

a  special  license  in  the  charter  is  needed  because  of 
the  statute  of  mortmain,  but  he  adds  that  this  right  is  not  of 
the  essence  of  the  corporation,  for  the  corporation  is  perfect 
without  it. 

§  19.  The  last  ordinary  and  inseparable  incident  mentioned 
by  Blackstone  is  the  power  to  make  by-laws,  "  bind- 
by-iaws.  ing  upon  themselves,  unless  contrary  to  the  law  of 
the  realm."  But  Coke  says  that  this  right  is  not 
essential  to  a  corporation,2  and  it  is  not  even  ordinarily  incident 
to  charitable  corporations,  whose  by-laws  are  supposed  to  ema- 
nate from  the  founder.3  The  right  to  make  by-laws,  moreover, 
is  inconceivable  as  a  capacity  appertaining  to  the  corporation 
as  a  unit,  as  an  artificial  person,  and  can  be  conceived  only  as 
a  capacity  of  the  members  acting  as  a  body. 

§20.  "  When  an  integral  part  of  a  corporation  is  gone  and 
^.     ,    .       the  corporation  has  no  power  of  restoring  it,  the  cor- 

Dissolution.  .  r   .  r  oj 

poration  is  so  tar  dissolved  that  the  crown  may  grant 
a  new  charter  to  a  different  set  of  men." 4  But,  says  Coke, 
"  A  corporation  may  be  aggregate  of  many  without  a  head, 
vide  18  E.  2."5  By  the  death  of  all  natural  persons  of  which 
the  corporation  consists,  it  is  dissolved  ;6  but  it  is  not  dissolved 
by  a  mere  surrender  of  the  charter.7 

§  21.  It  was  a  logical  outcome  of  the  notion  of  a  corporation 
as  a  person,  as  a  subject  of  rights  and  liabilities  distinct  from 
its  members,  that  liability  for  corporate  acts  should  be  limited 
to  corporate  funds,  and  that  upon  the  dissolution  of  a  corpo- 
ration all  its  rights  and  liabilities  should  become  extinct.8 

§  22.  One  or  two  definitions  of  a  corporation,  which  presum- 


1  Supra,  §  12. 

2  Supra,  §  12. 

8  See  Angell  and  Ames  on  Corp., 
§330,  and  authorities  there  cited. 

*Rex  v.  Passmore,  3  T.  R.  199; 
Bacon's  Abt.,  Tit.  Corp.  G-.  "If  a 
corporation  be  made  of  confreres  and 
sisters,  and  after  all  the  sisters  are 
dead,  all  grants  and  acts  made  by  the 
confreres  are  void;  for  when  the  sis- 

12 


ters  are  dead  this  is  not  any  perfect 
corporation.'1  Viner's  Abt.,  Tit. 
Corp.  J.  1. 

5  Case  of  Sutton's  Hospital,  10  Rep. 
30  b. 

6 Viner's  Abt.,  Tit.  Corp.  J.  14; 
see  2  Kyd,  chap.  5,  pp.  440  et  seq. 

7  Viner's  Abt.,  Tit.  Corp.  J   26. 

8  "The  debts  of  a  corporation, 
either  to  it  or  from  it,  are  totally  ex- 


CHAP.  II.]   CORPORATIONS  IN  THE  COMMON  LAW.      [§  22a. 

ably  proceed  more  or  less  from  a  common  law  point  of  view, 
may  be  of  interest.  "  A  corporation,  or  a  body  politic,  or  body 
incorporate,  is  a  collection  of  many  individuals  united  in  one 
body,  under  a  special  denomination,  having  perpetual  succession 
under  an  artificial  form,  and  vested  by  the  policy  of  the  law 
with  the  capacity  of  acting  in  several  respects,  as  an  individual, 
particularly  of  taking  and  granting  property,  of  contracting 
obligations,  and  of  suing  and  being  sued  ;  of  enjoying  privileges 
and  immunities  in  common,  and  of  exercising  a  variety  of  po- 
litical rights,  more  or  less  extensive,  according  to  the  design  of 
its  institution,  or  the  powers  conferred  upon  it,  either  at  the 
time  of  its  creation,  or  at  any  subsequent  period  of  its  exist- 
ence." 1 

"  A  corporation  is  an  artificial  being,  invisible,  intangible,  and 
existing  only  in  contemplation  of  law.  Being  the  mere  creature 
of  law,  it  possesses  only  those  properties  which  the  charter  of 
its  creation  confers  upon  it,  either  expressly  or  as  incidental  to 
its  very  existence.  These  are  such  as  are  supposed  best  calcu- 
lated to  effect  the  object  for  which  it  was  created.  Among  the 
most  important  are  immortality,  and  if  the  expression  may  be 
allowed,  individuality;  properties  by  which  a  perpetual  suc- 
cession of  many  persons  are  considered  as  the  same,  and  may 
act  as  a  single  individual.  .  .  .  It  is  chiefly  for  the  purpose 
of  clothing  bodies  of  men  in  succession  with  these  qualities  and 
capacities  that  corporations  were  invented  and  are  in  use.  By 
these  means  a  perpetual  succession  of  individuals  are  capable  of 
acting  for  the  promotion  of  the  particular  object  like  one  im- 
mortal being." 2 

§  22a.  At  the  close  of  this  chapter  a  brief  classification  of 
corporations  will  be  opportune.  It  will  serve,  in  the  first  place, 
to  connect  the  common  law  view  of  a  corporation  with  the  an- 
alysis of  the  corporate  idea,  contained  in  chapter  III,  and  with 


tinguished  by  its  dissolution."  1 
Bl.  Com.  484.  Compare  the  rule  of 
the  Roman  law,  §6,  note  3.  This  old 
common  law  doctrine  does  not  ap- 
ply to  stock  corporations;  see  §  437 
post. 

n  Kyd  on  Corp.,    13  (A.  D.  1793). 

2 Marshall,   C.    J.,    in  Dartmouth 


College  v.  Woodward,  4  Wheat.  636. 
Compare  Andrews  v.  Union  Mut. 
Fire  Ins.  Co.,  37  Me.  256;  Ohio  Ins. 
Co.  v.  Munnemacher,  15  Ind.  294; 
Louisville  R.  R.  Co.  v.  Letson,  2  How. 
497,  552;  Bank  of  U.  S.  v.  Deveaux, 
5  Cr.  65,  per  Binney  arguendo. 

13 


§  22c]     THE  LAW  OF  PRIVATE  CORPORATIONS.  [CHAP.  II. 

the  discussion  of  the  resemblances  between  corporations  and 
other  legal  institutions,  contained  in  chapter  IV.  In  the  sec- 
ond place,  this  classification  will  show  which  classes  of  corpo- 
rations form  the  subject  of  this  treatise. 

Corporations  have  served  many  purposes,  and  have  been  re- 
garded and  classified  from  different  points  of  view.1  Thus  with 
respect  to  the  number  of  members,  they  have  been  divided  into 
corporations  aggregate  and  corporations  sole.  A  corporation 
aggregate  has  many  members.  It  may  be  an  ecclesiastical  cor- 
poration, like  the  dean  and  chapter  of  a  cathedral ;  it  may  be  a 
municipal  corporation,  like  a  city ;  it  may  be  a  private  corpo- 
ration, like  a  manufacturing  company.  A  corporation  sole  con- 
sists of  a  single  person  and  his  successors,  occupying  some  par- 
ticular station  or  position  which  the  law  recognizes  and  desires 
to  perpetuate.  An  example  is  the  King  of  England,  or  an  Eng- 
lish bishop.  In  this  country,  a  public  official,  like  the  gov- 
ernor of  a  state  or  the  President  of  the  United  States,  might 
possibly  be  termed  a  corporation  sole.  But  the  term  would  be 
archaic  and  of  questionable  propriety.  In  a  few  cases  a  court 
has  seen  fit  to  regard  some  functionary  as  a  corporation  sole.2 
But  other  terms  (e.  g.  "  trustee"  )  would  be  more  in  accord  with 
common  speech  to-day ;  and  for  practical  purposes  corporations 
sole  may  be  ignored. 

§  22&.  Again,  from  the  point  of  view  of  the  different  purposes 
subserved,  corporations  have  been  divided  into  ecclesiastical  and 
lay.  To  the  former  class  would  belong  a  dean  and  chapter.3 
While  a  lay  corporation  might  be  a  public  or  municipal  corpora- 
tion like  a  town,  an  eleemosynary  or  charitable  corporation, 
like  a  free  hospital  or  other  institution  formed  to  administer  a 
charitable  trust ;  or  finally  it  might  be  a  railroad  or  insurance 
company,  a  savings  bank,  a  club,  or  in  fact  any  kind  of  a  cor- 
poration beyond  those  previously  mentioned. 

§  22c.  Likewise,  not  only  with  regard  to  the  different  pur- 


1  For  a  legislative  classification, 
see  section  2  of  the  New  York  Gen- 
eral Corporation  Law  (chap.  687, 
Laws  of  1892). 

2  Wescott  v.  Fargo,  61  N.  Y.  542; 
Brunswick  v.  Dunning,  7  Mass.  445. 

8  It  may  be  questionable  whether 

14 


strictly  speaking  there  exist  ecclesi- 
astical corporations  in  the  United 
States.  An  incorporated  religious 
society  is  not  an  ecclesiastical  corpo- 
ration in  New  York.  Robertson  v. 
Bullions,  11  N.  Y.  243. 


CHAP.  II.]   CORPORATIONS  IN  THE  COMMON  LAW.     [§  22e. 

poses  subserved,  but  also  with  regard  to  differences  in  mode  of 
creation  and  in  legal  status,  corporations  are  divided  into  pub- 
lic (or  municipal)  and  private.  This  division  is  of  great  im- 
portance in  American  corporation  law.  A  public  corporation 
is  part  of  the  government ;  its  liabilities  in  tort  and  contract 
are  qualified  and  limited  by  a  number  of  legal  principles ;  there 
is  no  contractual  relationship  between  it  and  the  state,  nor 
among  its  members ;  and  ordinarily  the  legislative  power  may 
abolish  it  at  will.  On  the  other  hand,  a  private  corporation 
although  engaged  in  enterprises  in  which  the  public  or  the  state 
is  interested,  is  not  a  part  of  government;  a  contractual  rela- 
tionship exists  among  its  members  and  may  exist  between  it  and 
the  state ;  the  state  may  have  no  more  and  may  have  even  less 
control  over  it  than  over  other  private  enterprises ;  and  its  lia- 
bilities in  tort  and  contract  approximate  to  those  of  natural  per- 
sons acting  without  corporate  organization. 

§  22d.  Accordingly,  adhering  to  the  division  into  public 
and  private  corporations  as  the  one  which  is  of  practical  im- 
portance, we  may  speak  of  the  different  kinds  of  private  corpo- 
rations. These  would  include  charitable  corporations,  above 
mentioned  ;  also  colleges  and  other  incorporated  institutions  of 
learning,  save  those  which  are  administered  by  the  state  or 
town  or  school  district,  and  supported  by  taxation.  In  our 
country  where  there  is  no  "  established  church,"  private  corpo- 
rations would  also  include  ecclesiastical,  or  to  use  the  term  more 
usual  at  present,  religious  corporations;  they  would  finally 
embrace  every  kind  of  incorporated  social  club  and  benefit 
society. 

§  22e.  The  above  are  examples  of  private  corporations  not 
created  for  the  pecuniary  profit  of  their  members.  On  the 
other  hand  a  vast  number  of  private  corporations  are  formed 
for  this. purpose,  whatever  advantage  to  the  public  may  be  ex- 
pected from  them.  Such  corporations  might  be  called  broadly 
business  corporations,  though  in  practice,  that  term  is  not  usu- 
ally applied  to  railroad  companies,  nor  to  banks  and  insurance 
companies.  These  three  classes  of  corporations  are  important. 
Railroad  companies  offer  the  chief  examples  of  the  large  pri- 
vate corporation  which  has  duties  towards  the  public,  and  for 
that  purpose  receives  special  privileges,  like  the  right  of  emi- 
nent domain.     For  these  reasons  they  have  even  been  loosely 

15 


§  22/.]  THE   LAW    OF   PRIVATE   CORPORATIONS.    [CHAP.  II. 

called  quasi-public  corporations.1  Banks  and  insurance  com- 
panies form  a  class  known  as  moneyed  corporations.  Beyond 
these,  great  numbers  of  corporations  are  formed  for  manufac- 
turing and  trading  purposes,  and  to  them  the  term  "  business 
corporation"  is  most  commonly  applied. 

§  22/.  With  a  few  exceptions  all  private  corporations  formed 
for  profit  have  a  definite  capital  called  the  capital  stock,  divided 
into  shares.2  Ownership  of  shares  constitutes  membership  in 
the  corporation,  and  the  owners  are  called  stockholders  or  share- 
holders. And  the  subject  of  this  treatise  is  the  law  applicable 
to  these  private  corporations  which  have  a  capital  stock.  They 
include,  for  example,  railroad  and  telegraph  companies,  banks 
and  insurance  companies,  and  in  general  all  manufacturing, 
trading,  or  "business"  corporations.  Except  for  purposes  of 
illustration,  it  does  not  lie  within  the  scope  of  this  treatise  to 
discuss  the  law  of  municipal  corporations  or  of  charitable  or 
other  private  corporations  not  formed  for  business  purposes 
and  having  no  capital  stock. 


1  But  they  are  not  public  corpora- 
tions, and  the  fact  that  the  state 
owns  shares  or  even  all  the  shares 
in  such  a  corporation  does  not 
change  its  status.  Bank  of  United 
States  v.   Planters'    Bank,  9  Wheat. 

16 


904;  Briscoe  v.  Bank  of  Kentucky, 
11  Pet.  257,  324. 

2  A  mutunl  insurance  company  af- 
fords an  exception.  Its  members 
consist  of  the  insured,  who  contrib- 
ute to  a  common  indemnity  fund. 
The  company  has  no  other  capital. 


CHAP.  III.]  ANALYSIS   OF   A   CORPORATION. 


[§  23- 


CHAPTER  III. 


ANALYSIS  OF  THE  IDEA  OF  A  CORPORATION. 


The  two  meanings  of  the  term  "  cor- 
poration,'1 §  23. 

Meaning  of  the  terms  "  legal  institu- 
tion "  and  "legal  relation,1'  §§24- 
27. 

The  constitution  of  a  corporation. 
Incorporation,  §§  28-30. 

Fundamental  agreement  between  the 
corporators,  §  31. 

The  corporate  funds,  §§  32,  33. 

Legal  relations  in  respect  of  the  cor- 
porate funds,  §§  34,  35. 

Result  of  the  analysis,  §  36. 


Persons  between  whom  exist  the 
legal  relations  respecting  the  cor- 
porate enterprise,  §  37. 

Corporate  management,  §  38. 

Order  of  treatment,  §  39. 

General  nature  of  the  legal  relations 
existing  in  respect  of  the  corporate 
enterprise,  §  40. 

Trust  relations,  §§  41-47. 

The  corporation  also  a  body  of  men, 
§§  48-50. 

Conclusion.  The  "legal  person" 
and  the  corporate  name,  §  51. 


§  23.  In  "  a  corporation,"  according  to  the  usual  understand- 
ing of  the  term  by  business  men  as  well  as  lawyers,    „,, 

°  *  _  J         '     The  two 

exist  elements  which  are  the  manifestations  of  law,    meanings 

,      ,        .      .     ,  i-i  •  ,  .of  the  term 

and  physical  elements  which  are  in  no  sense  the  mam-  "corpora- 
festations  of  law ;  for  a  corporation  is  regarded  as  a  tlon' 
legal  institution,  and  at  the  same  time  as  a  collection  of  per- 
sons. Indeed,  the  indiscriminate  use  of  the  term  "  corporation  " 
to  denote  what  exists  through  the  operation  of  rules  of  law,  as 
well  as  to  denote  physical  existences,  has  caused  much  confu- 
sion. The  use  of  the  term,  however,  to  convey  two  meanings, 
or  one  twofold  meaning,  seems  unavoidable  in  the  present  con- 
dition of  legal  terminology  ;  but  much  of  the  confusion  result- 
ing from  this  equivocal  use  may  be  avoided  by  forming  a  clear 
idea  of  each  meaning  of  the  term,  or  an  adequate  notion  of 
both  sides  of  its  twofold  meaning.1 


1  A  few  definitions  will  illustrate 
the  two  meanings  of  the  term  "  cor- 
poration," and  the  confusion  some- 
times arising.  Kent  says  (2  Com., 
267),  "«  corporation  is  a  franchise 
possessed  by  one  or  more  individuals, 

2 


who  subsist  as  a  body  politic,  under 
a  special  denomination,  and  are 
vested  by  the  policy  of  the  law  with 
the  capacity  of  perpetual  succession, 
and  of  acting  in  several  respects, 
however   numerous  the   association 

17 


24.] 


THE  LAW  OF  PRIVATE  CORPORATIONS.    [CHAP.  III. 


§24.  Accordingly,  in  the  first  place  a  corporation  is  to  be 
regarded  as  a  legal  institution.  In  this  sense  it  means 
the  sum  of  legal  relations  existing  in  respect  to  the 
corporate  enterprise.  Let  us  analyze  the  term  "  legal 
institution."  It  denotes  a  body  of  legal  rules  in  their 
manifestations  in  legal  relations 1  between  persons  as 


Meaning  of 
the  terms 
"  legal  in- 
stitution " 
and  "  legal 
relation." 


may  be,  as  a  single  individual." 
Blackstone  (2  Com.,  37)  also  calls  a 
corporation  a  franchise. 

On  the  other  hand,  Kyd  (1  Kyd  on 
Corps.,  13)  says  :  "  A  corporation, 
or  a  body  politic,  or  a  body  incor- 
porate, is  a  collection  of  individuals, 
united  in  one  body,"  etc.  See,  also, 
Kansas  Pacific  R.  R.  Co.  v.  Atchison, 
T.  &  S.  F.  R.  R.  Co.,  112  U.  S.  415. 
Or,  as  Mr.  Jay  Gould  has  said,  a  cor- 
poration is  "a  body  of  men  who 
unite,  associate,  concentrate  their 
ability,  capital,  and  intelligence  in 
the  undertaking  of  a  work  great  or 
small,  which  any  one  of  them  indi- 
vidually would  be  unwilling  to  under- 
take. If  there  are  losses,  they  agree 
to  bear  each  his  proportion.  If 
there  are  profits,  they  agree  to 
divide  them.'1 

The  definitions  of  Kent  and  Black- 
stone  convey  the  one  meaning  of  the 
term  "corporation,"  and  Kyd's  and 
Mr.  Gould's  the  other.  The  two  fol- 
lowing definitions  show  how  the  two 
meanings  may  be  confused. 

"A  corporation  is  a  body  created 
by  law,  composed  of  individuals, 
united  under  a  common  name,  the 
members  of  which  succeed  each 
other,  so  that  the  body  continues  the 
same,  notwithstanding  the  change  of 
the  individuals  who  compose  it,  and 
is  for  certain  purposes  considered  as 
a  natural  person."  Angell  and  Ames 
on  Corps.,  §  1.  It  is  plain  that  in 
60   far  as  a  corporation   is  a  body 


created  by  law,  it  is  not  composed 
of  individuals  who  are  not  created 
by  law. 

"A  corporation  is  a  legal  institu- 
tion devised  to  confer  upon  the  indivi- 
duals of  which  it  is  composed  powers, 
privileges,  and  immunities  which 
they  would  not  otherwise  possess, 
the  most  important  of  which  are 
continuous  legal  identity  and  perpet- 
ual or  indefinite  succession  under 
the  corporate  name,  notwitstanding 
successive  changes,  by  death  or 
otherwise,  in  the  corporators  or 
members  of  the  corporation.  It  con- 
veys, perhaps,  as  intelligible  an  idea 
as  can  be  given  by  a  brief  definition, 
to  say  that  a  corporation  is  a  legal 
person,  with  a  special  name,  and 
composed  of  such  members,  and  en- 
dowed with  such  powers,  and  such 
only,  as  the  law  prescribes."  1  Dil- 
lon, Munic.  Corp.,  25. 

In  having  more  than  one  meaning 
the  term  "partnership"  resembles 
the  term  "  corporation."  For  in- 
stance, Dixon  (Law  of  Partnership, 
1)  says  :  "  A  partnership  is  a  volun- 
tary unincorporated  association  of 
two  or  more  persons,"  etc.;  while 
Kent  (3  Com.,  23)  says:  "Partner- 
ship is  a  contract  of  two  or  more 
persons,"  etc.  Again  the  Indian 
Contract  Act  (§  239)  says:  "  Part- 
nership is  the  relation  which  subsists 
between  persons  who  have  agreed," 
etc.  Thus  partnership  is  an  asso- 
ciation of  individuals,  is  a  contract, 


1  In  the  term  "legal  relation  "  the 
word    "legal"    is   used   in   a   broad 

18 


sense,  and  not  as  opposed  to  "  equit- 
able." 


CHAP,  in.]  ANALYSIS    OF   A   CORPORATION. 


[§24. 


to  whom  certain  mutually  related  conditions  of  fact  may  be 
affirmed.1  For  instance,  the  rules  of  law  which  manifest  them- 
selves in  legal  relations  when  a  person  has  agreed  to  answer  for 
the  debt,  default,  or  miscarriage  of  another,  constitute,  in  their 
manifestation,  the  legal  institution  of  suretyship.  The  facts  that 
one  person  has  made  a  promise  to  another,  which  some  third  per- 
son has  promised  the  promisee  that  the  original  promisor  shall 


(Inst,  of  Nat.  Law,  bk.  1,  ch.  13,  §9) 
or  a  relation  ;  and  finally  Rutherford 
gives  the  following  lucid  definition: 

"  When  two  or  more  persons  join 
money,  or  goods,  or  labor,  or  all  of 
these  together,  and  agree  to  give  each 
other  a  common  claim  upon  such 
joint  stock,  this  [?]  is  partnership.'1 

On  the  other  hand  the  term  "  sure- 
tyship" has  but  a  single  meaning, 
t.  e.,  the  legal  relations  arising  upon 
an  agreement  to  answer  for  the  debt, 
default,  or  miscarriage  of  another. 
It  never  means  the  individuals  be- 
tween whom  these  relations  subsist. 

1  The  writer  has  looked  in  vain  for 
a  definition  of  this  term.  His  de- 
finition is  but  an  attempt  to  deter- 
mine a  meaning  in  which  he  may  use 
the  term  consistently.  The  mental 
process  by  which  this  definition  was 
arrived  at  is  somewhat  as  follows:  A 
right  is  the  power  of  an  individual 
with  the  aid  of  the  state  to  compel 
another  to  do  or  refrain  from  doing 
something,  and  a  liability  means  the 
liability  of  being  obliged,  by  the  state 
acting  at  the  instance  of  the  indi- 
vidual possessing  the  right,  to  do  or 
refrain;  though  the  term  liability 
usually  denotes  a  positive  duty  to  do, 
rather  than  a  negative  duty  to  re- 
frain. Every  right  implies  a  cor- 
responding liability,  and,  together 
with  this  liability,  constitutes  a  legal 
relation  between  two  or  more  per- 
sons.    See,  also,  §  442. 

Rights  and  liabilities  are  called  the 
creatures  of  law,  but,  in  truth,  they 
are  rather  manifestations  of  law  than 


its  creatures.  Consider  any  ordinary 
rule  of  law:  "The  lessee  shall  pay 
the  lessor  the  rent  agreed  on  in  the 
lease.'1  This  general  proposition,  as 
stated  here,  is  not  accurate,  for  there 
is  no  absolute  command  from  the 
state  to  lessees  to  pay  rent  (as  there 
is  a  command  from  the  state  to  all 
men  to  refrain  from  murder).  The 
correct  legal  proposition  is  this:  "  At 
the  instance  of  the  lessor,  the  state 
will  compel  the  lessee  to  pay  the 
rent,"  which  means  that  lessors  have 
the  right  to  compel  lessees  to  pay 
the  rent.  This,  then,  is  the  general 
rule.  Now  where  certain  conditions 
of  fact  may  be  affirmed  of  A.,  that 
is,  when  A.  becomes  the  lessor  of 
certain  premises,  and  when  certain 
related  conditions  of  fact  may  be  af- 
firmed of  B.,  that  is,  when  B.  be- 
comes the  lessee  of  those  premises, 
a  legal  relation  arises,  to  wit,  a  man- 
ifestation of  law,  i.  e.,  a  concrete  in- 
stance of  law  in  operation,  which 
may  be  expressed  in  the  following 
proposition:  "A.  has  the  right  to 
compel  B.  to  pay  the  rent  as  agreed 
on  in  the  lease."  But  there  are  other 
legal  relations  between  A.  and  B.  in 
respect  of  the  demised  premises, 
which  further  legal  relations  are  the 
manifestations  of  other  rules  of  law, 
and  the  sum  total  of  all  these  legal 
relations,  existing  in  respect  to  some 
definite  subject-matter,  is  what  the 
writer  intends  by  the  term  legal  in- 
stitution as  the  manifestation  of  a 
group  of  legal  rules  in  operation. 
See  §  444. 

IS 


§  27.]  THE   LAW   OF    PRIVATE   CORPORATIONS.  [CHAP.  in. 

fulfill,  constitute  mutually  related  conditions  of  fact  which  may 
be  affirmed  as  to  the  promisor,  promisee,  and  surety,  who  are 
the  persons  between  whom  the  legal  relations  subsist. 

§  25.  It  is  through  fulfilling  conditions  of  fact  by  doing  cer- 
tain acts,  that  persons  bring  themselves  within  the  operation 
of  rules  of  law  which  thereupon  manifest  themselves  in  rights 
and  liabilities.  Every  right  implies  a  corresponding  liability, 
and  every  liability  a  corresponding  right ;  which  is  to  say,  a 
right  with  its  corresponding  liability  constitutes  a  legal  rela- 
tion. Accordingly,  when  persons  by  their  acts  have  brought 
themselves  within  the  operation  of  a  group  of  legal  rules,  and 
these  rules  have  in  their  consequent  operation  manifested  them- 
selves in  legal  relations  between  such  persons,  the  sum  of  these 
legal  relations,  i.  e.,  the  manifestation  of  these  rules  in  opera- 
tion upon  individuals,  constitutes  a  legal  institution. 

§  26.  It  is,  therefore,  little  more  than  an  identical  proposition 
to  say  that  rules  of  law 1  manifest  themselves  in  legal  relations 
only  between  persons  as  to  whom  mutually  related  conditions  of 
fact  may  be  affirmed.  For  instance,  an  enabling  statute  in  con- 
nection with  the  general  rules  of  corporation  law,  roughly  speak- 
ing, may  be  said  to  constitute  a  group  of  legal  rules  which  may 
manifest  themselves  in  a  legal  institution  consisting  of  legal 
relations  (a)  among  the  persons  who  file  the  articles  of  associa- 
tion and  subscribe  for  shares,  and  (b)  between  such  persons  and 
others  who  may  afterwards  deal  with  them  as  a  body  corporate 
in  respect  of  the  corporate  enterprise.  Here  the  agreeing  to  the 
articles  and  the  filing  of  them  are  the  conditions  of  fact  which 
must  be  predicable  of  the  corporators  before  these  legal  relations 
can  exist  among  them  ;  and  that  other  persons  have  had  deal- 
ings with  the  corporators  in  respect  to  the  corporate  enterprise 
are  the  further  conditions  of  fact  which  must  be  predicable  of 
the  corporators  and  such  persons  before  legal  relations  between 
these  two  classes  can  exist. 

§  27.  A  corporation,  then,  is  the  manifestation  of  a  body  of 
rules  of  law  in  legal  relations  between  persons  who  have  fulfilled 
the  prerequisite  conditions  of  fact.  But  what  rules  of  law  ? 
In  general,  those  applicable  to  corporate  enterprises,  constituting 
what  is  commonly  called  "  corporation  law,"  and,  in  especial, 

1  The  writer  leaves  out  of  consideration  rules  of  criminal  law. 

20 


CHAP.  III.]  ANALYSIS   OF    A   CORPORATION.  [§  29. 

those  contained  in  the  enabling  statute,  or  in  the  charter  of  the 
corporation,  if  there  is  one.  For  it  will  be  borne  in  mind,  that 
by  filing  articles  of  association  in  pursuance  of  statutory  pro- 
visions, or  by  accepting  a  charter,  persons  bring  themselves 
within  the  operation  not  only  of  the  rules  of  law  in  the  enabling 
statute  or  charter,  but  also  of  rules  applicable  generally  to  cor- 
porate enterprises,  including  many  of  the  rules  of  the  law  of 
contracts  and  of  agency.1 

§  28.     These  more  general  rules  of  law,  together  with  those 
contained  in  the  enabling  statute,  or  in  the  charter, 
if  there  is  one,  are  embraced  in  what  may  be  called   tution  of  a 
the  constitution a  of  the  corporation  ;  and  the  action   tiorn°ra"in- 
of  these  rules  (i.  <?.,  the  manifesting  of  themselves  in   corpora- 

v         '  °  ,  tion. 

legal  relations),  as  caused  by  the  corporators  fulfilling 
the  prerequisite  conditions  of  fact  (riling  articles  of  association 
or  accepting  a  charter),  may  be  called  incorporation,  the  result 
of  which  is  a  legal  institution,  to  wit,  a  corporation. 

§  29.  But  the  legal  relations  which  arise  immediately  conse- 
quent upon  incorporation  are  not  its  entire  consequences.  In- 
corporation has  the  further  indirect  result  that  future  acts  in 
respect  to  the  corporate  enterprise  will  give  rise  to  legal  rela- 
tions different  from  those  which  such  acts  would  have  occa- 
sioned had  there  been  no  incorporation.  Had  there  been  no  in- 
corporation, the  corporators  might  have  proceeded  to  carry  out 
the  same  business  enterprise  which  they  intend  to  prosecute 
after  incorporation.  They  might  have  subscribed  an  amount 
of  capital  equal  to  the  capital  stock  mentioned  in  the  articles 
of  association,  and  they  might  have  done  business  on  this  capi- 
tal, although  not  incorporated.  But,  doing  business  as  an  un- 
incorporated firm,  they  would  have  incurred  liabilities  which, 
through  incorporation,  they  avoid.  The  legal  relations  arising 
in  respect  to  their  enterprise,  for  instance  through  contracts 


i  See  Relfe  v.  Rundle,  103  U.  S. 
222. 

2  See  Relfe  v.  Rundle,  103  U.  S. 
222.  It  will  be  noticed  that  the  term 
"constitution  of  the  corporation" 
conveys  a  notion  similar  to  that  con- 
veyed by  the  term  "  corporation," 
meaning  a  legal  institution.  As  was 
said,  some  pages   back,   "the  term 


legal  institution  denotes  a  body  of 
legal  rules  in  their  manifestation," 
etc.  By  the  term  constitution  is  in- 
tended the  same  body  of  rules,  but 
considered  as  passive  without  regard 
to  their  manifestation  in  legal  rela- 
tions; without  regard,  that  is,  to 
whether  individuals  are  within  their 
operation  or  not. 

21 


§  31.]  THE   LAW    OF    PRIVATE   CORPORATIONS.  [CHAP.  III. 

entered  into  in  its  prosecution,  would  have  been  the  manifesta- 
tion, not  of  corporation,  but  of  partnership  law. 

§  30.  Incorporation,  however,  far  from  changing  the  legal 
effect  of  any  and  all  acts  which  may  be  done  by  the  persons  who 
are  corporators,  changes  the  legal  effect1  only  of  acts  done  in 
respect  to  the  corporate  enterprise.  The  constitution  of  a  cor- 
poration is  operative  only  in  relation  to  the  purposes  of  incor- 
poration and  the  means  of  their  attainment.  It  is  only  as  to 
these  purposes  that  the  corporators,  through  incorporation,  are 
enabled  to  act  as  an  incorporated  body  ;  and  it  is  only  acts  in 
relation  to  the  corporate  enterprise  that  occasion  the  rules  of 
law  embraced  in  the  constitution"  of  the  corporation  to  operate 
upon  the  actors.  Phrasing  the  whole  matter  somewhat  differ- 
ently, it  may  be  said  that  the  corporators  by  incorporation  ac- 
quire the  legal  competency  to  employ  certain  funds  or  other 
property  for  the  attainment  of  a  certain  object  in  a  manner  in 
which  it  would  not  have  been  legally  competent  for  an  unin- 
corporated company  to  act. 

§  31.  By  far  the  most  important  of  the  acts  which  on  the 
part  of  the  corporators  brin^  about  incorporation,  is 
mental  the  agreement,  contained  in  the  charter  or  articles  or 
between11  association,  whereby  the  parties  thereto  agree  that  the 
ratorsrp°"  iega^  relations  constituting  the  corporation  shall  arise 
between  them.  This  agreement  is  fulfilled  through 
incorporation,  which  causes  certain  of  the  contemplated  legal 
relations  to  arise,  and  provides  for  the  coming  into  existence  of 
further  legal  relations  upon  the  doing  of  further  acts  in  respect 
to  the  corporate  enterprise.  Upon  incorporation  this  agree- 
ment receives  the  sanction  of  the  rules  of  law  in  the  constitu- 
tion of  the  corporation,  its  terms  becoming  a  part  of  the  legal 
rules  which  manifest  themselves  in  legal  relations  in  respect  to 
the  corporate  enterprise.  Whether,  and  in  what  sense,  the  state 
may  be  regarded  as  a  party  to  this  agreement  will  be  discussed 
in  another  chapter.2  Here,  it  suffices  to  say,  that  the  agree- 
ment thus  embodied  in  the  constitution  of  the  corporation  can- 
not be  changed  by  the  state  unless  the  state  reserves  the  power 
to  change  it ;  and  this  amounts  to  saying  that  the  constitution 

1  Legal  effect,  i.  e.,  the  legal  rela- 1     2  Infra,  chap,  viii.,  §§438  et  seq. 
tions  which  an  act  occasions.  ' 

22 


CHAP.  III.]  ANALYSIS    OF    A   CORPORATION.  [§  33. 

of  the  corporation  cannot  be  changed  in  any  material  respect  by 
the  state,  unless  the  power  to  change  it  is  reserved.1  If  this 
power  is  reserved,  the  agreement  between  the  corporators,  em- 
bodied in  the  constitution,  must  be  regarded  as  made  subject  to 
the  power  of  the  state  to  alter  the  constitution  and  the  agree- 
ment which  it  contains. 

§  32.  The  legal  relations  resulting  from  incorporation  subsist 
in  respect  to  the  object  of  incorporation  specified  in  the  charter 
or  articles  of  association  and  the  means  of  attaining  this  object, 
i.  e.,  the  corporate  funds  and  property.     Roughly 
speaking,  the  general  result  of  these  relations  is  that   porate 

funds 

the  corporate  funds  become  a  so-called  trust  fund  set 

apart  for  the  attainment  of  the  object  of  incorporation,  as  will 

be  explained. 

§  33.  What  is  the  legal  situation  of  these  funds  ?  Can  any 
one  be  said  to  own  them  ?  Austin  says : 2  "  The  proprietor  or 
owner  is  empowered  to  turn  or  apply  the  subject  of  his  property 
or  ownership  to  uses  or  purposes  which  are  not  absolutely  ua- 
limited,  but  which  are  incapable  of  exact  circumscription  with 
regard  to  class  or  number."  And  again,  the  owner  "  may  not 
use  his  own  so  that  he  injure  another,  or  so  that  he  violate  a 
duty,  relative  or  absolute,  to  which  he  himself  is  subject.  But 
he  may  turn  or  apply  his  own  to  every  use  or  purpose  which  is 
not  inconsistent  with  that  general  or  vague  restriction." 

From  the  idea  of  ownership  conveyed  by  these  passages  from 
Austin,  it  is  plain  that  corporate  funds  cannot  with  propriety 
be  said  to  be  owned  by  any  one ; 3  that  is  to  say,  the  legal  rela- 
tions subsisting  in  respect  of  corporate  funds  are  unlike  those 
subsisting  in  respect  of  property  which  is  mine.  Using  the 
term  "corporation"  in  the  sense  of  a  legal  institution,  to  say 
that  the  corporation  owns  the  corporate  funds  is  meaningless, 
for  the  legal  relations  in  respect  to  the  corporate  funds  are 
nothing  but  the  major  part  of  the  legal  relations  composing 
the  corporation ;  and  consequently  to  make  this  assertion  is  to 
say  that  a  mass  of  legal  relations  owns  the  major  part  of  itself, 


1  Except  in  the  exercise  of  certain 
powers  which  the  state  is  held  al- 
ways to  reserve,  see  §§  465,  466. 

2  Lect.  xlvii.  on  law  as  to  its  pur- 
poses and  subjects. 


3  "Strictly  speaking,  ownership  is 
the  right  of  a  natural  person  or  per- 
sons only."  State  v.  Bank  of  Louis- 
iana, 9  La.  745,  759;  see  also  Angell 
and  Ames  on  Corp.,  §  160. 

23 


§  34.]  THE   LAW    OF    PRIVATE   CORPORATIONS.  [CHAP.  III. 

which  is  nonsense.  On  the  other  hand,  using  the  term  corpo- 
ration in  the  second  sense  before  referred  to,1  as  meaning  a  body 
of  men,  to  assert  that  the  corporation  owns  the  corporate  funds 
is  to  make  not  a  meaningless,  but  an  incorrect  assertion.  The 
term  ownership  connotes  an  indefinite  multitude  of  rights  in 
respect  of  the  thing  owned,  including  the  right  to  destroy  it. 
This  multitude  of  rights  is  not  possessed  by  the  corporators 
either  singly  or  as  a  body  corporate;2  and,  accordingly,  with 
no  propriety  can  they  be  said  to  own  the  corporate  funds. 

§  34.  The  discussion  of  the  legal  relations  respecting  the  cor- 
L  j  rela_  porate  funds,  i.  e.,  the  funds  standing  in  the  name  of 
tions  in  re-   the  corporation,  will  constitute  a  large  part  of  this 

spectofthe  '  .  °       l 

corporate       volume.     Ihe  general  outline  is  this :  The  state  has 

f         1 

the  power  or  right  to  enforce  the  application  of  these 
funds  to  the  objects  of  incorporation,  at  least  so  far  as  the  pub- 
lic is  interested  in  their  attainment ;  the  shareholders  have  the 
right  that  these  funds  shall  be  applied  to  these  objects ;  and 
the  creditors  of  the  corporation  have  the  right  to  prevent  the 
diversion  of  these  funds  from  the  objects  of  incorporation  to 
the  injury  of  creditors.  The  result  of  the  respective  rights  of 
these  different  classes  of  persons  is  that  corporate  property  be- 
comes a  fund  set  apart  for  the  attainment  of  certain  purposes 
from  which  it  cannot  be  diverted  without  the  consent  of  all 
whose  legally  protected  interests  would  be  injured  by  such  di- 
version. It  becomes  a  "  Zweckvermogen," — fund  devoted  to 
an  object — as  a  German  writer,  Brinz,  has  aptly  termed  it. 


3 


i  See  §  23. 

2  Compare  §§  48-50. 

3  It  is  not  intended  to  assert  that  a 
corporation,  in  whatever  sense  the 
term  be  used,  is  technically,  or  in 
all  respects  substantially,  a  "trus- 
tee;" nor  are  corporate  funds  "  trust 
funds"  in  the  sense  that  there  is  a 
"direct  and  express  trust  attached 
to  the  property."  See  Graham  v. 
Railroad  Co.,  102  U.  S.  148,  160.  In- 
deed, it  is  said  by  the  highest  au- 
thority that  "a  corporation"  holds 
its  property  as  absolutely  as  an  in- 
dividual, lb.,  cited  in  Hollins  v. 
Brierfield  Coal  Co.,   150  U.  S.  371, 

24 


382  et  seq.  The  phrase  "  trust  f  und  " 
undoubtedly  is  vague,  and  perhaps 
the  courts  might  have  chosen  a  bet- 
ter one.  The  object  of  the  above 
analysis  is  to  indicate  how  the  term 
'•  ownership  "  does  not  substantially 
and  fully  describe  the  legal  situation 
of  funds  "  belonging  to  a  corpora- 
tion." In  one  case,  with  reference 
to  certain  circumstances,  a  court 
may  speak  of  corporate  property  as 
a  "trust  fund;"  in  another,  it  may 
say  that  a  corporation  owns  its  prop- 
erty as  absolutely  as  an  individual. 
One  should  be  careful  in  applying 
such  general  phrases  under  circum- 


CHAP.  III.]  ANALYSIS    OF   A    CORPORATION.  [§  37. 

§  35.  Persons,  not  shareholders,  bring  themselves  within  the 
operation  of  the  rules  of  law  in  the  constitution  of  the  corpo- 
ation  by  contracting  with  the  corporate  representatives.  The 
rights  of  such  persons  are  the  manifestations  of  these  rules, 
which,  in  their  operation,  exclude  the  operation  of  other  rules ; 
as,  for  instance,  rules  whose  operation  would  have  been  occa- 
sioned by  contracting  with  the  agent  of  an  unincorporated  firm. 

§  36.  The  result  of  the  analysis  reached  at  this  point  is  briefly 
this :  a  corporation,  considered  as  a  legal  institution, 
is  the  sum  of  the  legal  relations  resulting  from  the   ^tfauaiy- 
operation  of  rules  of  law  in  its  constitution  upon  the   sis  at  this 

1  L  ,         point. 

various  persons,  who,  by  fulfilling  the  prerequisite 
conditions,  bring  themselves  within  the  operation  of  these  rules. 
The  general  effect  of  these  legal  relations  is  to  convert  the  corpo- 
rate funds,  in  respect  to  which,  through  the  operation  of  the  con- 
stitution of  the  corporation,  ownership  properly  speaking  ceases, 
into  a  fund  for  the  attainment  of  the  objects  of  incorporation. 

§  37.  It  is  needful  here  to  state  more  specifically  between 
whom  these  legal  relations  subsist.      There  is  first 
the  state,  which  is  to  be  viewed  in  two  characters :   between 
(a)  as  the  political  superior  from  whom  emanate  the  Sthe6*" 
rules  of  law  which  manifest  themselves  in  lesral  rela-   !e£.al  re~ 

°  lations  ra- 

tions m  respect  to  the  corporate  enterprise  ;  and  (b)  as   specting 

a  party  between  whom  and  others,  through  incorpo-  porate 
ration,  arise  legal  relations  of  a  peculiar  nature  pro-  enterPnse- 
tected  by  the  constitution  of  the  United  States.1  Secondly, 
there  are  the  shareholders  ;  thirdly,  it  will  be  convenient  to  re- 
gard the  persons  who  ordinarily  manage  the  corporate  affairs — 
the  directors  and  other  officers — as  a  distinct  class.  Creditors 
constitute  the  remaining  class  of  persons  interested  in  the  cor- 
porate enterprise.  Their  only  interest  is  to  be  paid  what  is  due 
them,  and  their  only  right  is  that  the  corporate  funds  shall  not 
be  wasted  or  misapplied  so  as  to  endanger  the  payment  of  their 
claims. 

It  will  be  necessary,  moreover,  to  consider  the  legal  relations 
subsisting  between  individuals  of  the  same  class  ;  and,  finally, 


stances  differing  from  those  with 
reference  to  which  they  were  used. 
It  is  vain  to  think  to  cover  by  any 
single  phrase  the  various  aspects  of 


the  legal  situation  of  corporate  prop- 
erty. 
1See  chap,  viii.,  §§438  et  seq. 

25 


§  38.]  THE   LAW    OF   PRIVATE   CORPORATIONS.  [CHAP.  HI. 

there  is  still  another  and  somewhat  different  view,  which  it  will 
be  convenient  if  not  necessary  to  take  of  the  legal  relations  in 
respect  to  the  corporate  enterprise.  They  must  be  regarded  as 
subsisting  between  individuals  of  a  class  and  the  body  corporate 
as  representative  of  the  interests  of  all  persons  in  the  corporate 
enterprise. 

§  38.  The  very  notion  of  any  organized  body  of  men,  or  body 
Co   orate   Pon^c  or  corporate,  implies  the  existence  of  certain 

manage-  rules  for  the  management  of  the  affairs  of  the  body, 
lhe  constitution  of  a  corporation  always  contains  rules 
for  the  management  of  the  corporate  enterprise ;  providing,  as 
it  does,  that  acts  within  the  scope  of  the  purposes  of  incorpora- 
tion shall,  if  done  by  certain  persons,  have  the  same  legal  effect 
as  if  done  or  assented  to  by  every  one  interested  in  the  corpo- 
rate enterprise.  These  certain  persons  are  said  to  exercise  the 
corporate  powers.  By  filing  articles  of  association,  or  accept- 
ing a  charter,  shareholders  agree  that  the  corporate  enterprise 
shall  be  managed  as  provided  for  in  the  charter,  or  in  the  en- 
abling statute  and  articles  of  association.  Their  individual  right 
to  manage  the  funds  subscribed  they  surrender  into  the  hands 
of  a  majority  of  themselves,  and  into  the  hands  of  the  officers 
of  the  corporation,  as  provided  for  in  the  constitution.  To  the 
provisions  in  regard  to  the  corporate  management  creditors  im- 
pliedly assent  in  contracting  with  the  corporation. 

Thus  the  body  corporate,  consisting  of  the  shareholders  as  an 
organized  body  acting  through  the  will  of  the  majority  and  com- 
posing the  corporation  (regarded  not  as  a  legal  institution,  but 
as  a  body  of  men  !),  is  an  agency  with  plenary  authority  to  em- 
ploy the  corporate  funds  for  the  purposes  of  incorporation,  and 
the  acts  of  directors  within  the  scope  of  their  authority  to  act 
for  the  corporation  are  to  be  regarded  as  the  acts  of  the  body 
corporate.  The  remedy  of  persons  aggrieved  through  the  mis- 
application of  corporate  funds  lies  ordinarily  against  the  body 
corporate;  and  the  majority  of  questions  litigated  in  court  arise 
between  some  person  or  persons  and  the  body  corporate  as  rep- 
resenting all  persons  in  any  way  interested  in  the  corporate  en- 
terprise. 

*  §§  48-50. 
26 


CHAP.  III.]  ANALYSIS   OF   A   CORPORATION.  [§  41. 

§  39.  In  accordance  with  the  foregoing  remarks,  the  legal 
relations   constituting  the  corporation  will,  in  the 
chapters  which  follow  the  chapter  on  the  legal  effect  treatment, 
of  acts  done  on  behalf  of  a  corporation,1  be  treated 
in  the  following  order :  First,  relations  between  the  state  and 
the  body  corporate  as  representing  all  persons  interested  in  the 
corporate  enterprise,  and  between  the  state  and  the  different 
classes  of  these  persons ;  secondly,  the  legal  relations  between 
the  body  corporate  and   these   different   classes  of   persons; 
thirdly,  the  legal  relations  between  these  different  classes  of 
persons ;  and,  lastly,  the  legal  relations  among  persons  of  the 
same  class. 

§  40.  Here  a  few  remarks  must  be  made  on  the  general  na- 
ture of  these  relations.     They  exist  for  the  most  part   General 
in  respect  of  a  certain  fund,  as  to  which  various  per-  nature  of 
sons  have  rights.     But  not  all  of  these  various  per-   tions  exist- 

iii°*  in  re- 

sons  (the  creditors,  for  example)  have  ordinarily  a  spectofthe 
voice  in  the  management  of  this  fund ;  and  conse-  enterprise, 
quently  these  different  persons  have  not  equal  oppor- 
tunity to  protect  their  respective  interests.  Some  of  these  per- 
sons, moreover,  on  account  of  rules  which  may  exist  in  the  consti- 
tution of  the  corporation,  may  be  temporarily  unable  to  enforce 
certain  of  their  rights  ;2  as,  for  instance,  creditors  may  be  tem- 
porarily disabled  by  the  rule  of  general  application  that  no 
creditor  of  the  corporation  can  bring  an  action  against  the 
shareholders  individually  to  enforce  either  unpaid  subscrip- 
tions or  statutory  liability,  until  he  has  obtained  judgment 
against  the  corporation,  and  execution  thereunder  has  been 
returned  unsatisfied.  From  these  and  other  considerations,  it 
would  seem  that  many  of  the  relations  in  respect  of  the  corpo- 
rate enterprise  are  what  are  loosely  called  "  trust  relations,"  a 
species  of  legal  relation  the  essential  peculiarities  of  which  it 
would  be  well  to  determine  before  proceeding  further. 

§  41.  When  one  man  owes  a  legal  duty  to  another,  which 
other  actually  or  presumably  is  not  in  a  position  to 
enforce,  at  least  for  the  time,  the  law  imposes  on  the   reEons." 
person  owing  the  duty  a  stricter  accountability  to  the 


1  Chap.  vii. 

3  Or  we  may  say  their  rights  are 


temporarily  in  abeyance,  or  not  yet 
consummate. 

27 


§  44.]  THE    LAW    OF    PRIVATE   CORPORATIONS.  [CHAP.  in. 

person  to  whom  the  duty  is  owed  than  ordinarily  exists  between 
man  and  man.  That  is  to  say,  the  circumstances  are  such  that 
rules  of  law  apply  to  the  two  persons,  which  manifest  them- 
selves in  peculiarly  advantageous  rights  in  the  person  under  a 
disability.  These  are  rights  which,  were  it  not  for  the  circum- 
stances causing  the  disability  as  a  compensation  for  which  they 
are  given,  the  person  under  the  disability  would  not  have  had. 
For  instancej  through  inexperience  and  on  account  of  other  cir- 
cumstances, an  infant  is  presumed  incapable  of  protecting  itself 
against  the  acts  of  its  guardian.  Accordingly,  not  all  the  rules 
of  law  applying  ordinarily  to  transactions  of  sale,  for  instance, 
apply  when  the  guardian  purchases  his  ward's  property ;  but 
certain  other  rules  of  law  apply,  which  create  further  rights 
in  the  ward,  and  impose  a  most  stringent  accountability  on  the 
guardian,  preventing  the  latter  from  taking  advantages  and 
profits  to  which  he  would  have  been  entitled  had  the  seller  not 
been  his  ward. 

§  42.  Accordingly,  wherever  there  exists  what  is  called  a 
trust  relation,  there  will  be  found  an  inability  on  the  part  of 
the  cestui  que  trust  to  protect  himself  against  the  improper  acts 
of  the  trustee  ;  an  inability  arising  either  from  the  status  of  the 
former,  as  infancy  or  insanity,  or  from  the  special  circumstances 
of  the  case.  A  client  cannot  adequately  guard  against  the  im- 
positions of  his  attorney,  nor  an  absent  principal  against  the 
improper  acts  of  his  agent. 

§  43.  Again,  where  a  trust  relation  exists,  there  will  usually 
be  an  actual  confiding  in  the  trustee  by  the  cestui  que  trust,  who 
intrusts  his  affairs  to  the  former,  or  whose  property  may  be  con- 
fided to  the  trustee  by  others,  as  in  testamentary  guardianship. 
And  the  law  will  protect  such  confidence  from  abuse.  The 
element  of  actual  confidence  does  not  exist  when  a  person  is 
held  to  the  duties  of  a  trustee  by  reason  of  his  wrongful  act,  as 
the  wrongful  taking  of  another's  property. 

§  44.  A  trust  relation  arises  between  directors  and  share- 
holders, because  it  is  impracticable  for  the  latter  to  keep  them- 
selves adequately  informed  of  the  state  of  the  corporate  busi- 
ness, and  because  they  have  put  confidence  in  the  directors.  The 
directors  are  in  a  position  to  do  the  shareholders  injuries  against 
which  the  latter  can  protect  themselves  only  through  the  aid 
of  the  rules  of  law  which  manifest  themselves  in  trust  relations 
28 


CHAP,  in.]  ANALYSIS   OF   A   CORPORATION.  [§  48. 

between  these  two  classes  of  persons.  Trust  relations  exist  also 
between  the  directors  and  the  creditors  of  the  corporation,  on 
account  of  the  inability  of  the  creditors  to  protect  their  inter- 
ests in  the  funds  which  the  directors  manage. 

§  45.  Possibly  it  may  also  be  said  that  shareholders,  to  the 
extent  of  their  unpaid  subscriptions  to  the  capital  stock,  are 
affected  with  duties  towards  creditors,  which  constitute  trust 
relations  between  them ;  for  unpaid  subscriptions,  just  as  much 
as  those  paid  in,  are  held  to  form  part  of  the  corporate  funds, 
of  the  trust  funds,  to  be  devoted  to  the  objects  of  incorporation ; 
objects  which  include  the  payment  of  liabilities  contracted  in 
their  pursuit.  Yet  this  proposition  is  questionable,  and  there 
is  a  decision  to  the  contrary.1 

§  46.  The  reason  last  stated  points  to  the  third  element  often 
present  when  a  trust  relation  exists,  to  wit,  possession  by  one 
person  of  property  of  which  another  is  the  legal  or  equitable 
owner,  or  in  respect  of  which  the  other  has  rights.  This  element 
occasions  a  trust  relationship  when  one  person  has  wrongfully 
taken  the  property  of  another ;  and  the  same  element  may  be 
regarded  as  occasioning  a  trust  relationship  between  bailor  and 
bailee  in  respect  of  the  property  bailed ;  and  thus  a  person  may 
be  held  as  trustee  for  another  in  certain  respects,  or  in  respect 
of  certain  property,  while  in  other  respects  he  owes  the  latter 
no  special  duty. 

§47.  In  short,  the  circumstances  ordinarily  occasioning  a 
trust  relationship  are  :  First,  actual  or  presumptive  inadequacy 
of  the  legal  rules  applicable  to  transactions  of  the  same  kind 
with  the  transaction  occasioning  the  relation  in  question,  to 
bring  about  what  the  law  regards  as  just  or  expedient ;  an  in- 
adequacy which  may  be  due  either  to  status  or  the  peculiar 
circumstances  of  the  case ;  secondly,  confidence  invited  by  one 
person,  and  by  another  actually  reposed,  in  the  discretion,  hon- 
esty, and  ability  of  the  former  ;  and  thirdly,  possession,  right- 
ful or  wrongful,  of  property  belonging  to  another,  or  in  respect 
to  which  the  other  has  rights.2 

§  48.  Thus  far  a  corporation  has  been  regarded  solely  as  a 

1  Morrison  v.  Savage,  56  Md.  142. 

2  It  appears  at  a  glance  that  the 
term  trust  relation  is  vague  and  un- 


suitable, except  for  the  roughest  clas- 
sification. 


29 


§  51.]  THE  LAW   OF   PRIVATE   CORPORATIONS.  [CHAP.  III. 

mass  of  legal  relations.  It  is  now  necessary  to  deter- 
poration  mine  who  are  the  individuals  composing  the  corpo- 
ofmen.0  y  ration  regarded,  not  as  a  mass  of  legal  relations,  but 
as  a  body  of  men.  Can  it  be  said  that  the  corpora- 
tion, or  body  corporate,  is  composed  of  all  the  persons  between 
whom  these  legal  relations  subsist?  This  conception  would 
embrace  all  persons  in  any  way  interested  in  the  corporate  en- 
terprise ;  it  would  embrace  the  state  as  representing  the  public, 
and,  beside  the  shareholders  and  directors,  it  would  also  em- 
brace the  creditors  of  the  corporation.  No  doubt  this  concep- 
tion would  be  adequate ;  but,  in  the  first  place,  it  is  repugnant 
to  any  popular  or  technical  meaning  of  the  term  corporation  ; 
and,  moreover,  the  conception  of  such  an  undefined  body  of 
men,  if  not  hopelessly  indefinite,  would  be  at  least  too  unwieldy 
for  use. 

§  49.  On  the  whole,  it  is  more  in  accordance  with  the  ordi- 
nary use  of  terms,  and  a  clearer  and  more  serviceable  con- 
ception, to  regard  the  corporation  as  consisting  of  the  share- 
holders, who  may  with  propriety  be  said  to  constitute  the  body 
corporate,  as  it  is  through  their  acts,  or  the  acts  of  their  prede- 
cessors, that  incorporation  is  caused.  The  management  of  the 
corporate  enterprise  is  in  their  hands,  or  in  the  hands  of  per- 
sons chosen  by  them ;  and  on  them  and  their  appointees  the 
constitution  confers  the  competency  to  do  acts  which  occasion 
legal  relations  in  respect  of  the  corporate  enterprise ;  in  them 
and  their  appointees,  that  is  to  say,  are  vested  the  corporate 
powers. 

§  50.  The  shareholders,  then,  vested  with  the  corporate  pow- 
ers, are  the  body  corporate,  corporation,  or  company.  It  is 
their  acts,  when  done  in  the  manner  prescribed  in  the  consti- 
tution of  the  corporation,  that  are,  properly  speaking,  acts  of 
the  corporation.  The  main  feature  of  their  organization,  as  a 
body  corporate,  is  that  by  virtue  of  their  organization  acts  done 
in  pursuance  of  its  terms  and  within  the  scope  of  its  purposes 
are  in  effect  the  acts  of  all ;  and,  accordingly,  such  acts  of  a 
majority  of  a  requisite  quorum  are  to  be  regarded  as  the  acts 
of  the  whole  body. 

§  51.  Such,  then,  are  the  two  meanings  of  the  term  corpora- 
tion :  the  one,  the  sum  of  legal  relations  subsisting  in  respect 
to  the  corporate  enterprise;  the  other,  the  organic  body  of 
30 


CHAP.  III.]  ANALYSIS  OF  A  CORPORATION. 


[§51. 


shareholders  whose  acts  cause  the  operation  of  the  rules  of 
law  in  the  constitution.  In  these  two  meanings  of  the  term 
the  old  idea  of  the  "  legal  person "  has  no  place.1    There  is, 


1  How  persons  could  succeed  each 
other  in  the  enjoyment  of  the  same 
rights  was  a  puzzle  iu  the  early  law, 
to  be  solved  only  through  regarding 
the  successor  as  continuing  in  some 
way  the  legal  personality  of  his  prede- 
cessor. See  the  chapters  on  Succes- 
sion in  Holmes,  "On  the  Common 
Law."  The  best  known  instance  of 
the  continuance  of  legal  personality 
is  the  universal  succession  of  the 
Roman  law.  But  the  early  common 
law  notions  of  succession  resemble 
those  of  the  Roman  law  more  closely 
than  is  ordinarily  supposed. 

The  fiction  of  a  legal  person  was 
largely  due  to  the  difficulties  of  the 
early  lawyers  regarding  the  succes- 
sion of  oue  person  to  the  rights  of 
another.  Even  to-day  we  help  out 
our  thought  by  saying  that  an  as- 
signee "stands  in  the  shoes"  of  his 
assignor.  However  useful  this  fic- 
tion may  once  have  been,  it  is  to-day 
inadequate  for  the  purpose  of  doing 
justice  among  persons  interested  in 
corporate  enterprises.  And  even 
where  it  can  still  be  used,  matters 
may  be  frequently  simplified  by 
avoiding  it.  Take,  for  instance,  the 
following  passage:  "  If  a  person  be- 
comes surety  to  several  people  for 
the  conduct  of  a  servant  in  their  em- 
ploy, and  those  people  are  after- 
wards incorporated,  the  surety  is  dis- 
charged; for  the  person  created  by 
the  act  of  incorporation  is  different 
from  the  persons  in  whose  employ  the 
servant  was,  and  with  whom  the 
surety  contracted."  1  Lindley  on 
Part.,  214;  see  Bensingeru.  Wren,  100 
Pa.  St.  500.  In  this  passage  a  fiction  is 
used  to  prove  a  legal  proposition,  the 
plain  reasons  of  which  lie  on  the  sur- 


face. The  contract  of  suretyship  is 
strictly  construed  in  favor  of  the 
surety.  In  the  passage  quoted,  the 
liability  of  the  corporators  for  acts  of 
their  servants,  as  well  as  their  rela- 
tions to  the  latter,  were  changed  by 
their  own  incorporation.  Any  such 
change  discharges  the  surety,  who 
made  a  certain  distinct  contract, 
which  was  not  a  contract  to  guaranty 
the  fidelity  of  a  servant  of  an  in- 
corporated body  of  men. 

It  is  in  respect  of  the  doctrine  of 
ultra  vires,  that  the  fiction  of  a  legal 
person  is  most  pernicious,  as  this  fic- 
tion involves  regarding  a  corporation 
as  a  unit,  and  retards  the  proper  dis- 
crimination of  the  rights  of  different 
persons  in  regard  to  ultra  vires  acts. 
Moreover,  in  the  present  condition  of 
business  enterprises  in  this  country, 
this  fiction  may  give  rise  to  insol- 
vable  problems.  For  instance,  a  rail- 
road company,  whose  road  extends 
through  two  states,  is  organized  un- 
der charters  from  both,  each  charter 
being  the  counterpart  of  the  other. 
Is  the  result  one  or  two  "  legal  per- 
sons"? Since  as  much  may  be  said 
on  one  side  as  the  other,  the  problem 
is  as  insolvable  as  it  is  gratuitous. 
The  question  of  real  importance  is: 
What  are  the  rights  and  liabilities 
arising  under  these  charters  in  re- 
spect of  the  corporate  enterprise? 
And  this  question  may  be  answered 
without  reference  to  whether  this 
raiload  company  is  one  or  two  "  per- 
sons," or  Siamese  twins  born  of  dif- 
ferent mothers. 

Two  recent  judicial  utterances  re- 
garding the  fiction  of  a  "  legal  per- 
son" are  of  interest:  "The  abstract 
idea  of  a  corporation,  the  legal  entity, 

31 


§51.] 


THE  LAW  OF  PRIVATE  CORPORATIONS.    [CHAP.  HI. 


however,  a  third  meaning  of  the  term  corporation  which, 
though  not  entirely  fortunate,  is  so  much  in  the  minds  of 
courts  and  business  men  that  it  cannot  be  overlooked.  In 
business  and  in  the  courts  the  term  corporation  is  often  used 
as  if  it  were  synonymous  with  the  name  by  which  action  is  usu- 
ally taken  in  regard  to  corporate  matters.  A  name  is  employed 
for  purposes  of  suit  in  the  courts,  and  a  name  is  employed  for 
ordinary  business  dealings.  The  corporate  name  and  the  term 
corporation  have  thus  become  synonymous  in  practical  usage. 
This  is  not  always  for  the  best.  The  corporate  name  in  one 
lawsuit,  or  appended  to  one  contract,  may  stand  for  very  dif- 
ferent interests  from  what  it  stands  for  in  another  lawsuit  or 
another  contract.  In  treating  the  name  of  the  corporation  as 
synonymous  with  the  term  corporation  the  results  have  been 
at  times  as  misleading  as  the  continuance  of  the  fiction  of  the 
legal  person.  This  last  method  of  employing  the  term  must, 
however,  be  borne  in  mind  in  any  consideration  of  corporation 
law. 


the  impalpable  and  intangible  crea- 
tion of  human  thought  is  itself  a  fic- 
tion, and  has  been  appropriately  de- 
scribed as  a  figure  of  speech.  It 
serves  very  well  to  designate  in  our 
minds  the  collective  action  and 
agency  of  many  individuals  as  per- 
mitted by  the  law;  and  the  substan- 
tial inquiry  always  is  what  in  a  given 
case  has  been  that  collective  action 
and  agency?  "  People  v.  North  River 
Sugar  Refining  Co.,  121  N.  Y.  582, 
621,  Opin.  of  Ct.  per  Finch,  J.  "  The 
general  proposition  that  a  corpora- 
tion is  to  be  regarded  as  a  legal 
entity,  existing  separate  and  apart 
from  the  natural  persons  composing 
it,  is  not  disputed;  but  that  the  state- 
ment is  a  mere  fiction  ....  is  well 

32 


understood.  ...  It  has  been  intro- 
duced for  the  convenience  of  the  com- 
pany in  making  contracts,  in  acquir- 
ing property  for  corporate  purposes, 
in  suing  and  being  sued,  and  to  pre- 
serve the  limited  liability  of  the 
stockholders,  by  distinguishing  be- 
tween the  corporate  debts  and  prop- 
erty of  the  company,  and  of  the 
stockholders  in  their  capacity  as  in- 
dividuals." State  v.  Standard  Oil 
Co.,  49  O.  St.  137,  177,  Opin.  of  Ct. 
per  Minshall,  J.  For  the  matters 
decided  in  these  two  cases  see  §  309  b. 
As  to  the  popular  business  way  of 
regarding  a  partnership  as  an  entity, 
see  Bank  of  Buffalo  v.  Thompson, 
121  N.  Y.  280. 


CHAP.  IV.]    RESEMBLANCES   TO   OTHER    INSTITUTIONS.        [§  53. 


CHAPTER  IV. 

RESEMBLANCES    BETWEEN   CORPORATIONS    AND 
TAIN  OTHER  LEGAL  INSTITUTIONS. 


CER- 


Object  of  the  chapter,  §52. 

What  law  applicable  to  corpora- 
tions, §  53. 

New  York  "full  liability  corpora- 
tions," §54. 

New  York  joint-stock  associations, 
§55. 

Comparison,  §§56,  57. 

Limited  partnerships,  §58. 

Partnerships:  dissimilar  from  cor- 
porations at  common  law,  §  59. 


Points  of  difference  remaining, 
§§60,61. 

The  element  common  to  these 
various  legal  institutions,  §  62. 

Material  questions,  §  63. 

Law  applicable  to  corporations,  how 
determinable,  §§64,  65. 

Changes  in  corporation  law,  §  66. 

The  use  of  analogy,  §§  67-69. 

The  application  of  general  princi- 
ples, §§70,  71. 


§  52.  The  object  of  this  chapter  is  to  point  out  some  of  the 
elements  which  corporations  have  in  common  with 
certain  other  legal  institutions,  and  to  determine  some-  the  chapter. 
what  more  specifically  than  was  attempted  in  the 
preceding  chapter  the  rules  of  law  which  manifest  themselves 
in  the  legal  institutions  called  corporations.  The  danger  of 
reasoning  unguardedly  as  to  questions  of  corporation  law  from 
the  analogy  of  other  legal  institutions  will  be  referred  to  in- 
cidently. 

§  53.  The  common  law  notion  of  a  partnership  was  sharply 
differentiated  from  the  common  law  notion  of  a  cor- 
poration.    Nowadays  it  would  not  be  easy  to  find  a   a^pHcabie 
business  corporation  corresponding  to  the  common   t°n°rporar 
law  notion  of  a  corporation.     On  the  other  hand,  we 
find  everywhere  a  great  multitude  of  legal  institutions,  in  great 
part  the  manifestations  of  statutory  law,  which  resemble  part- 
nerships in  some  respects,  while  in  other  respects  they  resemble 
common  law  corporations.     The  law  of  these  legal  institutions, 
however,  is  not  the  law  of  partnership,  nor  is  it  altogether  the 
common  law  of  corporations.     It  is  rather  the  statutory  law 
under  which  they  are  organized,  together  with  the  later  phases 
of  the  common  law  of  corporations,  construed  and  interpreted 
3  33  * 


§  55.]  THE  LAW  OF  PRIVATE  CORPORATIONS.     [CHAP.  IV. 

in  accordance  with  the  general  rules  of  the  law  of  contracts 
and  of  torts. 

To  notice  here  a  few  of  the  statutory  provisions  applying  to 
some  of  these  institutions  will  give  point  to  the  remarks  which 
will  follow. 

§  54.  Under  a  statute  at  present  in  force  in  the  state  of  New 
„     „  ,      York,1  any  "three  or  more  persons  may  become  a 

New  York  '  J         .  *  ,       J 

"full  lia-  stock  corporation  for  any  lawful  business  purpose 
porations""  [with  certain  important  exceptions]  by  executing  and 
filing  a  proper  certificate.  A  corporation  may  be  or- 
ganized under  this  statute  as  a  "  full  liability  corporation,"  by 
inserting  in  its  certificate  a  statement  to  that  effect.  In  which 
case  "  all  the  stockholders  of  the  corporation  shall  be  severally 
individually  liable  to  its  creditors  for  all  its  debts  and  liabilities, 
and  may  be  joined  as  defendants  in  any  action  against  it.  No 
execution  shall  issue  against  any  stockholder  individually  until 
execution  has  been  issued  against  the  corporation  and  returned 
unsatisfied,  and  all  the  stockholders  shall  contribute  a  propor- 
tionate share,  according  to  the  number  of  shares  of  stock  owned 
by  each,  of  the  amount  paid  by  any  stockholder  on  a  judgment 
recovered  against  him  individual^  for  a  debt  of  the  corpora- 
tion, and  he  may  recover  from  the  other  stockholders  in  the 
corporation,  in  a  joint  or  several  action,  the  proper  portion  due 
by  them  and  each  of  them  of  the  amount  paid  by  him  on  any 
such  judgment." 2 

§  55.  A  comparison  of  these  "  full  liability  "  corporations  with 
„,.     „  ,      certain  joint-stock  companies,  which  are  not  called 

New  York  J  . 

"joint-  "corporations,"  will  show  the  difficulty  of  using  the 
ciationsS""  term  "corporation"  in  classifying  legal  institutions. 
Chapter  258  of  the  New  York  laws  of  1849  provided  : 
(1)  that  any  joint-stock  company  or  association  of  seven  or  more 
shareholders  or  associates  may  sue  and  be  sued  in  the  name  of 
the  president  or  treasurer  for  the  time  being  of  such  joint-stock 
company  or  association  ;  (2)  that  such  suit  shall  not  abate  by 
reason  of  the  death  or  removal  of  the  president  or  treasurer ; 
(3)  that  the  president  or  treasurer  shall  not  be  personally  liable 
for  any  such  suit  (though  this  provision  is  not  to  exempt  him 

1  Chap.  520,  laws  of  1901,  amending  safe  to  say  that  very  few  corporations 
prior  statutes.  i  under  this  act  are  organized  as  "full 

^  Laws  of  1892,  chap.  691,  §  6\     It  is  j  liability  corporations." 

34 


CHAP.  IV.]    RESEMBLANCES    TO   OTHER    INSTITUTIONS.        [§  56. 

from  any  liability  to  which  he  is  subject  as  a  stockholder  in  the 
company) ;  (4)  that  suits  against  the  company  shall  be  prose- 
cuted in  this  manner  in  the  first  instance  ;  but  that,  after  judg- 
ment entered  and  return  of  execution  thereon  unsatisfied,  suits 
may  be  brought  against  the  stockholders  individually.1  Chap- 
ter 245  of  the  laws  of  1854  contained  the  following  provisions: 
"  1.  Whenever,  in  pursuance  of  its  articles  of  association,  the 
property  of  any  joint-stock  association  is  represented  by  shares 
of  stock,  it  shall  be  lawful  for  said  association  to  provide  by 
their  articles  of  association  that  the  death  of  any  stockholder, 
or  the  assignment  of  his  stock,  shall  not  work  a  dissolution  of 
the  association,  but  it  shall  continue  as  before ;  nor  shall  such 
company  be  dissolved,  except  bj^  judgment  of  a  court  for  fraud 
in  its  management,  or  other  good  cause  to  such  court  shown, 
or  in  pursuance  of  its  articles  of  association.  2.  Said  associa- 
tions may,  also,  by  said  articles  of  association,  provide  that  the 
shareholders  may  devolve  upon  any  three  or  more  of  the  part- 
ners the  sole  management  of  their  business.  3.  This  act  shall 
in  no  court  be  construed  to  give  said  associations  rights  and  privi- 
leges as  corporations"  Chapter  289  of  the  laws  of  1867  pro- 
vided that  it  should  be  lawful  for  any  joint-stock  association  to 
purchase,  hold,  and  convey  such  real  estate  (1)  as  shall  be  neces- 
sary for  its  immediate  accommodation  in  its  business ;  (2)  as 
shall  be  mortgaged  to  it  in  good  faith ;  (3)  as  it  shall  purchase 
at  sales  under  judgments,  decrees,  or  mortgages  held  by  it. 
"  The  said  joint-stock  company  shall  not  purchase,  hold,  or  con- 
vey real  estate  for  any  other  purpose ;  and  all  conveyances  of 
such  real  estate  shall  be  made  to  the  president  of  such  joint- 
stock  company,  as  such  president,  and  who,  and  his  successors, 
from  time  to  time,  may  sell,  assign,  and  convey  the  same,  free 
from  any  claim  thereon  against  any  of  the  shareholders,  or  any 
person  claiming  under  them."2 

§  56.  It  appears  at  a  glance  how  closely  these  joint-stock 
associations  resemble  the  "full  liability  corporations"  above 


1  These  provisions,  modified  in 
language  by  various  amendments, 
still  substantially  constitute  §§  1919- 
1922  of  the  New  York  Code  of  Civil 
Procedure. 

2  See,   also,    chap.  937   of  laws  of 


1867;  chap.  290,  laws  of  1868,  chap. 
599,  laws  of  1881,  and  chap.  235,  laws 
of  1894.  The  last  repeals  chapter  245 
of  the  laws  of  1854,  and  chapter  289 
of  the  laws  of  1867,  which  are  cited 
above  merely  for  illustration. 

35 


§  57.]  THE   LAW   OF  PRIVATE  CORPORATIONS.  [CHAP.  IV. 

referred  to  ;  yet  the  latter  are  called  "  corporations,"  while,  as 
to  the  former,  the  legislature,  in  the  same  breath  in 

Compan-  ......  .      ..  ... 

son.  which  it  gives  them  similar  privileges  and  capacities, 

declares  that  in  no  court  shall  the  statutory  provisions 
regulating  these  associations  "  be  construed  to  give  them  rights 
and  privileges  as  corporations." 1 

§  57.  The  New  York  Court  of  Appeals,  after  some  uncer- 
tainty of  mind,2  held  that  joint-stock  associations  were  not  taxa- 
ble under  certain  statutes  taxing  "  monied  or  stock  corporations." 
Referring  to  the  statutes  authorizing  joint-stock  associations, 
Judge  Finch,  who  gave  the  opinion  of  the  Court,  remarked  that 
since  their  passage  "  the  legislature,  while  steadily  preserving 
the  distinction  of  names,  has  with  equal  persistence  confused 
the  things  by  obliterating  substantial  and  characteristic  marks 
of  difference,  until  it  is  now  claimed  that  joint-stock  associations 
have  grown  into  and  become  corporations  by  force  of  the  con- 
tinual bestowal  upon  them  of  corporate  attributes."  The  Court, 
however,  recognized  its  duty  to  give  effect  to  this  legislative  in- 
tent to  preserve  the  distinction  between  the  two  classes  of  organ- 
izations, and  at  the  close  of  the  opinion  the  learned  judge  for- 
mulated their  distinguishing  characteristics  as  follows :  "  The 
formation  of  the  one  involves  the  merging  and  destruction  of 
the  common  law  liability  of  the  members  for  the  debts,  and  re- 
quires the  substitution  of  a  new,  or  retention  of  the  old,  liabil- 
ity by  an  affirmative  enactment  which  avoids  the  inherent  effect 
of  the  corporate  creation  ;  in  the  other,  the  common  law  liabil- 
ity remains  unchanged  and  unimpaired,  and  needing  no  statu- 
tory intervention  to  preserve  or  restore  it ;  the  debt  of  the  cor- 
poration is  its  debt  and  not  that  of  its  members ;  the  debt  of 
the  joint-stock  company  is  the  debt  of  the  associates  however 
enforced  ;  the  creation  of  the  corporation  merges  and  drowns 
the  liability  of  its  corporators,  the  creation  of  the  joint-stock 
company  leaves  unharmed  and  unchanged  the  liability  of  the 
associates ;  the  one  derives  its  existence  from  the  contract  of 

1  The  Massachusetts  courts  hold  courts  hold  them  to  he  corporations, 
the  New  York  joint-stock  associa- 
tions not  to  be  corporations,  and  that 
their  members  may  be  sued  as  part- 
ners. Boston  &  Albany  R.  R.  Co.  v. 
Pearson,  128  Mass.  445.     New  Jersey 

36 


Edgeworth  v.  Wood,  58  N.  J.  L.  4G3. 
See  as  to  actions  against  them,  Van 
Aernam  v.  Bleistein,  102  N.  Y.  355. 

2  See  People  v.  Wemple,  117  N.  Y. 
136. 


CHAP.  IV.]    RESEMBLANCES   TO   OTHER   INSTITUTIONS.        [§  58. 


individuals,  the  other  from  the  sovereignty  of  the  state.  The 
two  are  alike,  but  not  the  same.  More  or  less,  they  crowd  upon 
and  overlap  each  other,  but  without  losing  their  identity,  and 
so,  while  we  cannot  say  that  the  joint-stock  company  is  a  cor- 
poration, we  can  say,  as  we  did  say  in  Van  Aernam  v.  Bleistein, 
(102  N".  Y.  360),  that  a  joint-stock  company  is  a  partnership  with 
some  of  the  powers  of  a  corporation.'' : 

§  58.  Limited  partnerships  afford  another  illustration  of  the 
difficulty  of  saying  what  constitutes  a  corporation.    Limited 
Such  a  partnership  exists  where  one  or  more  of  the   partner- 

sliiiJS 

partners  are  liable  individually  for  the  firm  debts,  and 
one  or  more,  provided  the  requirements  of  the  statute  are  com- 
plied with,  incur  no  personal  liability  for  such  debts  beyond 
the  amount  contributed  by  them  to  the  capital  of  the  firm. 
Thus  in  limited  partnerships  exists  a  liability  restricted  to  cer- 
tain funds,  as  is  the  case  with  most  corporations.  There  are, 
moreover,  corporations  in  which  there  is  no  restricted  liability ; 
and  so  a  limited  partnership,  which  is  not  called  a  corporation, 
possesses  an  ordinary  corporate  attribute  which  some  corpora- 
tions lack.2 


1  People  ex  rel.  Winchesters.  Cole- 
man, 133  N.  Y.  279,  286.  Compare 
Barndollar  y.  Dubois,  142  Pa.  St.  505, 
569;  Willis  v.  Chapman,  68  Vt.  459. 
As  to  the  principles  of  agency  appli- 
cable to  members  of  a  joint-stock  as- 
sociation, see  McCabe  v.  Goodfellow, 
133  N.  Y.  89. 

2  A  limited  partnership  bas  been 
called  a  g item-corporation;  see  Angell 
and  Ames  on  Corp.,  §  45.  In  Thomas 
v.  Dakin,  22  Wend.  9,  112  (1839),  it 
was  decided  by  the  Supreme  Court  of 
the  state  of  New  York,  whose  chief 
justice  at  the  time  was  the  venerated 
Nelson,  that  certain  banking  institu- 
tions, formed  under  "an  act  to 
authorize  the  business  of  banking," 
passed  April  eighteenth,  1838,  were 
corporations.  The  year  following 
this  decision,  the  case  of  Warren  v. 
Beers,  23  Wend.  103, 196,  was  decided 
in  the  Court  for  the  Correction  of 
Errors  in  the  same  state.     In   this 


case,  after  the  greatest  deliberation, 
it  was  held  that  these  same  banking 
institutions  were  not  corporations. 
The  difficulty  of  saying,  more  than 
forty  years  ago,  what  constitutes  a 
corporation  is  shown  by  the  argu- 
ments and  decisions  in  these  two 
cases. 

Likewise,  in  respect  of  public  cor- 
porations, it  is  hard  to  say  what  con- 
stitutes them  corporations.  A  city 
witli  a  special  charter  has  more  ex- 
tensive powers  of  corporate  action 
than  a  town,  or  a  county,  or  "  dock 
commissioners."  In  Downing  y.  In- 
diana State  Board,  129  Ind.  443,  the 
"  Indiana  State  Board  of  Agricul- 
ture" was  held  to  be  a  private  cor- 
poration, it  having  a  specifically 
granted  right  of  perpetual  succes- 
sion. 

Perhaps  the  following  extracts  will 
show  what  a  e/uasi-corporation  is. 
"  There  may  be  also  private  corpora- 

37 


§  60.]  THE    LAW    OF   PRIVATE   CORPORATIONS.  [CHAP.  IV. 


Partner- 
ships: dis- 
similar 
from  corpo- 
rations at 
common 
law. 


§  59.  Baron  Lindley,  in  his  "work  on  Partnership,  quotes 
many  definitions  of  that  term,  but  prudently  refrains 
from  giving  one  himself,  remarking  pertinently  that 
"  to  frame  a  definition  of  any  legal  term  which  shall 
be  both  positively  and  negatively  accurate,  is  possible 
only  to  those  who,  having  legislative  authority,  can 
adapt  the  law  to  their  own  definition."  *  Still,  every  one  has  an 
idea  of  an  ordinary  business  partnership  ;  and  an  ordinary  part- 
nership differs  from  a  corporation  at  common  law  chiefly  in 
the  following  points :  first,  it  is  not  an  artificial  person  ;  sec- 
ondly, a  change  of  partners  dissolves  the  firm  ;  thirdly,  the 
partners  are  personally  liable  for  all  the  firm  debts ;  fourthly, 
they  are  each  other's  agents  in  respect  to  the  firm  business; 
and,  fifthly,  a  partnership  requires  no  special  sanction  for  its 
existence. 

§  60.  Not  all  of  these  points  of  difference  remain  to-day.    It 
is  no  long-er  clear  that  a  corporation  is  a  distinct  per- 

Points  of  n°  ,  ,  .    ,      T    ,  •  , 

difference  son ;  and  as  to  the  third  of  these  points  it  may  be 
remaining.  gaj(^  ^.^  m  matly  corporations  the  members  are  per- 
sonally liable,  and  that  in  some  (limited)  partnerships  not  all 


tions  created  with  powers  sub  rnodo, 
and  for  a  few  specified  purposes  only, 
and  which  are  properly  Quasi-cor- 
porations. The  joint-stock  banks  in 
England  of  modern  creation,  called 
into  existence  by  the  act  of  7  Geo.  IV., 
are  considered  gun.st-corporations,  as 
that  act  provides  for  a  continuance 
of  the  partnership,  notwithstanding 
a  change  of  partners.  In  this  case 
the  partnership  has  the  corporate  at- 
tribute of  succession.  And  a  mining 
joint-stock  association  was  deemed  a 
guasi-corporatioii,  because  a  suit  for 
a  demand  against  the  company 
might,  by  virtue  of  an  act  of  Parlia- 
ment, be  brought  against  the  direct- 
ors. Here  is  attached  the  corporate 
liability  of  being  sued  without  the 
names  of  each  individual  partner 
composing  the  company.1'  Angell 
and  Ames  on  Corp.,  §  25,  citing  Har- 
rison v.  Simmins,  4  M.  &  W.  510. 

38 


Again,  it  is  said  in  the  same  work 
at  §40:  "A  trading  association  may 
be  but  a  mere  partnership;  or  it  may 
have  corporate  powers  to  a  small  ex- 
tent and  sub  niodo;  or  it  may  be  in- 
vested with  corporate  functions  to  a 
considerable  and  yet  limited  extent; 
or  it  may  exist  with  all  the  incidental 
functions  and  peculiar  privileges 
which  a  grant  of  unconditional  [?] 
corporate  power  confers."  It  would 
be  hard  to  conceive  of  anything  more 
conditional  than  a  grant  of  the  most 
"unconditional"  corporate  power. 
See  also  2  Kent,  Com.,  274. 

Of  course,  in  all  these  cases  of 
"guasi-corporations,"  whether  pub- 
lic or  private,  the  real  questions  are 
what  joint  or  corporate  action  can 
be  taken  ?  and  what  are  the  legal  re- 
lations arising?  See  Liverpool  Ins. 
Co.  v.  Massachusetts,  10  Wall.  566. 

1  Lindley  on  Part.,  p.  1. 


CHAP.  1V.J  RESEMBLANCES    TO   OTHER    INSTITUTIONS.         [§  61. 

the  partners  are  personally  liable.  Moreover,  under  the  gen- 
eral enabling  statutes,  the  importance  of  the  "  special  sanction" 
has  passed  away,  and  a  corporation  usually  requires  no  more 
special  sanction  than  a  limited  partnership.  No  legal  institu- 
tion exists  save  through  the  sanction  or  operation  of  the  rules 
of  law  of  which  it  is  a  manifestation. 

§  61.  The  differences  which  still  exist,  however,  between  a 
corporation  and  a  partnership  make  the  application  to  the  one 
of  rules  of  law  regulating  the  other  likely  to  lead  to  error. 
Two  points  of  radical  difference  remaining  to-day  are  these : 
(1)  In  a  partnership,  each  partner  is  the  agent  of  the  other 
partners  in  respect  of  the  partnership  business,  while  this  is 
not  true  of  shareholders  in  a  corporation.  (2)  The  members  of 
a  corporation  may  transfer  their  shares  at  will,  and  thereby, 
with  certain  exceptions,  relieve  themselves  from  all  liability  in 
regard  to  the  corporate  enterprise,  the  transferee  of  the  shares 
succeeding  to  all  the  rights  and  liabilities  of  the  transferror. 
But  a  partner  cannot  thus  relieve  himself  from  his  liability,  and 
a  transfer  of  his  interest  ordinarily  necessitates  a  winding  up 
of  the  partnership  business.1 


xIn  many  respects,  an  unincorpo- 
rated joint-stock  association  resem- 
bles an  ordinary  partnership.  "  The 
fundamental  distinction  between 
partnerships  and  unincorporated 
companies  is,  that  a  partnership 
consists  of  a  few  individuals  known 
to  each  other,  bound  together  by 
ties  of  friendship  and  mutual  confi- 
dence, and  who,  therefore,  are  not 
at  liberty  without  the  consent  of  all 
to  retire  from  the  firm,  and  substi- 
tute other  persons  in  their  place; 
whilst  a  company  consists  of  a  larger 
number  of  individuals,  not  necessa- 
arily  acquainted  with  each  other  at 
all,  so  that  it  is  a  matter  of  compara- 
tive indifference  whether  changes 
amongst  them  are  effected  or  not. 
.  .  .  Indeed  it  may  be  said  that  the 
law  of  unincorporated  companies  is 
composed  of  little  else  than  the  law 
of  partnership  modified  and  adapted 


to  the  needs  of  a  large  and  fluctuat- 
ing number  of  members.1'  1  Lind- 
ley  on  Part.,  5.  See,  generally,  for 
distinctions  between  partnerships, 
joint-stock  associations,  and  corpo- 
rations, Lindley's  introductory 
chapter  ;  also  Gibb's  Estate,  157  Pa. 
St.  59. 

"  Commercial  men  and  account- 
ants are  apt  to  look  upon  a  firm  in 
the  light  in  which  lawyers  look  upon 
a  corporation,  i.  e.,  as  a  body  dis- 
tinct from  the  members  composing 
it,  and  having  rights  and  obligations 
distinct  from  those  of  its  members. 
.  .  .  But  this  is  not  the  legal  no- 
tion of  a  firm;  .  .  .  speaking 
generally,  the  firm,  as  such,  has  no 
legal  recognition.  This  non-recog- 
nition of  the  firm,  in  the  mercantile 
sense  of  the  word,  is  one  of  the 
most  marked  differences  between 
partnerships  and  incorporated  com- 

39 


§  64.]  THE    LAW   OF   PRIVATE   CORPORATIONS.    [CHAP.  IV. 

§  62.  In  one  respect,  all  these  various  institutions  resemble 
The  ele-  ea°k  °^ner5  though  not  very  closely.  In  connection 
ment  com-     with  all  of  them  are  certain  funds  and  property  con- 

mon  to  .        .  „       ,    ,  .  i    •  ■ 

these  va-  stituting  a  "  trust  fund  to  be  devoted  in  a  certain 
instuu^ga  manner  to  the  accomplishment  of  certain  objects.1 
tions.  jn  ^-}ie  jjea  Qf  a  trust  fund  there  are  many  gradations ; 

but  the  essential  quality  running  through  them  all  is  that  which, 
viewed  negatively,  consists  in  the  absence  of  complete  owner- 
ship with  the  power  of  arbitrary  disposal  in  any  person ;  or, 
viewed  positively,  consists  in  this,  that  certain  persons,  other 
than  the  possessor  or  apparent  owner,  have  rights  in  regard  to 
the  fund.  These  rights  differ  greatly,  being  of  more  import- 
ance in  respect  of  a  limited  partnership,2  or  a  corporation,  than 
in  respect  of  an  ordinary  partnership,  or  an  unincorporated  joint- 
stock  association  of  unlimited  liability. 

§  63.  In  all  instances,  the  material  questions  nowadays  aris- 
ing in  connection  with  any  of  the  legal  institutions 
questions,  mentioned  will  be :  What  are  the  means  and  capaci- 
ties of  corporate  action  ?  and  what  are  the  rights  and 
liabilities  arising  among  the  persons  interested  ?  These  are  the 
real  questions  of  vital  importance,  the  decision  of  which  will 
not  ordinarily  depend  on  whether  or  not  a  given  institution  is 
to  be  called  a  corporation,  which  indeed  is  little  more  than  a 
question  of  how  far  a  mediaeval  nomenclature  is  applicable  to 
modern  institutions. 

§  64.  Such  being  the  resemblances  between  corporations, 
joint-stock  associations,  and  partnerships ;  and  the 
cahie'to  designation  of  the  class  to  which  any  given  institu- 
tionsThow  tion  belongs  being  so  difficult,  as  well  as  barren  of 
ahiefmm  results  when  accomplished,  how  may  the  rules  of  law 
which  manifest  themselves  in  the  mass  of  legal  rela- 
tions constituting  a  corporation  be  determined  ?  These  rules, 
as  stated  in  the  preceding  chapter,  are  contained  in  the  consti- 
tution of  the  corporation.  Some  of  them,  and  the  legal  rela- 
tions in  which  they  manifest  themselves,  may  be  readily  deter- 
mined, as  they  are  embraced  in  the  enabling  statute,  or  in  the 


panies."  1  Lindley,  ib.  206-207.  See 
Bank  of  Buffalo  v.  Thompson,  121  N. 
Y.  280,  283. 

40 


1  Compare    Hollins    v.     Brierfield 
Coal,  etc.,  Co.,  150  U.  S.  371,  385. 

2  Innes  v.  Lansing,  7  Paige,  583. 


CHAP.  IV.]    RESEMBLANCES   TO    OTHER    INSTITUTIONS.         [§  64. 

special  charter,  should  there  be  one.  Complementary  to  the 
rules  of  law  in  the  enabling  statute,  exist,  as  constituent  ele- 
ments of  the  corporate  constitution,  the  rules  of  law  embraced 
in  what  may  roughly  be  called  corporation  law,  a  term  which 
signifies  the  mass  of  legal  rules  which  have  come  into  exist- 
ence  through  the  requirements  of  society  with  respect  to  joint 
action  for  a  common  object.  A  corporation,  like  any  other 
legal  institution,  corresponds  to  a  certain  need  of  society ;  and 
the  rules  of  law  manifesting  themselves  in  it  are  those  which 
this  need  has  called  forth.  These  rules  cannot  always  be  rea- 
soned out,  or,  in  logical  sequence,  deduced  from  one  another, 
because  they  do  not  compose  a  logically  consistent  whole ; 
neither  do  they  always  appear  reasonable  in  relation  to  the 
needs  of  society  to-day.  There  is  no  reason  to  believe,  however, 
that  these  apparently  illogical  rules  were  not,  in  their  incep* 
tion,  logical  and  consistent  with  the  mass  of  other  rules  of  law 
then  manifesting  themselves  in  the  institution  in  question. 
Many  legal  institutions  of  ancient  origin,  whose  growth  is  ob- 
scured through  lapse  of  time,  can  no  longer  be  analyzed  into 
their  constituent  elements  ;  nor  can  the  process  through  which 
was  attained  the  known  resultant  of  their  combined  factors  be 
traced  historically  or  reasoned  out  from  general  principles. 
This  process  cannot,  as  it  were,  be  reasoned  out  backwards, 
because  many* of  the  rules  manifesting  themselves  in  these  in- 
stitutions, at  least  in  their  application  to  these  particular  in- 
stitutions, are  of  historical  origin  and  technical.  To  say  that  a 
legal  rule  is  of  historical  origin  and  therefore  not  reducible  to 
logical  principles,  means  that  it  is  the  resultant  of  a  combina- 
tion of  different  maxims  of  diverse  origin,  each  of  which  in  its 
own  origin  was  perhaps  logical  and  consequent  enough,  but  ap- 
pears in  the  present  combination  quite  anomalous  because  of 
the  obliteration  of  some  step  in  the  process  of  combination. 
Again,  to  say  a  rule  is  technical  and  not  logical,  is  saving  in 
most  instances  substantially  the  same  thing,  that  it  is  an  old 
rule,  which  at  its  origin  was  the  outgrowth  of  other  rules,  in 
connection  with  which  it  was  likely  logical ;  that  now  these 
other  rules  are  forgotten,  and  the  "  technical "  rule  remains  a 
sort  of  logical  anachronism,  which  is  as  impracticable  to  fit  in 
with  the  present  system  of  law,  as  to  use  the  flint  of  an  old 
"  Queen  Anne  "  in  a  modern  "  Winchester." 

41 


§  G8.]  THE   LAW   OF   PRIVATE   CORPORATIONS.  [CHAP.  IV. 

§  65.  Consequently,  the  constitution  of  a  corporation,  to  which 
we  must  turn  for  the  answer  to  legal  questions  arising  in  respect 
of  the  corporate  enterprise,  far  from  being  so  logical  and  con- 
sistent that  some  of  its  elements  being  known,  the  rest  may 
be  inferred  with  the  certainty  with  which  the  structure  of  a 
fossil  bird  may  be  inferred  from  its  footprints;  far  from  being 
a  logical  and  consistent  whole,  the  constitution  of  a  corpora- 
tion is  a  conglomerate  of  rules  the  union  of  which  was  due  not 
to  chance,  for  there  is  no  chance,  but  to  causes  and  occasions  of 
which  we  may  be  ignorant. 

§  66.  In  the  course  of  time,  some  of  the  rules  of  corporation 
law,  their  adaptability  to  the  needs  of  corporate  en- 
corporation  terprises  ceasing,  have  been  silently  dropped  by  the 
courts,  or  abolished  by  legislation.  The  new  rules 
needed  in  their  place  have  been  either  patently  created  by  the 
legislature  in  the  shape  of  statutes,  or  formed  through  a  more 
obscure  and  intangible  process.  When  not  enacted  by  the 
legislature,  new  rules  which  come  into  being  seem  to  be 
formed  by  the  courts  reasoning  them  out  in  two  methods ; 
first  b}'  analogy,  and,  secondly,  by  applying  general  principles 
of  law  and  common  sense  to  the  case  in  question. 

§  67.  When  to  the  solution  of  a  question  of  law  arising  in 
respect  of  some  legal  institution,  as,  for  instance,  a 
analogy  °f  corporation,  a  rule  of  law  applicable  to  some  other 
kind  of  legal  institution,  as,  for  instance,  partner- 
ship, is  applied  by  reason  of  the  analogy  between  a  corporation 
and  a  partnership,  what  has  been  done  is  this.  A  rule,  for 
the  application  of  which  to  one  legal  institution  there  are  prob- 
ably sound  reasons,  has,  because  of  some  resemblance  between 
this  and  another  legal  institution,  been  applied  to  the  latter,  in 
respect  of  which  the  reasons  for  the  application  of  the  rule  may 
fail,  for  not  unlikely  the  two  institutions  resemble  each  other 
in  points  which  the  rule  in  question  does  not  touch.  The  appli- 
cation, then,  of  the  rule  to  the  latter  institution  having  been 
caused  by  a  misleading  analogy,  will  likely  be  found  unwise, 
and  in  this  application  the  substantial  reasons,  which  are  the 
roots  of  any  rule  of  law,  failing,  the  rule  itself  will  shortly  like 
dead  wood  drop  away. 

§  68.  Analogies  between  legal  relations  constituting  corpora- 
tions and  legal  relations  constituting  partnerships  may  be  at 
42 


CHAP.  IV.]    RESKMBLANCES   TO    OTHER    INSTITUTIONS.        [§  69. 

times  advantageously,  if  guardedly,  used  for  purposes  of  il- 
lustration. But  if  inferences  are  to  be  drawn  from  such  anal- 
ogies, too  great  care  cannot  be  taken  to  determine  wherein  the 
analogy  consists ;  an  inquiry  which  may  often  resolve  itself 
into  an  inquiry  how  far  the  reasons  for  the  application  of  the 
rule  to  the  one  legal  institution  hold  good  for  the  application 
of  the  rule  to  the  other.  To  illustrate Jtakelhe  instance  of  a 
corporation,  the  shareholders  of  which^an^ affected  with  per- 
sonal liability  for  the  debts  of  the  corporation,  judgment  hav- 
ing first  been  obtained  against  the  corporation,  execution  levied 
thereunder  and  returned  unsatisfied.  Suppose  suit  to  have  been 
brought  against  the  corporation,  judgment  obtained,  the  execu- 
tion thereunder  returned  unsatisfied,  and  that  suit  is  brought 
against  the  shareholders  personally.  Some  courts,  reasoning 
from  analogy,  have  held  the  shareholders  liable  as  guarantors, 
while  in  other  courts  they  have  been  held  liable  as  partners. 
But  the  general  analogy  between  the  liability  of  a  surety  and 
that  of  a  shareholder  is  as  misleading  as  the  analogy  between 
the  liability  of  a  shareholder  and  that  of  a  partner.  On  the  one 
hand,  acts  may  be  clone  which  would  discharge  a  surety  from 
his  liability,  which  do  not  discharge  a  shareholder  from  his ; 
and,  on  the  other  hand,  by  a  bona  fide  transfer  of  shares  the 
liability  of  the  shareholder  may  cease,  while  a  partner,  by  sell- 
ing out  his  interest  in  the  firm,  cannot  free  himself  from  his 
liability  to  partnership  creditors.  No  ;  the  liability  of  a  share- 
holder in  respect  of  his  shares  in  such  a  corporation  is  the  lia- 
bility neither  of  a  surety  nor  of  a  partner,  for  the  reasons  which 
led  to  the  formation  of  the  rules  regulating  the  liability  of  a 
surety  or  of  a  partner  are  not  necessarily,  or  even  probably, 
present.  The  liability  in  question  is,  properly  speaking,  the 
liability  of  a  shareholder  in  that  particular  corporation,  and  is 
determined  by  the  rules  contained  in  the  corporate  constitu- 
tion.1 

§  69.  There  are,  however,  elements  in  the  liability  of  a  share- 
holder in  such  a  corporation  which  are  in  truth  analogous  to 
certain  elements  in  the  liability  of  a  surety  or  partner.  But 
these  elements  are  the  manifestation  of  legal  rules  common  to 
all  three  kinds  of  institutions,  and,  therefore,  to  be  regarded 

1  See,  for  a  fuller  discussion  of  this  question,  §§  712-720. 

43 


§  71.]  THE   LAW   OF    PRIVATE   CORPORATIONS.   [CHAP.  IV. 

no  more  as  rules  of  corporation  law  than  as  rules  of  the  law  of 
partnership  or  suretyship.  They  are  rather  legal  rules  of  al- 
most universal  application,  reasons  for  which  exist  in  respect 
to  almost  all  legal  institutions.  They  are  rules  which,  like  the 
rule  that  for  a  valid  contract  there  must  be  a  consideration, 
form  the  basis  of  the  law  of  contracts,  or,  like  the  rule  that  a 
man  is  responsible  for  the  acts  of  his  agent  within  the  scope 
of  his  authority  form  the  basis  of  the  law  of  agency. 

§  70.  The  second  method  by  which  courts  may  form  new 

rules  of  law,  is  by  applying  to  the  case  in  question 
eatfcmoi1"  general  principles  of  law  of  extended  application, 
principles      The  objection  to  this  method  is  that  it  is  well  nigh 

impracticable  on  account  of  the  difficulty  in  determin- 
ing what  are  these  general  principles  of  law.  Still,  this  objec- 
tion is  not  insurmountable.  However  much  jurists  may  differ 
in  regard  to  the  science  of  jurisprudence,  that  there  is  some 
such  science  founded  on  general  principles  in  themselves  logi- 
cal, just,  or  farseeingly  expedient,  according  as  one  may  phrase 
it,  few  would  deny.  It  is  not  necessary  for  jurisprudence  that 
it  should  be  based  on  principles,  true,  just,  or  expedient  for  all 
time.  It  is  enough  for  such  a  science  that  it  be  based  on  founda- 
tions that  will  last  out  a  generation  or  two.  As  such,  it  will 
be  the  expression  of  the  systematized  common  sense  or  intelli- 
gence of  men  specially  trained  in  law. 

§  71.  Indeed,  to  form  a  new  rule  based  on  general  principles 
of  law  is  no  more  than  forming  a  rule  which  shall  not  shock 
the  trained  intelligence  of  jurists  ;  and  such  a  rule  will  be  con- 
sistent with  the  law  as  a  whole,  in  so  far  as  any  rule  can  be 
consistent  with  a  huge  body  of  rules,  some  of  which  are  incon- 
sistent with  the  rest.  Forming  a  new  rule  of  law  amounts  to 
little  more  than  deciding  a  novel  case  in  accordance  with  what 
seems  to  the  court,  considering  the  general  state  of  the  law  and 
of  society,  to  be  on  the  whole  most  expedient  or  just.  The 
danger  arising  from  reasoning  from  the  analogy  of  different 
legal  institutions  is,  lest  a  rule  of  law  be  applied  where  the  rea- 
sons for  its  application  fail;  and  in  truth,  where  a  rule  of  law 
already  identified  with  one  legal  institution  is  advantageously 
applied  to  another,  it  will  be  because  good  reasons  for  the  ap- 
plication of  the  rule  exist,  and  not  because  of  the  resemblance 
of  one  institution  to  a  fancied  prototype. 
44 


CHAP.  V.]  PROMOTION    OF   A   CORPORATION. 


[§72. 


CHAPTER  V. 

LEGAL  RELATIONS  ARISING  THROUGH  THE  PROMOTION 
OF  A  CORPORATION.1 


The  law  applicable,  §  72. 

Two  classes  of  persons  interested, 
§73. 

Liability  of  promoters.  General 
principles,  §§  74,  75. 

Legal  relations  between  promoters 
and  parties  contracting  with  them, 
§76. 

Responsibility  of  promoters  for  the 
acts  of  other  promoters,  §  77. 

Liability  of  contracting  promoter 
whose  contract  binds,  or  is  adopted 
by,  other  promoters  or  the  corpora- 
tion, §§  78,  79. 


Legal  relations  between  promoters, 
§§  80,  81. 

Legal  relations  between  promoters 
and  the  corporation  subsequently 
formed;  promoter's  secret  profits, 
§§  82-84. 

Right  of  promoters  to  indemnity 
from  the  corporation  subsequently 
formed,  §  85. 

Liability  of  corporation  to  compen- 
sate promoters,  §  86. 

Legal  relations  between  the  corpora- 
tion when  organized  and  persons 
with  whom  the  promoters  have 
contracted  on  its  behalf,  §§  87-90. 


§  72.  A  general  remark  may  be  premised  in  regard  to  the 
group  of  topics  under  consideration  in  this  and  the 
succeeding  chapter :  Incorporation  not  having  as  yet   J h  l/cabie 
taken  place,  the  rules  of  law  in  the  constitution  of  the 
corporation  are  not  yet  in  operation,  and  "  corporation  law"  as 
such   will  usually  be  found   inapplicable.     Consequently,  the 
various  rights  and  liabilities  arising  through  the  promotion  of 
a  corporation  will  be  determinable  in  accordance  with  the  gen- 
eral principles  of  the  law  of  contracts,  of  agency,  and  of  part- 
nership.    We  are,  for  the  most  part,  dealing  with  contracts 
made  by  certain  persons  with  certain  others,  which,  to  be  sure, 
have  some  ulterior  end  in  view,  as  contracts  usually  have ;  but 
the  fact  that  this  ulterior  end  is  the  incorporation  of  a  company 
does  not  necessarily  affect  the  rules  of  law  by  which  these  con- 

1  This  and  the  next  chapter  lead  up  I  tiou  by  or  on  behalf  of  the  body  cor- 
to  the  discussion  of  the  legal  effect  of  ,  porate. 
acts  done  subsequent  to  incorpora- 1 

45 


§  75.]  THE   LAW   OF   PRIVATE   CORPORATIONS.     [CHAP.  V. 

tracts  are  to  be  regulated,  and  the  relations  arising  from  them 
determined.  The  preceding  statement,  however,  must  be  taken 
with  this  qualification  :  the  fact  that  the  ulterior  end  of  these 
contracts  was  the  formation  of  a  corporation  may  give  such 
corporation,  when  formed,  rights,  and  even  subject  it  to  duties 
in  regard  to  such  contracts  and  their  subject-matter. 

§  73.  The '  persons  interested  in  the  formation  of  a  corpora- 
tion may  be  roughly  divided  into  two  classes  :  (1) 

Two  cl<lSS6S 

of  persons  Persons  who  actively  take  part  in  the  scheme  of  or- 
ganization, and  (2)  persons  who  merely  subscribe  for, 
or  agree  to  take,  shares  in  the  stock  of  the  corporation  to  be 
formed.  Very  often,  perhaps  usually,  the  same  persons  who 
promote  the  scheme  of  organization  subscribe  for  shares  in  the 
stock  of  the  future  corporation ;  but  their  functions  as  pro- 
moters and  as  subscribers  are  distinguishable,  and  for  a  proper 
determination  of  the  legal  relations  arising  through  the  pro- 
motion and  formation  of  a  corporation  these  two  classes  of 
functions  should  be  kept  distinct. 

§  74.  Persons  acting  in  concert  to  bring  about  the  formation 

of  a  corporation  are  responsible  for  their  acts  as  a  mat- 
Liability  of  .  »  ,  .,,;     ,  .  , 
promoters,     ter  of  course,  and,  it  they  have  given  good  reason  to 

principles,  infer  that  the}'  will  be  responsible  for  the  acts  of  each 
other,  then  on  the  ground  of  estoppel,  if  on  no  other, 
they  will  be  so  responsible  to  any  person  acting  on  the  faith  of 
the  inference  which  their  acts  have  occasioned.  Accordingly, 
if  they  have  held  themselves  out  as  each  other's  principals,  or 
as  each  other's  partners,  although  no  relationship  of  agency  or 
partnership  in  fact  exists  between  them,  they  will  be  estopped 
from  taking  advantage  of  the  real  state  of  affairs  to  the  detri- 
ment of  persons  who  have  acted,  and  with  reason,  on  a  belief 
in  the  existence  of  such  agency  or  partnership. 

§75.  In  fine,  on  the  general  principle  that  a  man  is  to  be 
held  responsible  for  the  natural  and  ordinary  results  of  his 
acts,  the  following  propositions  may  be  laid  down  as  govern- 
ing many  of  the  rights  and  liabilities  of  the  promoters  of  a 
corporation : 

I.  A  man  is  bound  for  the  fulfillment  of  a  contract  entered 
into  by  him,  and  is,  of  course,  personally  liable  thereunder 
when  the  other  contracting  party  has  no  reason  to  suppose  him 
to  be  acting  merely  as  agent. 
46 


CHAP.  V.]     PROMOTION  OF  A  CORPORATION.         [§  75. 

II.  A.  will  be  liable  for  all  acts  done  by  B.  within  the  scope 
of  any  authority  which  A.  by  his  acts  or  representations  has 
induced  other  persons  to  suppose  that  B.  has  received  from  A., 
at  least  towards  those  persons  who  have  acted  reasonably  and 
in  good  faith  on  belief  so  occasioned  ;  and  in  such  case,  A.'s 
liability  for  B.'s  acts  will  be  identical  whether  the  relationship, 
which  A.  has  caused  to  be  believed  to  exist  between  himself 
and  B.,  actually  exists  or  not.1 

III.  If  A.  contracts  as  agent,  when  in  fact  he  has  no  principal 
or  no  authority  from  his  principal  to  make  the  contract  in  ques- 
tion, A.  will  be  personally  liable,  not  necessarily  on  the  con- 
tract, but  on  an  implied  warranty  of  authority  ;2  except  where 
the  extent  of  A.'s  authority  is  known  to  the  other  contracting 
party,3  or  is  a  matter  with  knowledge  of  which  the  other  con- 
tracting party  is  affected  by  some  rule  of  law.4 

I Y.  If  A.  contracts  as  agent,  when  in  fact  he  has  no  authority 
to  make  the  contract  in  question,  and  yet  the  circumstances  are 
such  that  some  one  is  held  liable  as  principal  (in  accordance 
with  Proposition  II.)  to  the  other  contracting  party,  or  if  the 
person  or  body  for  whom  A.  purported  to  contract  ratifies  the 
contract,5  A.  will  not  be  personally  liable  to  the  other  contract- 
ing party,  unless  there  is  evidence  that  credit  was  given  to  A. 
personally  ;6  for  any  implied  warranty  of  authority  is  unbroken. 

V.  In  the  instance  stated  in  that  part  of  the  preceding  prop- 
osition governed  by  Proposition  II.,  A.  might  be  liable  in  dam- 
ages to  his  principal  or  partner.7 

YI.  When  A.  contracts  as  principal  and  agent  as  well,  that 
is,  as  a  partner,  he  will  be  liable  personally  on  the  contract,  and 
the  liability  of  those  for  whom  he  contracts  will  be  governed 
by  the  rules  stated  in  Proposition  II. 

YII.  When  an  act  has  been  done  by  A.  as  agent,  when  in 
fact  A.  either  had  no  principal,  or,  having  a  principal,  had  no 
authority  from  him  to  do  the  act  in  question,  and  nothing  had 
been  done  by  the  person  or  body  on  behalf  of  whom  the  act  was 


1  See  Story  on  Agency  (9th  ed.), 
§443. 

2  Story  on  Agency,  §§  264,  264  or. 

3  Story  on  Agency,  §  265. 

4  See  Jefts  u.   York,  4  Cusli.  371; 
S.  C,  10  Cush.  392  ;  Thompson  on 


the  Liability  of  Officers  and  Agents 
of  Corporations,  pp.  77-80.  Compare 
§§  752-754. 

5  Story  on  Agency,  §  251. 

6  See  Story  on  Agency,  §§  263,  423. 

7  Story  on  Agency,  §  217  c. 

47 


§  76.]  THE   LAW   OF   PRIVATE  CORPORATIONS.     [CHAP.  V. 


done  by  A.,  from  which  authority  to  do  the  act  could  have  been 
inferred, — in  neither  case  can  such  person  or  body  adopt  or 
ratify  the  act  of  A.  without  incurring  all  the  liability  which 
would  have  attached  to  such  person  or  body  had  the  requisite 
authority  from  him  or  it  to  do  the  act  in  question  in  fact  ex- 
isted at  the  time  when  the  act  was  done.1 

VIII.  The  preceding  proposition  holds  good  as  to  the  liability 
incurred  by  the  subsequently  ratifying  principal  towards  the 
other  contracting  party  only  in  the  absence  of  express  agree- 
ment in  regard  thereto  ;  and  in  like  manner,  by  express  agree- 
ment between  the  agent  and  his  principal  subsequently  ratify- 
ing, the  liability  of  the  latter  to  indemnify  the  former  may  be 
varied. 

IX.  An  agreement  to  enter  into  partnership  at  some  future 
time  does  not  make  the  parties  thereto  partners,  at  least  before 
the  arrival  of  the  time  specified.2 

§  76.  Except  in  the  case  of  illegal  contracts,  or  where  the 
Legal  reia-  authority  of  an  agent  is  known  to  the  other  contract- 
ions be-       ing  party,  or  is  a  matter  with  knowledge  of  which 

tween  pro-  °  r       J '  e 

moters  and  the  other  contracting  party  is  affected,  there  is  no 
tracting  question  that  when  a  person  contracts  with  another 
W1  em'  he  is  liable  personally  for  the  damages  arising  from 
the  non-performance  of  his  side  of  the  contract,  unless  he  con- 
tracts so  as  to  bind  some  one  else  to  perform  his  side  of  the 
contract,  and  the  other  contracting  party  knows,  or  should 
know,  that  the  contract  is  made  on  behalf  of  that  outside  per- 
son, and  so  may  fairly  be  presumed  to  give  credit  to  him.  It 
follows  that  a  promoter  of  a  future  corporation  ordinarily  is 
personally  liable  to  the  other  contracting  party,  because  the 
promoter  has  no  principal;3  and  the  subsequent  adoption  of  the 


i  See  Story  on  Agency,  §§  242-244, 
250,  251,  419,  445;  also  Lindley  on 
Partnership  (Am.  ed. ),  vol.  ii.  pp. 
755-758,  star  paging.  Ratihabitio 
mandato  comparatur,  Dig.  lib.  46,  tit. 
3;  Del.  Sol.  Sen.  12,  §  4.  Si  quis 
ratuin  habuerit  quod  gestum  est,  ob- 
stringitur  mandati  actione.  Dig.  lib. 
50,  tit.  17;  De  div.  reg.  jur.,  §  60. 
See  Year  Book,  H.  7  (H.  4),  fo.  34, 
pi.  1. 

48 


2  See  Lindley  on  Partnership  (Am. 
ed.),  vol.  i.  pp.  27-3:]. 

8  If  officers  of  a  corporation  pur- 
port to  sign  a  note  on  its  behalf  be- 
fore its  organization,  they  will  be 
personally  liable  thereon.  Hurt  v. 
Salisbury,  55  Mo.  310  ;  see  Hopcroft 
v.  Parker,  16  L.  T.  N.  S.  561  ;  Mun- 
son  v.  S.  G.  &  C.  R.  R.  Co.,  81  N".  Y. 
58,  76. 


CHAP.  V.]     PROMOTION  OF  A  CORPORATION. 


[§76. 


contract  by  the  corporation  when  organized  will  not  free  the 
promoter  from  his  liability  to  the  other  contracting  party  with- 
out the  consent  of  the  latter,1  because  it  cannot  be  presumed 
that  a  party  contracting  gives  credit  to  a  corporation  not  yet 
organized,  and  therefore  not  yet  capable  of  being  bound."  Of 
course,  it  is  competent  for  the  promoter  to  stipulate  that  the 
contract  shall  not  be  binding  unless  the  corporation  is  subse- 
quently organized  ;  but  in  this  case  the  promoter  simply  makes 
a  conditional  contract.  So,  further,  it  might  be  agreed  between 
the  contracting  parties  that  in  no  event  should  the  promoter 
incur  any  personal  liability,  but  that  the  contract  should  be 
binding  only  on  the  corporation  to  be  subsequently  formed.2 
In  such  case  the  promoter  would  not  be  liable  ;  the  other  party 
could  at  any  time  withdraw  as  long  as  his  side  of  the  contract 
remained  executory,  unless  he  had  in  the  meanwhile  received 
some  valid  consideration  for  his  promise ;  and  as  for  the  corpora- 
tion, ordinarily  it  would  not  be  bound  by  the  contract  unless  it 
adopted  the  same  after  its  organization.3  It  is  plain  that  any 
contract  like  the  last  would  be  of  a  very  doubtful  and  condi- 
tional nature,  and  such  as  a  court  would  never  imply,  or  allow 
a  jury  to  imply,  unless  all  other  interpretations  were  excluded 
by  the  terms  of  the  contract  itself. 


1  "  There  must  be  two  parties  to  a 
contract,  and  the  rights  and  obliga- 
tions which  it  creates  cannot  be 
transferred  by  one  of  them  to  a 
third  person  who  was  not  in  a  condi- 
tion to  be  bound  by  it  at  the  time 
when  it  was  made."  Erie,  C.  J.,  in 
Kelner  v.  Baxter,  L.  R.  2  C.  P.  174. 
It  is  plain  that  while  a  party  may  as- 
sign his  rights  under  a  contract,  he 
may  not  thereby  free  himself  from 
his  liabilities  ;  but  it  might  be  infer- 
red from  the  words  of  the  chief  jus- 
tice that  it  was  incompetent  for  a 
corporation  to  adopt  any  contract 
made  on  its  behalf  by  one  of  its  pro- 
moters prior  to  its  organization, 
which  seems  unreasonable.  Still, 
Scott  v.  Lord  Ebury,  36  L.  J.  C.  P. 
161,  holds  that  a  corporation  subse- 


quently formed  cannot  ratify  the 
acts  of  a  promoter  so  as  to  relieve 
him  of  his  liability  arising  from 
them,  because  the  corporation  "was 
not  in  existence  "  when  the  liability 
was  incurred.  In  this  latter  case, 
however,  the  court,  who  by  agree- 
ment were  allowed  to  draw  inferen- 
ces of  fact,  considered  that  the  con- 
tract was  made  on  the  credit  of  the 
promoters  and  that  there  was  no  evi- 
dence of  a  consent  on  the  part  of  the 
other  contracting  party  to  substitute 
the  liability  of  the  corporation. 

2  Landman  v.  Entwistle,  7  Exch. 
632;  see  Higgins  v.  Hopkins,  3  Exch. 
163;  Rennie  v.  Clarke,  5  Exch.  292. 

3  As  to  the  responsibility  of  the 
corporation  in  regard  to  contracts 
of  its  promoters,  see  §§  87-90. 

49 


§  77.]  THE   LAW   OP   PRIVATE   CORPORATIONS.     [CHAP.  V. 


Responsi- 
bility of  a 
promoter 
for  the  acts 
of  other 
promoters. 


§  77.  Thus  far  in  regard  to  the  personal  responsibility  of  the 
promoter  who  himself  makes  the  contract  in  regard 
to  which  the  question  of  his  liability  arises.  As  to 
his  responsibility  for  the  acts  of  his  co-promoters 
other  principles  of  law  are  involved,  which  it  was 
attempted  to  formulate  in  Propositions  II.,  VII., 
VIII.,  and  IX.  Promoters  of  a  corporation  are  not  presump- 
tively partners,1  and  they  do  not  become  such  merely  by  becom- 
ing bound  on  the  same  instrument.  Accordingly,  a  promoter 
is  not  responsible  for  the  contracts  of  other  promoters  in  the 
absence  of  evidence  that  he  has  authorized  the  others  to  con- 
tract for  him  or  pledge  his  credit.2  Nevertheless,  applying 
principles  stated  in  the  propositions  referred  to,  if  promoter  A. 
causes  any  person,  acting  reasonably,  to  believe  that  promoter  B. 
is  his  agent,  A.  will  be  held  liable  as  principal  for  whatever  B. 
does  within  the  scope  of  whatever  agency  A.  by  his  conduct 
has  caused  to  be  inferred  to  exist  between  himself  and  B.3 
Likewise,  promoters  will  be  held  liable  as  partners  if  they  have 
held  themselves  out  as  such,  or  negligently  or  fraudulently 
allowed  themselves  so  to  be  held  out  by  their  co-promoters. 
Thus  a  prospectus  of  a  projected  company,  to  be  formed  for 
the  conveyance  of  immigrants  to  British  Columbia,  contained 
statements  calculated  to  induce  belief  that  arrangements  had 
been  perfected  for  carrying  passengers  overland,  and  invited 
persons  to  take  passage  tickets.  The  defendants  allowed  their 
names  to  be  inserted  in  this  prospectus  as  directors  in  the  con- 


1  Reynell  v.  Lewis,  15  Mees.  &  W. 
517;  Bailey  v.  Macaulay,  13  Q.  B. 
815;  1  Lindley  on  Part.,  pp.  31-33. 

2  Patrick  v.  Reynolds,  1  C.  B.  N. 
S.  727;  Burbridge  v.  Morris,  3  H.  & 
C.  664;  Wilson  v.  Curzon,  5  Eng. 
Railway  Cas.  24.  A  fortiori  a  pro- 
moter is  not  responsible  for  the  con- 
tracts of  other  promoters  entered 
into  before  be  became  in  any  way  con- 
nected with  tbe  enterprise.  Beale  v. 
Mouls,  5  Eng.  Railway  Cas.  105. 

In  an  action  against  a  provisional 
committee-man  on  a  contract  entered 
into  by  tbe  committee  of  manage- 
ment, appointed  by  the   provisional  j 

50 


committee,  it  is  a  question  for  the 
jury  whether  the  defendant  ap- 
pointed the  managing  committee  bis 
agent  to  pledge  his  credit.  Where, 
however,  nothing  else  appears  than 
that  there  is  a  managing  committee 
appointed  by  tbe  provisional  com- 
mittee, the  jury  ought  not  to  con- 
clude that  the  former  has  authority 
to  pledge  tbe  credit  of  the"  latter: 
Williams  v.  Pigott,  5  Eng.  Railway 
Cas.  544;  see  Dawson  v.  Morrison, 
ib.  62. 

8  Roberts   M.    Co.    v.    Schlick,    62 
Minn.  332. 


CHAP.  V.]  PROMOTION   OF   A   CORPORATION.  [§  78. 

templated  company,  receiving  for  the  use  of  their  names  two 
hundred  paid-up  shares  and  a  promise  of  indemnity.  The 
prospectus,  with  their  names  attached,  was  published  in  the 
Times.  It  was  held  that  a  jury  was  warranted  in  inferring 
that  a  person  who  contracted  for  his  passage  with  the  secretary 
did  so  on  the  faith  of  these  representations  in  the  prospectus ; 
and  that  such  a  person  could  recover  damages  from  the  defend- 
ants, the  representations  proving  untrue.1 

§  78.  One  other  statement  in  regard  to  the  liability  of  pro- 
moters may  be  ventured.     When  a  promoter  makes 
a  contract  merely  as  agent  for  the  other  promoters,    contracting 
who  have  not  as  a  matter  of  fact  authorized  him  to   ^™™e  con- 
make  the  contract  in  question,  but  who  have  acted    tra.ct  binds 

.  .  .  or  is 

in  such  a  way  as  to  justify  others  in  believing  that  adopted  by 
such  authority  had  been  given,  so  that  the  party  motersPor~ 
contracting  with  the  promoter  is  enabled  to  hold  ration*1'0" 
the  other  promoters  on  the  contract,  he  cannot  hold 
the  promoter  personally  who  contracted  merely  as  agent ;  not 
on  the  contract,  for  the  contract  purported  to  bind  the  other 
promoters  only,  and  not  on  the  breach  of  any  implied  warranty 
of  authority,  for  the  other  promoters  were  in  fact  bound  by  the 
contract.2  This,  in  practice,  would  prevent  the  party  with 
whom  the  promoter  contracted  as  agent  from  choosing  whom 
to  sue.  It  would  not  be  competent  for  him  to  proceed  against 
the  agent  on  the  ground  that  the  agent  had  actually  no  author- 
ity to  make  the  contract ;  for  that  is  something  with  which 
such  contracting  party  has  nothing  to  do,  provided  he  can 
hold  the  principals.  His  interest  is  in  no  way  affected,  as  he 
gave  credit  to  the  principals,  not  to  the  agent ;  and  as  long  as 
the  very  persons  to  whom  he  gave  credit  are  bound  to  him, 
what  more  can  he  claim?  All  else  is  merely  a  matter  to  be 
settled  between  the  agent  and  his  principals.  Moreover,  when 
promoters  adopt  acts  of  one  of  their  number,  in  regard  to  which 
no  liability  would  otherwise  have  attached  to  them,  they  as- 


1  Collingwooclu.  Berkeley,  15  C.  B. 
N.  S.  145;  see  also  Maddick  v.  Mar- 
shall, 17  C.  B.  N.  S.  829;  Lake  v. 
Argyll,  6  Q.  B.  477;  Wood  v.  Argyll, 
6  M.  &  G.  928.     For  the  present  law 


of  England  in  this  matter  see  Di- 
rectors' Liability  Act  1890,  53  and  54 
Vic.  ch.  64. 

2  See  Proposition  IV.,  §75. 

51 


§  79.]  THE   LAW   OF   PRIVATE   CORPORATIONS.     [CHAP.  V. 

sume  all  liability  which  would  have  attached  to  them  had  the 
act  been  authorized  by  them  before  it  was  done.  They  must 
ratify  in  toto,  if  at  all,  unless  of  course  the  other  contracting 
party,  with  full  knowledge  of  the  situation,  agrees  to  a  vari- 
ation from  the  original  liability.1 

§  79.  Seasoning  by  analogy  from  the  above,  it  would  seem 
that  in  so  far  as  the  subsequently  formed  corporation  assumes 
the  liability  of  the  promoter,  who  contracted  as  its  agent, 
towards  the  other  contracting  party,  who  contracted  with  the 
promoter  as  the  agent  of  the  corporation,  and  gave  credit  to 
the  corporation,  knowing  that  it  had  not  yet  been  organized — 
something  highly  improbable,2  the  personal  liability  of  the 
promoter  would  cease  ;  and  for  the  same  reasons  as  before ;  for 
it  was  to  the  corporation  that  the  other  contracting  party  gave 
the  credit,  and  the  corporation  has  assumed  the  liability.  To 
be  sure,  if  the  other  contracting  party  did  not  know  that  the 
corporation  was  unorganized  at  the  time,  he  cannot  justly  be 
presumed  to  have  contracted  on  its  credit;  and  therefore  no 
subsequent  ratification  by  the  corporation  would  free  the  pro- 
moter from  personal  liability;  and,  if  the  promoter  represented 
that  the  corporation  was  organized  when  the  contract  was  made, 
he  would  be  liable  in  an  action  for  deceit. 

Finally,  while  it  may  be  true  that  the  subsequently  formed 
corporation  agrees  by  implication,  on  adopting  the  contract  of 
its  promoter,  to  indemnify  him  from  all  liability  under  the 
same,  and  this  because  the  corporation  is  entitled  to  the  full 
benefit  of  the  contract,3  yet  this  reason  fails  when  considering 
the  rights  of  the  other  contracting  party,  who  may  have  good 
grounds  for  refusing  to  accept  the  exclusive  liability  of  a  body 
which  had  not  been  organized  at  the  time  of  making  the  con- 
tract. 


1  See  Propositions  VII.  and  VIII., 
§75. 

2  It  could  never  be  presumed  that  a 
party  contracting  with  a  promoter 
gave  credit  to  a  body  not  yet  organ- 
ized. Therefore  evidence  would  be 
required  to  establish  the  fact  that 

52 


credit  was  given  to  the  corporation; 
and,  unless  the  whole  transaction  had 
been  reduced  to  writing,  this  would 
be  a  question  for  the  jury.  See 
§76. 
3  See  §§  82-84. 


CHAP  V.]      PROMOTION  OF  A  CORPORATION. 


[§8L 


§  80.  Promoters  are  bound  to  observe  good  faith  in  their 
dealings  with  each  other,  and  one  promotor  must  in- 
demnify the  others  for  damages  arising  from  any   latfons™" 
unauthorized  acts  of  his  affecting  their  rights  and   promoters, 
interests.     Should,  for  instance,  one  promoter  with- 
out authority  attach  the  names  of  his  co-promoters  to  any  pro- 
spectus or  other  document,  he  would  be  liable  for  their  damages 
resulting.     Moreover,  although  promoters  may  have  acted  in 
such  a  manner  as  to  induce  belief  in  outsiders  that  the  relation- 
ship of  agency  or  partnership  exists  among  them,  so  that  as  to 
outsiders  they  have  made  themselves  responsible  for  each  other's 
acts,  still,  if  no  such  relationship  in  truth  exists,  any  promoter 
doing  any  act  by  which  liability! attaches  to  his  co-promoters 
may  be  held  to  indemnify  them.     If,  as  a  matter  of  fact,  the 
relationship  of  agency  or  partnership  exists  between  promoters, 
they  will  be  held,  as  among  themselves,  to  the  strict  account- 
ability of  trustees ;  and  the  legal  and  equitable  rules,  regulating 
agency  and  partnership,  will  be  applicable. 

§  81.  The  principles  of  law  applicable  to  persons  becoming 
jointly  bound  on  one  instrument  apply  to  promoters,  and  in 
such  case,  should  one  of  them  be  obliged  to  pay  the  whole 
debt,  he  can  enforce  contribution  from  his  co-debtors.1  So, 
where  promoters  have  made  an  agreement  to  share  expenses, 
such  agreement  will  hold  good  between  them,  and  will  be  en- 
forceable at  the  suit  of  any  one  of  their  number  who  may  in 
good  faith  have  paid  more  than  his  share  of  the  expenses  of  the 
scheme.  Promoters,  or  provisional  committee-men,  although 
not  partners,  are  not  entitled,  in  the  absence  of  any  special 
agreement,  to  remuneration  from  each  other  for  their  services 
in  promoting  the  organization  of  the  corporation.3 


1  Several  provisional  committee- 
men became  jointly  liable  on  the 
same  contract.  One  of  their  num- 
ber was  forced  to  pay  the  whole 
debt.  Subsequently  he  brought  suit 
for  contribution,  some  of  his  as- 
sociates having  died  in  the  mean 
time.  It  was  held,  provisional  com- 
mittee-men not  being  partners,  that 
each  was  liable  to  contribute  to  the 
one  who  had   paid  the  whole  debt 


only  the  same  aliquot  part  that  each 
would  have  been  obliged  to  contrib- 
ute had  there  occurred  no  deaths. 
Batard  ».  Hawes,  2  El.  &  B.  287. 

2  Parkin  v.  Fry,  2  C.  &  P.  311.  The 
case  of  Holmes  v.  Hi«gins,  1  B.  &  Cr. 
74,  decides  the  same  point  in  the 
same  way,  hut  on  the  ground  that 
promoters  are  partners;  in  this  re- 
spect the  case  is  no  longer  law;  see 
§77. 

53 


§  82.]  THE   LAW   OF   PRIVATE  CORPORATIONS.     [CHAP.  V. 

§  82.  The  relationship  existing  between  the  promoters  and 
Legal  rela-  tne  corporation  as  subsequently  organized  is  a  fidu- 
tionsbe-        ciary  relationship,  regulated   by  legal  and  equitable 

tween  pro-  J  ,  .  l  '       °  Jo  l 

moters  and  principles  in  many  respects  similar  to  those  applica- 
mtioirsub-  ble  to  the  relationship  of  agency.1  Strictly  speaking, 
fortnedUy      a  promoter  cannot  be  called  the  agent  of  the  corpora- 

^c°ret°ters'  ^un  wni°n  has  n°t  ye^  Deeri  organized.  It  is  never- 
profits.  theless  true  that  if  a  person  acts  in  such  a  way  as  to 
give  rise  to  the  reasonable  presumption  that  he  is  acting  in  the 
interests  of  a  corporation  about  to  be  formed,  and  other  men 
act,  relying  on  his  acts  and  representations,  believing  him  to 
be  acting  as  he  appears  to  be  acting,  such  a  person  will  be  es- 
topped from  denying  that  he  was  acting  in  the  interests  of  the 
future  corporation,  when  such  a  denial  would  injure  others 
who  have  acted  upon  the  faith  of  his  acts  and  representations. 
Moreover,  if  the  facts  correspond  to  the  appearances,  which 
correspondence  he  will  not  be  allowed  to  controvert,  and  he  is 
really  acting  in  the  interests  of  the  future  corporation,  his  rela- 
tions thereto  can  be  regulated  only  by  rules  similar  to  those  pre- 
vailing in  the  law  of  agency.  Therefore,  speaking  elliptically, 
he  will  be  estopped  from  denying  that  he  acted  as  the  agent  of 
the  corporation.  Accordingly,  as  against  a  person  acting  as 
promoter,  the  corporation  is  entitled  to  the  full  benefit  of  all 
acts  done  and  contracts  made  by  him  while  acting  in  that 
capacity ;  and  the  promoter,  as  between  himself  and  the  corpo- 
ration, is  entitled  to  no  secret  profits ;  he  may  not  purchase 
property  for  the  corporation,  and  then  sell  the  same  to  the  cor- 
poration at  an  advance.2    And  if  a  promoter,  in  payment  for 


1  But  not  in  every  respect;  for  the 
corporation,  in  the  nature  of  things, 
not  having  entrusted  its  property  to 
the  promoter,  never  having  employed 
the  promoter  to  act  for  it,  and  not 
being  bound  by  his  contracts  unless 
it  ratifies  or  voluntarily  accepts  the 
benefit  of  them  after  its  incorpora- 
tion, could  ordinarily  bring  no  such 
action  against  a  promoter  for  misfeas- 
ance as  a  corporation  could  bring 
against  one  of  its  officers.  A  promo- 
ter, to  be  sure,  would  be  liable  to  the 

54 


corporation  in  damages  for  any  fraud 
committed  by  him  in  contracting 
with  it  of  a  nature  that  would  render 
one  individual  liable  under  ordinary 
circumstances  to  another.  But  usu- 
ally the  only  action  maintainable  by 
a  corporation  against  its  promoters 
is  an  action  to  make  them  disgorge 
secret  profits.  See  generally  Yale 
G.  S.  Co.  v.  Wilcox,  64  Conn.  101. 

2  Simons  v.  Vulcan  Oil  Co.,  61  Pa. 
St.  202;  Short  v.  Stevenson,  63  Pa.  St. 
95;  Chandler  v.  Bacon,  30  Fed.  Rep. 


CHAP.  V.]     PROMOTION  OF  A  CORPORATION. 


[§83. 


property  belonging  to  him  or  in  which  he  is  pecuniarily  inter- 
ested, receives  from  the  corporation  moneys  which,  as  being 
secret  profits,  he  is  not  entitled  as  against  the  corporation  to 
retain,  and  distributes  a  portion  of  these  profits  among  his  co- 
promoters  or  associates,  he  will  be  liable  to  refund  to  the  corpo- 
ration, not  only  the  profits  retained  by  himself,  but  also  those 


A*-    t*0*wr*- 


iece  or  property^dpe- 


Xtrtr* 


which  he  has  thus  distributed^ 

§  83.  If,  however,  a  person^nvning  a  piece  ul 
comes  a  promoter  in  a  scheme  of  incorporation,  even  when  the  ^ 
scheme  relates  to  the  development  of  this  very  piece  of  prop- 
erty, he  may  sell  the  property  to  the  corporation,  and  have  his 
price  paid  without  regard  to  the  original  cost  of  the  property 
to  him  ; 2  for,  when  he  acquired  the  property,  ex  hypothese  he  did 


538;  Burbankv.  Dennis,  101  Cal.  90; 
Land  Co.  v.  Obenchain,  92  Va.  130; 
Park  Co.  v.  Roberts,  92  Wis.  345; 
Exter  v.  Sawyer,  146  Mo.  302 ;  Hick- 
ens  v.  Congreve,  1  R.  &  M.  150;  Beck 
v.  Kantorowicz,  3  K.  &  J.  230;  New 
Sombrero  Phospbate  Co.  v.  Erlanger, 
L.  R.  5  Cb.  D.  73;  aff'd,  3  App.  Cas. 
1218;  Phospbate  Sewage  Co.  v.  Har- 
mont,  L.  R.  5  Cb.  D.  394;  Bagnal  v. 
Carlton,  L.  R.  6  Cb.  D.  371.  See 
Dickerman  v.  Northern  Trust  Co., 
176  U.  S.  181.  "Nothing  is  more 
common  than  for  persons  to  acquire 
property,  to  form  a  company  on  pur- 
pose to  buy  it,  and  to  conceal  their 
own  true  position  from  the  company 
they  so  form.  Such  a  transaction 
can  never  stand."  2  Lindley  on 
Part.,  580.  The  same  principles  hold 
in  transactions  looking  towards  the 
formation  of  an  ordinary  partnership. 
See  Fawcett  v.  Whitehouse,  1  R.  & 
M.  132;  and,  in  general,  Tyrrell  v. 
Bank  of  London,  10  H.  L.  C.  26. 

1  Getty  v.  Devlin,  70  N.  Y.  504; 
Semble,  contra,  Loudenslager  v. 
Woodbury  Heights  Land  Co.,  58  N. 
J.  Eq.  556,  rev'g,  55  N.  J.  Eq.  78;  S.  C. 
56  N.  J.  Eq.  411. 

2  See  Cover's  Case,  1  Ch.  D.  182, 
which  discusses  how  far  a  person  pro- 


moting the  formation  of  a  company  to 
develop  property  belonging  to  him- 
self may  act  towards  the  company, 
in  selling  his  property  to  them,  as 
towards  an  outsider  to  whom  he  owes 
no  special  duties.  The  case  did  not 
decide  the  point  under  discussion  in 
the  text,  i.  e.,  that  such  a  person 
could  sell  at  profit  and  retain  the 
profit,  but  merely  that  his  having 
done  so  was  no  ground  to  sustain  an 
application  on  the  part  of  a  share- 
holder for  the  removal  of  her  name 
from  the  list  of  shareholders  on  the 
winding  up  of  the  company.  The 
case  was  not  considered  to  conflict 
with  the  cases  cited  in  the  last  note. 
See  James,  L.  J.,  in  5  Ch.  D.  118. 
Dorris  v.  French,  4  Hun,  292,  resem- 
bles Gover's  Case,  and  decides  the 
same  point  the  same  way.  It  was 
held  in  a  recent  English  case  that  if 
a  promoter  sell  bis  own  property  to 
the  corporation  without  declaring 
the  fact  that  it  is  his,  the  corporation 
may  rescind  if  in  a  position  to  do  so, 
but  cannot  compel  the  promoter  to 
pay  over  the  difference  between  what 
he  paid  for  the  property  at  a  time 
when  he  was  not  the  promoter  and 
what  the  corporation  paid  him  for  it. 
In  re  Cape  Breton  Co.,  2  Ch.  Div.  221; 

55 


§  83.]  THE    LAW   OP   PRIVATE   CORPORATIONS.     [CHAP.  V. 

not  act  as  promoter.  Nevertheless,  if  at  the  time  of  making 
the  sale  to  the  corporation,  he  occupies  towards  the  corporation, 
as  promoter  or  otherwise,  a  position  of  trust  and  confidence, 
while  he  may  sell  without  reference  to  the  original  cost  of  the 
property  to  him,  yet  it  would  seem,  on  general  principles  of  law 
and  equity  applicable  to  persons  holding  positions  of  trust,  that 
he  should  not  be  permitted  to  sell  at  an  unfair  or  exorbitant  price.1 


aff'd,  29  Cb.  Div.  795;  Warren  Ehret 


,v 


which  affects  them  with  any  trust."i 


Co.  v.  Ice  Co.,  198  Pa.  St.  412;  Rich-  The  last,  sentence  seems  to  contain  ai 
ardson  v.  Graham,  45  W.  Va.  l&i J  non  sequitur  ;  i.  e.,  A.  did  not  occupy! 
The  corporation  is  the  proper  plain--  a  position  of  trust  towards  B.  when[ 
tiff  in  suit  to  set  aside  promoters' '.A.  acquired  the  property,  therefore, 
acts,  etc.  Ex-Mission  Land  Co.  v.i  A.  does  not  hold  such  a  position  to- 
Flash,  97  Cal.  610.  The  corporation  wards  B.  when  A.  sells  the  property 
may  compel  its  promoters  to  account-  to  him.  The  original  cost  is  imma- 
for  secret  profits,  although  at  the^terial;  the  property  may  have  been 
time  when  the  promoters  tiu-ned  the  ^given  to  the  promoter;  but  it  does 
property  over  to  the  corporation  the1 'not  follow  that  he  may  sell  to  his  as- 
promoters  were  the  only  stockhold-  fsociates  at  an  exorbitant  price, 
ers,  they  being  at  the  time  under  1  Moreover,  the  sentence  referred  to  is 
contract  to  sell  their  shares  tosubse-  fhardly  consistent  with  the  following 
quent  purchasers,  who  were  the  real  [Sfrom  the  same  opinion.  "Where 
persons  defrauded.  Pittsburgh  Mg.  /persons  form  such  an  association,  or 
Co.  v.  Spooner,  74  Wis.  307.  ftbegin  or  start  the  project  of  one,  from 

""w'"?ale  tr'cs.  Co.  v.  VvTTcox,  64  Conn."  that  tune  they  do  stand  in  a  confiden 


101.      See   cases   in  last  two  notes. 

The  last  sentence   in  the  text  may 

not  accord  with  the  view  of  Shars- 

wood,  C.  J.,  in  Densmore  Oil   Co.  v. 

Densmore,  64  Pa.  St.  43,  49.     "  .  .  .  . 

Any  man  or  number  of  men  who  are 

the  owners  of  any  kind  of  property 

may  form  a  partnership  or  associa-  j  disclosure  of  the  facts.     They  must 

account  to  the  company  for  the  profit, 
because  it  is  legitimately  theirs." 
The   learned   judge  seems  to  think 


tial  relation  to  each  other,  and  to  all 
others  who  may  subsequently  be- 
come members  or  subscribers;  and  it 
is  not  competent  for  any  one  of  them 
to  purchase  property  for  the  pur- 
poses of  such  a  company,  and  then 
sell  it  at  an  advance,  without  a  full  | 


tion  with  others,  and  sell  that  prop- 
erty to  the  association  at  any  price 
I  which  may  be  agreed  on  between 
them,  no  matter  what  it  may  have 
originally  cost,  provided  there  be  no 
fraudulent  misrepresentations  made 
by  the  vendors  to  their  associates. 
They  are  not  bound  to  disclose  the 
profit  they  may  realize  by  the  trans- 


that  the  property  must  have  been  ac-  f 
quired  during  the   existence  of  the  i 
fiduciary  relation,  in  order  to  charge 
the  seller  with  any  of  those  duties 
towards   his   vendee   which  persons 
standing   in   a   confidential    relation 


action.     They  were  in  no  sense  agents  i  owe    each    other;    but    this    seems 

or  trustees  in  the  original  purchase,  '  not  essential,  for  the  maxim  caveat 

<and  it  follows  that  there  is  no  confi-  j  emptor,  and  the  rules  of  law  proceed- 

dential  relation  between  the  parties  |  ing  from  it,  never  apply  between  per- 

56 


CHAP.  V.]  PROMOTION   OF   A    CORPORATION. 


[§84. 


According^,  it  becomes  of  importance  to  determine,  as  nearly 
as  the  nature  of  the  case  will  permit,  the  point  of  time  when 
any  person  begins  to  act  as  a  promoter,  and  so  presumably  in 
the  interests  of  a  company  to  be  organized.  This  can  be  deter- 
mined only  from  his  acts  and  representations.  Does  he  hold 
himself  out  generally  in  what  he  says  and  does  as  promoting 
the  formation  of  a  corporation  ?  and  does  he  represent  himself 
as  acting  and  contracting  on  its  behalf  or  for  its  ultimate  bene- 
fit? It  would  seem  that  the  character  of  promoter  should  be 
held  to  have  been  assumed  at  any  time  when  these  questions 
could  have  been  answered  generally  in  the  affirmative.1 

§  84.  The  application  of  the  foregoing  principles  is  illustrated 
by  McElhenny's  Appeal.2  McElhenny,  not  acting  as  a  promo- 
ter, sold  some  property  to  persons  who  were  getting  up  a  com- 
pany, to  which  they  in  turn  intended  selling  the  property.  He 
then  united  with  the  promoters,  and  they  all  together  turned 
the  property  over  to  the  corporation  at  a  large  advance.  Af- 
terwards the  corporation,  discovering  these  facts,  brought  suit 
against  McElhenny,  or  rather  against  his  executors,  as  he  had 
died  in  the  mean  time,  to  make  his  estate  refund  the  profits  he 
had  made  from  the  two  sales  of  his  property.  The  Supreme 
Court  of  Pennsylvania  held,  that  the  estate  was  entitled  to  re- 
tain the  profits  which  McElhenny  had  made  from  his  first  sale 
to  the  promoters,  but  should  pay  back  the  profits  he  had  de- 


sons  occupying  positions  of  mutual 
trust  and  confidence;  see  also  Lun-  . 
>gren  v.  Pennel,  10  Weekly  Notes  o 
^asesJPaO^OT 


1 


^  Se"eot.^L6uis7"etc.,  R.  R.  Co.  v. 
Tiernan,  37  Kan.  606  ;  South  Joplin 
Land  Co.  v.  Case,  104  Mo.  572.  "  On 
the  one  hand,  it  is  plain  that  a  fidu- 
ciary relation  between  a  promoter 
and  a  company  may  exist  long  be- 
fore the  actual  formation  of  a  com- 
pany by  registration.  On  the  other 
hand,  it  is  obvious  that  something 
must  be  done  beyond  a  purchase  and 
a  resale  to  constitute  such  a  relation  ; 
something  must,  it  is  submitted,  be 
done  by  the  promoter  to  impose  upon 
him  the  duty  of  protecting  the  inter- 


est of  those  who  ultimately  form  the 
company.  He  assumes  this  duty,  if 
he  assumes  to  act  for  them,  or  if  he 
induces  them  to  trust  him,  or  to 
trust  persons  who  are  under  his  con- 
trol, and  who  are  practically  himself 
in  disguise  ;  he  also  assumes  this 
duty  if  he  calls  the  company  into  ex- 
istence in  order  that  it  may  buy  what 
he  has  to  sell  ;  but  he  does  not 
assume  such  duty  by  negotiating 
with  persons  who  have  themselves 
assumed  that  duty,  and  who  are  in 
no  way  under  his  influence."  2  Lind- 
ley  on  Part.,  585.  See  Albion  Steel 
and  Wire  Co.  v.  Martin,  1  Ch.  D.  580. 
2  61  Pa.  St.  188  ;  Ace.  South  Jop- 
lin Land  Co.  v.  Case,  104  Mo.  572. 

57 


§  85.]  THE   LAW    OF   PRIVATE   CORPORATIONS.     [CHAP.  V. 

rived  from  his  interest  in  the  subsequent  sale  from  the  promot- 
ers to  the  corporation. 

§  84«.  It  has  recently  been  held  "  a  fraud  for  promoters  to 
undertake  to  decide  for  the  future  stockholders  in  the  corpo- 
ration to  be  organized  that  one  third  of  the  whole  capital  stock 
of  that  corporation  is  a  fair  remuneration  for  their  services  as 
promoters,  to  issue  one  third  of  the  capital  stock  to  themselves 
as  such  remuneration,  and  then  to  invite  the  public  to  subscribe 
to  the  stock  of  the  corporation,  without  disclosing  the  fact  to 
the  subscribers  and  without  getting  their  consent  to  the  pay- 
ment of  that  remuneration."  Also:  "  Payment  to  promoters 
of  remuneration  for  their  services  is  not  made  valid  by  a  vote 
passed  by  the  corporation,  when  the  corporation  is  in  the  sole 
control  of  the  promoters  before  the  capital  has  been  issued  to 
the  public."  In  such  case  the  corporation,  and  not  its  receiver 
is  the  proper  party  to  bring  suit ;  and  it  may  follow  the  shares 
received  by  the  promoters,  or  the  proceeds  thereof,  or  may 
recover  damages.1 

§  85.  It  is  probably  true,  as  a  general  legal  proposition,  that 
-D.  , .   ,        when  A.  makes  a  contract  for  B.,  who  is  not  as  vet 

Right  of  .  J 

promoters     A.'s  principal,  while  A.   becomes  responsible  from 

to  indem-  .  /       ,  ,  «  r>     i  i 

nityfrom  the  outset  for  the  performance  or  the  contract  made 
poratkm  by  him,  B.,  by  assuming  the  contract  as  principal, 
subse-  therebv  assumes  to  indemnify  A.  from  anv  liability 

quently  •  ■/•/•/ 

formed.  under  the  contract  towards  the  other  contracting 
party.  This  agreement  to  indemnify  would  be  implied,  and  B. 
would  become  principal  as  from  the  time  of  making  the  con- 
tract. Where  B.,  however,  who  subsequently  as  principal 
assumes  the  contract  made  by  A.  as  agent,  is  a  corporation 
which  was  not  organized  at  the  time  of  making  the  contract, 
apparent  difficulties  arise.  It  would  seem  illogical  to  imply — 
and  the  discussion  at  present  is  confined  to  cases  where  no  ex- 
press assumption  of  liability  is  made — any  agreement  on  the 
part  of  the  corporation,  which  at  the  time  of  making  the  con- 
tract could  have  had  no  agent,  to  indemnify  any  one  who  at 
that  time  attempted  to  act  on  its  behalf.  Nevertheless,  as  under 
such  circumstances  the  corporation  would  be  entitled  to  the  full 

1  Hay  ward  v.  Leeson,  176  Mass.  I  language  of  the  court  by  Judge  Lor- 
310.     The    passages  quoted  are  the  |  ing. 

58 


H 


CHAP.  V.]  PROMOTION   OF   A   CORPORATION.  [§  86. 

benefit  of  the  contract  made  by  its  promoter,  and,  as  towards 
the  corporation,  the  promoter  would  be  charged  with  the  duties 
and  liabilities  of  an  agent,  it  seems  no  more  than  equitable  that 
an  agreement  should  be  implied  on  the  part  of  the  corporation 
to  indemnify  the  promoter,  in  so  far  as  the  corporation  has  vol- 
untarily accepted  the  benefit  of  the  contract,  against  any  lia- 
bility towards  the  other  contracting  party.1  This  would  hold 
good,  however,  only  in  those  cases  where  the  original  contract 
as  made  by  the  promoter  would  not  have  been  ultra  vires  the 
corporation  after  its  organization.2 

The  corporation,  moreover,  could  expressly  agree  to  assume 
any  liability  incurred  by  the  promoter  contracting  on  its  be- 
half ;  but  such  an  agreement,  were  it  other  than  the  law  under 
the  circumstances  would  imply,  would  be  a  new  contract,  and 
would  have  to  be  supported  by  a  valid  consideration  and  be 
within  the  powers  of  the  corporation. 

§  86.  In  England  by  statute  many  companies  are  required  to 
pav  the  expenses  which  are  incurred  in  their  for- 

r       .  \       ,  .  t  .  ,  Liability  of 

mation ;  and  when  such  a  statute  applies,  a  member  corpora- 
of  the  company  will  be  entitled  to  be  paid  for  his  cmnpen- 
trouble  and  time  in  forming  it.3     In  the  absence,   sat®  Pro" 

°  «  — ■ '     moters. 

however,  of  any  statute,  it  is  the  law  throughout_the 
United  States  that  the  corporation  subsequently  formed  is  not 
liable  to  compensate  its  promoters  for  their  services  in  forming 
it  and  procuring  subscriptions  to  its  stock  **  for,  aside  from  the 
technical  difficulties  in  the  way  arising  from  the  fact  that  the 
corporation  was  not  incorporated  at  the  time  when  the  services 
were  rendered,  it  is  thought  reasonable  to  regard  such  services 
as  having  been  given  in  view  of  the  benefit  expected  from  the 
organization  of  the  company.4  If,  however,  after  its  incorpo- 
ration, the  corporation  recognizing  the  services  of  its  promoters 
expressly  promises  to  pay  for  them,  an  action  will  lie  against 


1See  Parsons  v.  Spooner,  5  Hare, 
102. 

2  Thus  a  corporation  is  not  liable 
to  repay  money  advanced  for  the  pur- 
pose of  influencing  the  legislature  to 
incorporate  it.  Marcband  v.  Loan 
and  Pledge  Association,  26  La.  Ann. 
389.     See,  generally,  also  §§  87-90. 

3  Carden  v.  General  Cemetery  Co., 


5  Bing.  N.  C.  253;  see  In  re  Bramp- 
ton v.  Longtown  R'y  Co.,  L.  R.  10 
Ch.  177;  Hitchens  v.  Kilkenny  R'y 
Co.,  9  C.  B.  536. 

4Rockford  Rock  Island,  etc.,  R.  R. 
Co.  v.  Sage,  65  111.  328;  Bell's  Gap 
R.  R.  Co.  v.  Christy,  79  Pa.  St.  54; 
New  York  and  New  Haven  R.  R.  Co. 
v.  Ketcbum,    27   Conn.    171;  Hall  v. 

59 


§87.] 


THE    LAW    OF    PRIVATE   CORPORATIONS.  [CHAP.  V. 


it  on  this  express  promise  ;!  and  likewise,  if,  after  its  incorpo- 
ration, it  ratifies  the  promises  of  its  promoters  to  pay  for  the 
services  of  other  persons  performed  for  it  before  its  incorpora- 
tion, an  action  will  lie  on  this  ratification.2  And  such  a  ratifi- 
cation will  arise  if  the  corporation,  after  notice  that  the  serv- 
ices were  rendered  on  promises  of  the  promoters  that  they 
should  be  paid  for,  voluntarily  accepts  the  benefit.3 

§  87.  It  may   be  said,  generally,  that  a  corporation   when 

organized,  in  the  absence  of  ratification  on  its  part, 

tionsbJ-6  *"   is  not  responsible  for  the  acts  nor  bound  by  the  con- 

conwr*6     tracts  of  its  promoters,4  unless  made  so  by  its  charter, 

tiou  when      which  it  has  accepted  and  thereby  agreed  to.5     But 

organized  ...  .  ■,         ■      ■,       .  ■,      ■,  .   . 

and  persons   this  is  not  identical  with  the  proposition  that  the  cor- 

witu  whom  ,.  .-,  ,  -,  .    ,     , 

the  promo-    poration  may  ignore  the  engagements  entered  into  by 
contracted     ^ts  promoters  when  it  has  had  the  benefit  of  them. 
on  its  be-  it  cannot  be  said  that  the  promoters  were  the  agents 

of  the  corporation ;  but,  nevertheless,  the  corporation 
may  adopt  such  acts  of  its  promoters  intended  for  its  benefit, 
and  may  ratify  such  of  their  contracts  made  on  its  behalf  as 
would  have  been  within  the  powers  of  the  corporation  after  its 
organization  ;  and  this  it  may  do  notwithstanding  that  it  was 


Vermont  and  Mass.  R.  R.  Co.,  28  Vt. 
401;  Marchand  v.  Loan  and  Pledge 
Association,  26  La.  Ann.  389.  Com- 
pare Perry  v.  Little  Rock,  etc.,  R'y 
Co.,  44  Ark.  383. 

1  Smith  v.  New  Hartford  Water  Co., 
73  Conn.  626.  See  Western  Screw 
and  Mfg.  Co.  v.  Cousley,  72  111.  531; 
Franklin  Fire  Ins.  Co.  v.  Hart,  31 
Md.  59. 

2McDonough  v.  Bank  of  Houston, 
34  Tex.  309;  but  see  Railway  Co.  v. 
Granger,  86  Tex.  350  and  cf.  Safety 
Dep.  Life  Ins.  Co.  v.  Smith,  65  111. 
309. 

8  Low  v.  Connecticut  and  P.  R.  R. 
R.  Co.,  46  N.  H.  284;  Morton  v. 
Hamilton  College,  100  Ky.  281; 
Kaeppler  v.  Redfield  Creamery  Co.,  12 
S.  Dak.  483. 

4  Gent  v.    Insurance   Co.,    107  111. 

60 


652;  Penn  Match  Co.  v.  Hapgood, 
141  Mass.  145;  Munson  v.  Syracuse, 
etc.,  R.  R.  Co.,  103  N.  Y.  58;  Payne 
v.  New  South  Wales  Coal  Co.,  10  Ex. 
283;  Gunn  v.  London  and  Lancashire 
Fire  Ins.  Co.,  12  C.  B.  N.  S.  694. 
See  1  Lindley  on  Part.,  395;  Hutchin- 
son v.  Surrey  Consumers'  Gas  Light 
Ass'n,  11  C.  B.  689;  Pittsburgh,  etc., 
Mg.  Co.  v.  Quintrell,  88  Tenn.  693; 
Long  v.  Citizcus'  Bank,  8  Utah,  104; 
Oldham  v.  Mt.  Sterling  Imp't  Co., 
103  Ky.  529;  Chase  v.  Redfield  Cream- 
ery Co.,  12  S.  Dak.  529;  cf.  Ireland 
v.  Globe  Milling  Co.,  20  R.  I.  190. 

6  Tilson  v.  Warwick  Gaslight  Co., 
4  B.  &  C.  962.  See  Shaw's  Claim, 
L.  R.  10  Ch.  177;  and  Caledonian, 
etc.,  R.  Co.  v.  Helensburgh,  2  Mac- 
queen,  391. 


CHAP.  V.]     PROMOTION  OF  A  CORPORATION. 


[§  87. 


not  organized  when  those  contracts  were  made.1    And  if   it 
ratifies  their  contracts,  then,  in  the  absence  of  express  agree- 


i  Whitney  v.  Wyman,  101  U.  S.  392; 
Spiller  v.  Paris  Skating  Rink  Co.,  7 
Ch.  D.  368;  Davis  Bros.  v.  Montgom- 
ery, etc.,  Co.,  101  Ala.  127;  Alexan- 
der v.  Winters,  23  Nev.  475;  Wall  v. 
Mining  &  Smelting  Co.,  20  Utah,  474. 
See  Perm  Match  Co.  v.  Hapgood,  141 
Mass.  145,  149;  Smith  o.  Parker,  148 
Ind.  127;  Scadden  Flax  G.  M.  Co.  o. 
Scadden,  121  Cal.  33.  A  number  of 
English  cases,  criticised  in  Spiller  v. 
Paris  Skating  Rink  Co.,  have  held 
that  a  corporation  could  not  ratify 
the  acts  of  its  promoters,  because 
not  in  existence  when  the  acts  were 
done.  See  Kelner  v.  Baxter,  L.  R.  2 
C.  P.  174  (ante,  §76);  Scott  v.  Lord 
Ebury,  36  L.  J.  C.  P.  161  (ante,  §76); 
and  Melhado  v.  Porto  Alegre  R.  Co., 
9  C.  P.  503.  In  the  last  case  Cole- 
ridge, C.  J.,  seemed  to  think  such 
cases  should  be  decided  differently, 
but  could  "  find  no  legal  principle" 
upon  which  an  action  brought  against 
a  corporation  on  a  contract  made  by 
its  promoters  before,  and  ratified  by 
it   after,    its  organization   could  be 

maintained.  _  _   _     . 

k*  It  may  be  true,  according  to  the 
common  law,  that  no  mere  stranger, 
on  whose  behalf  an  agent  did  not 
even  pretend  to  act,  may  ratify  the 
contracts  of  such  an  agent  so  as  to 
require  rights  or  incur  liabilities  in 
regard  thereto,  towards  the  other 
contracting  party.  See  Wilson  v. 
Lumman,  6  Man.  &  Gr.  236.  And  it 
is  said  in  the  Digest:  "  Ratihabitio 
constituet  tuum  negotium,  quod  ab 
initio  tuum  non  erat,  sed  tua  cou- 
templatione  gestum."  Dig.  lib.  3, 
,tit.  5;  De  Neg.  Ges  5,  §  11.  (Momm- 
'sen's  ed.;  otherwise  cited  as  6,  §9.) 
But  at  common  law  a  chose  in  action 
rwas  regarded  as  non-assignable;  and 
yu  the  Roman  law  the  competency  to 


acquire  rights  and  incur  liabilities 
through  an  agent  was  of  late  growth. 
Moreover,  a  promoter  does  purport 
to  act  on  behalf  of  the  future  cor-' 
poration;  and  the  future  corpora- 
tion, as  between  itself  and  its  pro- 
moter, is  entitled  to  the  full  benefit 
of  his  acts  (see  §§82-84);  and  it  is 
only  through  the  acts  of  its  pro- 
moters that  a  corporation  is  formed. 
To  say  that  the  corporation  when  or- 
ganized cannot  adopt  and  ratify  such 
contracts  of  its  promoters  made  on 
its  behalf,  as  would  have  been  within 
its  powers  to  enter  into  after  its  or- 
ganization, is  to  say  that  a  body  of 
men,  when  incorporated  and  acting 
as  a  corporation,  cannot  ratify  those 
contracts  (of  some  of  their  number, 
probably)  which  it  would  be  compe- 
tent for  them,  acting  as  a  corpora- 
tion, to  make,  and  which  were  made 
on  their  behalf,  and  in  order  that 
they  might  subsequently  act  as  a  cor- 
poration. Instances  would  seem  hard 
to  find  where  ratification  could  more 
properly  take  place.  ^_ 

'There  is,  However,  another  ques- 
tion, which  has  nothing  to  do  with 
the  doctrines  of  ratification  in  them- 
selves considered.  Suppose  that  a 
corporation  has  been  formed,  and 
that  a  given  act  is  within  its  powers 
of  corporate  action.  This  act  was 
done  on  behalf  of  the  corporation, 
by  its  promoters  prior  to  its  organi- 
zation. May  it  not  be  said  in  such  a 
case  that,  although  it  may  be  within 
the  powers  of  the  corporation  to  do 
such  an  act  after  its  organization, 
yet,  nevertheless,  the  corporate  pow- 
ers took  their  beginning  at  a  certain 
time,  and  it  may  not  have  been  the 
intention  of  the  legislature  to  allow 
a  body  of  men  to  act  as  a  corpora- 
tion prior  to  their  incorporation,  or 

61 


§87.] 


THE   LAW    OF   PRIVATE   CORPORATIONS.  [CHAP.  V 


ment  with  the  other  contracting  party,  the  corporation  must  be 
held  to  have  assumed  the  liabilities  which  would  have  attached 


to  allow  them  to  ratify  acts  done 
prior  to  their  incorporation,  as  that 
might  amount  to  the  same  thing  ? 
In  other  words,  is  it  not  ultra  vires 
the  corporation  to  adopt  acts  done 
prior  to  its  organization,  even  though 
they  he  such  acts  as  the  corporation 
since  its  organization  could  legally 
perform  ?  A  reasonable  view  of  this 
question  should  be  taken.  Undoubt- 
edly a  corporation  cannot  legally  act 
as  such  before  its  organization,  and, 
therefore,  cannot  legally  adopt  a  long 
series  of  acts  of  the  same  nature  as 
those  which  it  was  organized  to  per- 
form. It  cannot  begin  its  corporate 
action  and  take  up  its  corporate  busi- 
ness as  from  a  time  long  anterior 
to  its  organization.  But,  properly 
speaking,  only  such  acts  can  be  re- 
garded as  acts  of  promoters  which 
have  for  their  final  object  the  forma- 
tion of  a  corporation.  It  does  not 
come  within  the  functions  of  pro- 
moters to  carry  on  a  business,  but 
only  to  form  a  corporation  to  carry 
one  on.  It  would  be  absurd  to  hold 
acts,  extending  through  years,  done 
in  a  business  similar  to  that  to  be 
carried  on  by  the  corporation  when 
formed,  to  have  been  done  on  behalf 
of  a  future  corporation.  At  the 
same  time  it  would  be  a  strained, 
not  to  say  absurd,  doctrine  to  hold  it 
ultra  vires  a  corporation  to  adopt 
those  acts  of  its  promoters  done  on 
its  behalf,  which  it  could  itself  le- 
gally perform  since  its  organization, 
and  which  were  proper  and  reasona- 
ble acts  for  its  promoters  to  do  in  or- 
der to  bring  about  the  formation  of 
a  company  and  start  it  on  its  corpo- 
rate career.  The  proper  test  to  ap- 
ply to  such  cases  is  not: — would  the 
contract  in  question  have  been  within 
the  powers  of  the  corporation  had  it 

62 


been  organized  when  the  contract 
was  made  ?  but,  is  it  within  the  pow- 
ers of  the  corporation  to  make  the 
same  contract  now,  supposing  it  had 
not  been  made  then  ?  or,  can  the 
company  legally  carry  out  that  very 
contract  ?  As  Lord  Chancellor  Cran- 
worth  says,  in  Preston  v.  Liverpool 
and  Manchester  R.  Co.,  5  H.  L.  C. 
605:  "  It  can  only  be  that  contracts 
which  the  railway  company  might 
lawfully  have  entered  into  after  the 
company  had  been  formed  shall  be 
binding,  if  they  were  entered  into 
by  those  who  might  be  considered 
as  agents  for  the  company  before  the 
company  came  into  corporate  exist- 
ence." To  illustrate:  Suppose  cer- 
tain persons,  with  a  view  of  forming 
an  insurance  company,  and  wishing 
to  find  out  for  certain  how  much 
business  such  a  company  would  get 
from  the  beginning,  go  about  making 
contracts  of  insurance  on  behalf  of 
the  future  company,  the  insurance 
to  begin  at  a  point  of  time  anterior 
to  the  formation  of  the  company  ; 
the  company  is  afterwards  organ- 
ized. These  were  contracts  which 
the  company  could  legally  have  made 
had  it  been  organized  at  the  time; 
yet  it  seems  doubtful  whether  the 
company  could  assume  those  con- 
tracts so  as  to  render  itself  liable  for 
losses  which  occurred  before  it  was 
organized.  If  the  promoters  had 
contracted  that  the  company  should 
insure,  the  insurance  to  begin  with 
the  formation  of  the  company,  in 
that  case  the  company  could  have 
adopted  and  ratified  the  contracts; 
for,  after  its  organization,  it  could 
legally  have  made  those  very  con- 
tracts. Compare  Gent  v.  Insurance 
Co.,  107  111.  652.  Again,  suppose 
promoters  agree  that  the  corporators 


CHAP.  V.]     PROMOTION  OF  A  CORPORATION. 


[§88. 


to  it  had  its  promoters  been  its  agents  at  the  time  when  they 
contracted  on  its  behalf.1  The  English  courts,  moreover,  have 
gone  a  step  further,  and  have  held,  even  where  there  has  been 
no  ratification  by  the  corporation,  that  a  corporation  should  not 
be  allowed  to  use  its  powers,  which  it  has  been  enabled  to  ob- 
tain through  the  engagements  of  its  promoters,  in  disregard  of 
those  engagements  and  to  the  prejudice  of  the  persons  with 
whom  those  engagements  were  made. 

§  88.  On  this  point,  the  leading  case  is  Edwards  v.  The  Grand 
Junction  Eailway  Co.2  There  the  promoters  of  a  railway 
company  met  with  opposition  from  the  trustees  of  a  turnpike 
road.  It  was  agreed  between  them  that  the  trustees  should 
withdraw  their  opposition  to  the  company's  bill,  and  that  the 
company  should,  if  the  bill  passed,  carry  the  turnpike  road  over 
a  bridge  of  certain  dimensions.  The  trustees  withdrew  their 
opposition,  and  the  bill  passed ;  but  the  company  refused  to 
perform.  An  injunction  was  granted  to  restrain  the  company 
from  violating  the  agreement,  and  sustained  on  appeal.  In 
giving  judgment  in  the  case,  Lord  Cottenham  said:  "  But  the 
question  is  not  whether  there  be  any  binding  contract  at  law, 
but  whether  this  court  will  permit  the  company  to  use  their 
powers  under  the  act,  in  direct  opposition  to  the  arrangement 
made  with  the  trustees  prior  to  the  act,  upon  the  faith  of  which 
they  were  permitted  to  obtain  such  powers." 

This  case  has  been  repeatedly  questioned,3  and  its  authority 


shall  pay  the  reasonable  legal  ex- 
penses of  its  organization.  This 
agreement,  undoubtedly,  the  corpo- 
ration can  adopt  and  ratify;  for,  not 
only  can  it  legally  fulfil  this  agree- 
ment, but  it  could  itself  compe- 
tently agree  to  pay  those  very  ex- 
penses. 

As  to  what  will  not  constitute  a 
ratification  by  the  company,  it  is  held 
in  England  that  articles  of  associa- 
tion are  a  contract  of  the  sharehold- 
ers inter  se,  and  therefore  an  out- 
sider cannot  base  an  action  against 
the  company  on  any  of  their  provi- 
sions. Eley  v.  Positive  Assurance 
Co.,    1   Ex.    D.  20  and  88;   but  see 


Touche  v.  Metropolitan  Warehousing 
Co.,  L.  R.  6  Ch.  671. 

1  Rogers  v.  New  York,  etc.,  Land 
Co.,  134  N.  Y.  197,  211;  Stanton  v. 
New  York,  etc.,  R.  R.  Co.,  59  Conn. 
272;  Battelle  v.  Pavement  Co.,  37 
Minn.  89;  Mc Arthur  v.  Times  Print- 
ing Co.,  48  Minn.  319;  Shreyer  v. 
Flouring  Co.,  29  Oreg.  1.  See  Propo- 
sitions VII.  and  VIII.,  §  75. 

2  1  M.  &  Cr.  650  ;  ace.  Petre  v. 
Eastern  Counties  R.  Co.,  1  Eng.  R'y 
Cas.  462.  See  In  re  Hereford  Wagon 
Co.,  2  Ch.  D.  621;  1  Lindley  on  Part., 
398-400.  But  compare  In  re  Rother- 
ham  Alum,  etc.,  Co.,  25  Ch.  Div.  103. 

3  See  Preston  v.  Liverpool  aud  Man- 

63 


§  90.]  THE   LAW  OF   PRIVATE  CORPORATIONS.     [CHAP.  V. 

is  doubtful.  It  may  be  hard  for  the  party  contracting  with  the 
promoter  to  have  no  remedy  against  the  corporation  ;  but  he 
should  have  known  that  the  promoter  could  not  bind  the  future 
company,  and  it  would  work  great  injustice  and  hardship  if  the 
company  were  to  be  held  liable  on  contracts  made  by  its  pro- 
moters which  the  charter  or  articles  of  association  did  not 
mention,  and  which  persons  taking  shares  in  the  stock  of  the 
company  had  no  means  of  discovering.1 

§  89.  In  determining  the  liability  of  a  corporation  in  regard 
to  any  contract  made  by  its  promoters  on  its  behalf,  the  essen- 
tial points  to  consider  will  be  these  :  Was  the  contract  one  that 
the  corporation  as  actually  organized  could  legally  have  made 
after  its  incorporation  ;  and,  if  so,  has  the  corporation  since  its 
incorporation  ratified  the  contract  expressly,  or  impliedly  by 
voluntarily  accepting  the  benefit  of  the  same  in  such  a  manner 
as  to  estop  it  from  denying  that  it  has  ratified  the  contract?2 

§  90.  The  following  propositions  are  submitted  as  an  attempt 
to  embody  the  law  on  the  subject,  supposing  the  contract  made 
by  the  promoters  to  be  one  which  the  corporation  after  its  in- 
corporation could  competently  have  made : 

I.  As  long  as  the  contract  remains  executory  on  both  sides, 
the  party  who  contracted  with  the  promoter  cannot  enforce 
the  contract  against  the  corporation,  unless  the  corporation  has 
ratified  the  same;  and  the  corporation  cannot  enforce  the  con- 
tract against  the  other  contracting  party  without  carrying  out 
all  the  engagements  entered  into  with  the  other  contracting 
party  at  the  time  of  making  the  contract.3 

II.  When  a  contract  made  by  a  promoter  on  behalf  of  a 
future  corporation  has  been  ratified  and  performed  by  the  latter, 


Chester  R.  Co.,  5  H.  L.  C.  605  ;  Cale- 
donian, etc.,  R.  Co.  o.  Helensburgh, 
2  Macqueen,  391;  Leominster  Canal 
Co.  v.  Shrewsbury,  etc.,  R.  Co.,  3  K. 
&  J.  (354;  Shrewsbury  v.  North  Staf- 
fordshire R.  Co.,  L.  R.  1  Eq.  593. 
Still,  the  particular  agreement  in  Ed- 
wards v.  Grand  Junction  R.  Co.  would 
have  satisfied  the  test  of  contracts 
ratifiable  by  the  corporation  in  note 
2  to  p.  57;  and  see  Williams  v.  St. 
George's  Harbor  Co.,  2  DeG.  and  J. 

64 


547.  But  the  contract  never  was 
rat  ified,  and  therein  lies  the  difficulty 
with  the  decision. 

1  See  Caledonian,  etc.,  R.  Co.  t>. 
Helensburgh,  2  Macqueen,  391,  405- 
407. 

-  Despatch  Line  v.  Bellamy  Mfg. 
Co.,  12  N.  H.  205;  see  Fister  v.  La 
Rue,  15  Barb.  323;  Railway  Co.  v. 
Granger,  86  Tex.  350. 

»  Burrows  v.  Smith,  10  N.  Y.  550. 


CHAP.  V.]  PROMOTION   OF   A   CORPORATION. 


[§90. 


it  may  force  the  party  who  contracted  with  the  promoter  to 
perform  on  his  side.1 

III.  When  the  contract  has  been  executed  by  the  other  con- 
tracting party,  the  corporation  should  be  held  to  perform  on  its 
side,  if  (1)  it  has  ratiiied  the  contract,2  or  (2)  voluntarily  ac- 
cepted the  benefit  arising  from  the  performance  of  the  contract 
in  such  a  manner  as  to  estop  the  corporation  from  denying  that 
it  has  ratified  the  contract.3  But,  on  the  other  hand,  if  the 
benefit  from  the  contract  came  to  the  corporation  without  any 
voluntary  action  on  its  part,  or  on  the  part  of  those  whose  acts 
in  regard  to  the  subject-matter  of  the  contract  are  to  be  re- 
garded as  the  acts  of  the  corporation,  then  there  is  no  principle 
in  law  or  equity  on  which  it  can  be  compelled  to  carry  out  en- 
gagements entered  into  without  its  authority,  and  which  it  has 
never  even  impliedly  ratified.4 


1  See  Bedford  and  Cambridge  R'y 
Co.  v.  Stanley,  32  L.  J.  Eq.  GO;  Cot- 
ton Press  Co.  v.  McKellar,  86  Tex. 
694. 

2  Bonds  issued  by  promoters  before 
incorporation  may,  after  incorpora- 
tion, be  ratified  by  tbe  directors  so 
as  to  become  valid  obligations  of  the 
corporation.  Wood  v.  Wheelen,  93 
111.  153.  See  Richwald  v.  Commer- 
cial Hotel  Co.,  106  111.  439,  448. 

8  Bonner  v.  American  Spiral  Hinge 

5 


Mfg.  Co.,  81  N.  Y.  468;  Grape  Sugar, 
etc.,  Mfg.  Co.  v.  Small,  40  Md.  395; 
Little  Rock  and  Fort  Smith  R.  R.  Co. 
v.  Perry,  37  Ark.  164;  Paxton  Cattle 
Co.  v.  First  Nat.  Bank,  21  Neb.  621; 
Moore,  etc.,  Hardware  Co.  v.  Towers 
Hardware  Co.,  87  Ala.  206. 

*  Zang  v.  Adams,  23  Col.  408,  held 
that  a  corporation  was  not  affected 
with  notice  of  facts  known  to  its  pro- 


moters. 


y?&> 


65 


§  91.]  THE   LAW    OF   PRIVATE   CORPORATIONS.     [CHAP.  VI. 


CHAPTER  VI. 

LEGAL  RELATIONS  CONSEQUENT  UPON  AN  AGREE- 
MENT TO  TAKK  SHARES  IN  THE  STOCK  OF  A  COR- 
PORATION TO  BE  ORGANIZED. 


Is  the  agreement  binding  ?  §91. 
Consideration,  §§  92-95. 
Conditional  agreement  to  take  shares, 

§§  96,  97. 
When  deposits  may  he  withdrawn, 

§98. 
Certain  defences,  §  99. 
Legal  relations  arising  from  a  valid 

agreement  to  take  shares,  §  100. 
Assignment  of  subscriber's  interest, 

§§  101,  102. 
Legal  relations  between  subscribers 

and  promoters,  §  103. 


When  promoters  are  liable  to  sub- 
scribers for  deposits,  §  104. 

Fraudulent  subscriptions,  §  105. 

Misapplication  of  deposits,  §  106. 

Subscriptions  in  general  enforceable 
by  the  corporation  when  organ- 
ized, §§  107-109. 

Rights  of  subscribers  against  the 
corporation,  §  110. 

Effect  of  subscriber's  laches,  §§  111, 
112. 


Is  the 
agreement 
binding  ? 


§  91.  In  the  first  place,  is  an  agreement  to  take  shares  in 
the  stock  of  a  corporation  binding  upon  the  parties 
thereto  ? 1  If  the  agreement  is  made  as  prescribed  by- 
statute  and  with  persons,  usually  called  commis- 
sioners, who,  for  the  purpose  of  receiving  subscriptions,  are 
constituted  by  statute  the  representatives  of  the  corporation 
while  it  is  in  the  process  of  formation,  the  right  acquired  by 
the  subscriber  to  shares  in  the  company  when  formed,  or,  what 
is  the  same  thing,  viewed  from  the  opposite  point  of  view,  the 
obligation  which  the  company  when  formed  will  be  under  to 
allot  shares  to  the  subscriber,  is  a  valid  consideration  for  a  sub- 
scription ;  if  indeed  it  may  not  be  said,  that,  when  a  statute 
specifies  certain  persons  with  whom  agreements  to  subscribe 
are  to  be  made,  those  agreements,  provided  the  requirements  of 
the  statute  are  complied  with,  are  good  "  by  force  of  the  act 


1  See  generally,  Kidwelly  Canal 
Co.  v.  Raby,  2  Price,  93;  Selma  and 
Tennessee    R.    R.    Co.    v.    Tipton,   5 

66 


Ala.  787;  Eastern  Plank  Road  Co.  v. 
Vaughan,  20  Barb.  155;  S.  C,  14 
N.  Y.  546. 


CHAP.  VI.]  AGREEMENTS   TO   TAKE   STOCK. 


[§92. 


itself,"  without  any  further  consideration  ;  for  the  rule  of  law 
requiring  a  consideration  is  but  a  rule  of  law  which  like  other 
rules  may  be  modified  by  statute  or  impliedly  abrogated  in 
respect  of  certain  contracts.1 

§  92.  \\naen7^owever7the  agreemenTtotakeshares  is  made 
simply  by  the  subscribers  among  themselves,  then  ,    2 

taking  for  granted  that  the  parties  to  the  agreement   tion?ldera"/a^w>*' 
are  capable  of  contracting,  and  that  the  proposed  ob-  ^2^»~ 

jects  of  the  contemplated  corporation  are  not  illegal,  the  ques-$  &£  _ 
tion  whether  the  agreement  is  binding  resolves  itself  into  a 
question  as  to  the  mutual  sufficiency  of  consideration  between 


i  Union  Turnpike  Co.  v.  Jenkins, 
1  Caines  Cas.  381;  Hamilton  and 
Deansville  Plankroad  Co.  v.  Rice,  7 
Barb.  157.  In  the  former  of  these 
cases  Radcliffe,  J.,  said,  giving  the 
opinion  of  the  court  at  p.  389:  "  The 
subscription  was  taken  by  commis- 
sioners who  were  authorized  to  re- 
ceive it,  and  in  the  form  prescribed 
by  the  act.  That  form  contains  an 
absolute  promise  to  pay  the  money 
to  the  president,  directors,  and  com- 
pany. On  the  one  hand,  the  inter- 
est of  the  company  in  selling  the 
shares,  and  the  public  advantage 
to  be  derived  from  the  success  of  the 
institution;  and  on  the  other,  the 
expected  profits  to  accrue  from  the 
stock,  were  sufficient  considerations 
to  uphold  the  promise.  By  force  of 
the  act  itself,  also,  it  must  be  con- 
sidered as  good.  The  legislature 
also  must  have  intended  that  it 
should  be  obligatory,  for  else  the 
formal  manner  in  which  it  was  pre- 
scribed to  be  taken  would  be  sense- 
less and  nugatory."  This  case  was 
reversed  in  Jenkins  v.  Union  Turn- 
pike Co.,  1  Caines  Cas.  in  Error,  386, 
mainly  on  the  ground  that  the  terms 
of  the  statute  had  not  been  complied 
with.  See,  also,  Selma  and  Tennes- 
see Railroad  Co.  v.  Tipton,  5  Ala. 
787,  809;  Thorp  v.  Woodhull,  1  Sand. 


Ch.  411;  Danbury  and  Norwalk  R. 
R.  Co.  v.  Wilson,  22  Conn.  435;  and 
opinion  of  Bowie,  C.  J.,  in  Taggart 
v.  Western  Maryland  R.  R.  Co.,  24 
Md.  563.  In  Angell  and  Ames  on 
Corp.,  §527,  it  is  said:  "It  seems 
that  the  criterion  of  the  liability  of 
a  subscriber  to  stock  in  a  corpora- 
tion is  whether  any  act  has  been 
done  by  which  the  corporation  has 
been  forced  to  receive  the  sub- 
scriber." 

On  the  other  hand,  where  signing 
a  subscription  paper  is  not  an  essen- 
tial part  of  the  machinery  devised  by 
the  legislature  for  forming  a  corpo- 
ration, it  has  been  held  that  signing 
such  a  paper  imposes  no  obligation 
on  the  subscriber  which  the  corpora- 
tion can  enforce.  Troy  and  Boston 
R.  R.  Co.  v.  Tibbits,  18  Barb.  297; 
Same  v.  Warren,  ib.  310;  Sedalia  W. 
&  S.  R.  Co.  b.  Wilkerson,  83  Mo.  235; 
see  Erie  and  N.  Y.  City  R.  R.  Co.  v. 
Owen,  32  Barb.  616;  Dorris  v.  Swee- 
ney, 64  Barb.  636;  S.  C,  60  N.  Y. 
463;  compare  Auburn  Bolt  Works  v. 
Schultz,  143  Pa.  St.  257;  Muncy  Co. 
v.  Green,  143  Pa.  St.  269.  But  see 
§§  107-109. 

As  to  the  allotment  by  commis- 
sioners, see  Crocker  v.  Crane,  21 
Wend.  211;  Walker  v.  Devereux,  4 
Paige,  229. 

67 


§  92.]  THE   LAW   OF   PRIVATE   CORPORATIONS.  [CHAP.  VI. 

the  different  parties.1  It  is  often  said,  rather  loosely,  that  the 
mutual  promises  of  the  different  contracting  parties  constitute 
the  consideration  for  each  other;2  but  to  this  it  is  answered 
with  apparent  pertinency,  that,  when  the  binding  force  of 
these  very  promises  is  in  question,  to  say  that  they  constitute 
valid  considerations  for  each  other  is  reasoning  in  a  circle^ 
still,  perhaps,  this  objection  is  more  specious  than  real.  It  is 
usually  said  that  consideration  is  either  benefit  received,  or 
trouble  or  detriment  caused ;  but  if  the  nature  of  consider- 
ation be  looked  into  a  little  more  closely,  it  will  appear  that, 
in  reality,  the  detriment  caused  is  at  the  present  day  the  es- 


1  See  Eastern  Plank  Road  Co.  v. 
Vaughan,  14  N.  Y.  546,  553  et  seq. 
The  promise  to  take  the  shares  im- 
plies a  promise  to  pay  for  them; 
Spear  v.  Crawford,  14  Wend.  90;  ap- 
proved in  Rensselaer,  etc.,  Plank 
Road  Co.  v.  Barton,  16  N.  Y.  457, 
note.  See,  also,  generally  as  to  this 
last,  §§513,  514. 

2  West  v.  Crawford,  80  Cal.  19; 
Marysville,  etc.,  Co.  v.  Johnson,  93 
Cal.  538;  Twin  Creek,  etc.,  Turn- 
pike Co.  v.  Lancaster,  79  Ky.  552; 
Watkins  v.  Eames,  9  Cush.  537;  New 
Lindell  Hotel  Co.  v.  Smith,  13  Mo. 
App.  7:  Osborn  v.  Crosby,  63  N.  H. 
583.  "  The  agreement  to  associate 
together  under  the  act  to  accomplish 
the  purposes  designed  would  seem  a 
sufficient  consideration.  The  con- 
sideration need  not  move  from  the 
party  with  whom  the  contract  is 
made.  The  consideration  of  one 
promise  is  that  others  will  make 
like  promises."  Shepley,  C.  J.,  in 
Kennebec  and  Portland  R.  R.  Co.  v. 
Palmer,  34  Me.  366.  See  Edinboro1 
Academy  u.  Robinson,  37  Pa.  St. 
210;  Thompson  v.  Page,  1  Mete. 
565. 

8  Methodist  Episcopal  Church  v. 
Kendall,  121  Mass.  528,  holds  that  a 
gratuitous  subscription  to  promote 
the  objects  for  which  a  corporation 

68 


is  established  cannot  be  enforced 
unless  the  promisee  has  done  some- 
thing or  incurred  some  liability  re- 
lying on  the  promise;  and  it  is  not 
sufficient  that  others  were  led  to 
subscribe  by  the  subscription  sought 
to  be  enforced.  See  Poughkeepsie, 
etc.,  Plank  Road  Co.  v.  Griffin,  24 
N.  Y.  150;  Phillips  Limerick  Acad- 
emy v.  Davis,  11  Mass.  113;  Essex 
Turnpike  Co.  v.  Collins,  8  Mass.  291; 
Burt  v.  Farrar,  24  Barb.  518;  Am- 
herst Academy  v.  Cowles,  6  Pick. 
427.  But  see  Bryant  v.  Goodnow,  5 
Pick.  228,  229,  where  it  is  said: 
"  Where  one  subscribes  with  others 
a  sum  of  money  to  carry  on  some 
common  project,  lawful  in  itself, 
and  supposed  to  be  beneficial  to  the 
projectors,  and  money  is  advanced 
upon  the  faith  of  such  subscription, 
an  action  for  money  paid,  laid  out, 
and  expended  may  be  maintained  to 
recover  the  amount  of  the  subscrip- 
tion, or  such  portion  of  it  as  will  be 
equal  to  the  subscriber's  proportion 
of  the  expense  incurred.'"  See,  also, 
Homes  v.  Dana,  12  Mass.  190;  Trus- 
tees of  Farmington  Academy  v. 
Allen,  14  Mass.  172;  Whitsitt  v. 
Trustees  Presbyterian  Church,  110 
111.  125;  Osborn  v.  Crosby,  63  N.  H. 
583. 


CHAP.  VI.]  AGREEMENTS    TO   TAKE    STOCK. 


[§93. 


sential  part  of  the  consideration,1  for  where  detriment  has  been  ^^  ^ 
caused  to  the  promisee  it  is  immaterial  whether  the  promisor  mJLe** 
has  been  benefited  or  not;  as,  for  instance,  in  the  ordinary  &k?m 
case  of  a  guaranty  the  promisor  is  not  benefited,  but  the  prom-    • 
isee  acting  upon  the  promise,  in  lending  money  or  performing 
services,  suffers  detriment  in  legal  intendment.     As  a  usual 
thing,  where  detriment  has  been  caused  to  the  promisee,  bene- 
fit will  have  accrued  to  the  promisor ;  but  it  is  nevertheless  to 
the  detriment  caused  that  we  must  look,  as  that  is  always  suffi- 
cient to  constitute  a  valid  consideration.2     Moreover,  the  con- 
sideration is  presumed  equal  to  the  promise  made  therefor; 
and,  however  unequal  in  reality  these  two  may  be,  the  law  will 
take  no  notice  of  their  inequality,  unless  the  inadequacy  of  the 
consideration  is  such  as  to  raise  a  presumption  of  unfair  ad- 
vantage or  fraud.3 

§  93.  Let  us  now  apply  these  principles  to  an  agreement  to  /  (Zf* 
take  shares  in  the  stock  of  a  corporation  to  be  organized.  If  Arr^s. 
the  agreement  to  take  shares  is  entered  into  by  all  the  parties 
at  the  same  time,  it  would,  at  least  if  drawn  so  that  the  parties 
purported  to  agree  with  each  other,  usually  contain  an  ample 
consideration,  the  consideration  for  the  promise  of  A.  being  the 
detriment  caused  B.,  C,  D.,  etc.,  the  other  parties,  in  promising 
to  take  shares,  the  simple  act  of  signing4  such  an  agreement 
being  sufficient  detriment  caused  to  support  a  promise.     It  may 


aSee  Langdell's  Summary  of  the 
Law  of  Contracts,  §  53. 

2 It  has  been  the  writer's  opinion 
that  benefit  received  at  the  time  of 
making  the  promise  is  also  a  good 
consideration,  whether  detriment  be 
caused  to  the  promisee  or  not;  that 
is,  whether  or  not  the  consideration 
move  from  the  promisee.  But  this  is 
not  universally  accepted  as  law.  See 
2  Wharton  on  Contracts,  §  784  et 
seq.,  and  an  article  by  the  writer  in 
the  April,  1881,  number  of  the 
American  Law  Review  on  "  The 
Right  of  a  Third  Person  to  Sue  on  a 
Contract  made  in  his  Favor." 

3  There  is  an  exception  to  the  rule 
stated     in    the     text.      Where    the 


promise  is  to  pay  money  absolutely, 
and  the  consideration  is  money  given, 
the  law  will  take  notice  of  inequality 
between  the  consideration  and  the 
promise;  and,  therefore,  money  paid 
will  not  support  a  promise  to  pay 
more  than  the  same  sum  with  in- 
terest. See  Langdell's  Summary, 
etc.,  §55.  A  court  of  equity,  more- 
over, will  sometimes  regard  the 
actual  adequacy  of  consideration  in 
deciding  whether  or  not  to  decree 
the  specific  performance  of  a  con- 
tract. 

*  See  Haigh  v.  Brooks,  10  Ad.  &  El. 
309,  323;  Brooks  v.  Ball,  18  Johns. 
337. 

69 


§  93.]  THE   LAW    OF   PRIVATE   CORPORATIONS.  [CHAP.  VI. 

be  said  further  that  the  detriment  caused  B.,  C,  D.,  etc.,  in 
promising  to  take  shares,  or  in  merely  signing  an  agreement,  is 
ample  consideration  to  support  the  promise  of  A.,  irrespective 
of  the  question  whether  the  promises  of  B.,  C,  D.,  etc.,  in  them- 
selves considered,  are  valid  promises  or  not.1  In  other  words, 
where  it  is  expressly  stipulated  in  the  agreement,  or  where, 
from  the  tenor  of  the  same,  it  may  appear  that  the  making  of 
the  mutual  or  respective  promises  contained  in  the  agreement 
is  to  constitute  the  consideration  for  the  agreement,  it  will  not 
be  the  fact  that  the  promises  when  made  are  enforceable,  but 
the  making  of  them  which  will  constitute  the  consideration ; 
though  it  follows  that  the  promises  when  made  will  be  binding, 
because  founded  on  a  valid  consideration. 

The  question,  then,  will  be,  in  any  given  instance,  was  the 
consideration  of  the  promise  of  A.  the^nakino-  of  the  promises 
by  B.,  C,  D.,  etc.,  or  the^gej^ojunjince  of  their  promises  by  the 
latter  ?  In  the  former  case  the  agreement  is  as  clearly  binding 
as  in  the  latter  case  it  is,  in  itself  considered,  worthless ;  because, 
until  the  promises  of  B.,  C,  D.,  etc.,  have  been  performed,  there 
is  no  consideration  for  the  promise  of  A.,  which,  therefore,  until 
such  performance,  is  in  legal  contemplation  nothing  more  than 
an  offer,  which  may  be  withdrawn  at  any  moment.  Through 
perforinance.Jiowever,  on  the  part  of  B.,  C,  D.,  etc.,  the  prom- 
ise  of  A.  ma»vbecome  binding,  lor  lnstance^the  corporation 
having  been  formed,  and  A.,  not  having  in  the  mean  time  with- 
drawn from  the  agreement,  if  B.,  C,  D.,  etc.,  take  and  pay  for 
their  shares  as  agreed,  they  (or  the  corporation,  if  it  shall  ap- 
pear to  have  been  the  intention  that  the  corporation  should 
have  the  right  to  enforce  the  promise2)  can  then  force  A.  to 
take  and  pay  for  his  shares  as  well ;  for  if  relying  on  A.'s  prom- 


1  It  is,  of  course,  quite  possible  for 
an  agreement  of  this  kind  to  be  drawn 
so  as  to  be  little  more  than  worthless; 
e.  g.,  the  promise  of  each  might  be 
made  conditional  on  the  actual  tak- 
ing of  the  shares  by  the  others.  Here, 
plainly,  there  is  no  binding  contract. 
Such  an  invalid  instrument  would  be 
the  following:  "It  is  mutually  cove- 
nanted and  agreed  by  and  between 
the  parties  hereto,  that  each  of  the 

70 


said  parties  will  take  five  shares  in 
the  stock  of  the  X.  Co.  when  organ- 
ized, in  consideration  of  each  of  the 
other  parties  hereto  taking  five 
shares,"  etc.  This  form  might  be 
binding  were  it  not  for  the  words 
"in  consideration,"  etc. 

2  See   Eastern    Plank    Road   Co.  v. 
Vaughan,  14  N.  Y.  546. 


CHAP.  VI.]  AGREEMENTS   TO   TAKE   STOCK.  [§  94. 

ise,  or,  more  strictly  speaking,  un  with  drawn  offer,1  to  take 
shares,  B.,  C,  D.,  etc.,  have  actually  taken  shares  themselves, 
they  have  thereby  accepted  A.'s  unwithdrawn  offer,  by  per- 
forming that  act,  which  was  intended  to  be,  when  performed, 
a  valid  consideration,  which  should  convert  A.'s  unwithdrawn 
offer  into  a  binding  promise ;  and  in  truth,  therefore,  they  have 
thus  transformed  A.'s  unwithdrawn  offer  into  a  binding  promise, 
the  performance  of  which  may  be  enforced  by  the  parties  who 
have  themselves  performed,  or  by  the  corporation  if  such  was 
the  intention.2 

§  94.  The  foregoing  discussion  has  proceeded  on  the  assump-  .\ 
tion  that  the  agreement  to  take  shares  was  entered  into  by  all 
the  parties  thereto  at  the  same  time  ;  that  it  was,  properly 
speaking,  one  agreement.  AVhere,  however,  as  is  frequently 
the  case,  a  subscription-agreement  is  signed  by  different  persons 
at  different  times,  or  where  "  books  are  open  for  subscribers," 
who  subscribe  at  different  times,  the  foregoing  remarks  will  be 
hardly  applicable.  For  instance,  in  the  case  above  conceived, 
where  the  making  of  the  respective  promises  was  plainly  in- 
tended to  be  the  consideration  of  the  agreement,  if  we  suppose 
that  A.,  B.,  and  C.  sign  together,  and  that  some  days  after- 
wards D.  signs,  while  A.,  B.,  and  C.  may  be  bound,  yet  as  to 
D.,  if  the  consideration  of  his  promise  was  the  making  of  the 
promises  of  A.,  B.,  and  C,  it  will  be  but  a  past  consideration. 

It  might  be  said  that  all  parties  are  to  be  presumed  to  sign 
at  the  same  time ;  but  when  several  days  intervene  between 
the  times  of  actual  signing,  and  especially  where  dates  are  an- 
nexed to  the  different  signatures,  such  a  presumption  becomes 
too  glaringly  contrary  to  fact  to  exist  even  in  legal  contempla- 
tion. In  such  a  ease  further  consideration  should  be  found  for 
D.'s  promise.     Here,  as  we  must  presume  all  the  parties  to  act 


xThis  unwithdrawn  offer  is  not 
even  a  conditional  promise,  because 
it  may  be  withdrawn  at  any  time  be- 
fore the  performance  of  the  consid- 


2  If  the  paper  were  so  drawn  that 
the  consideration  of  each  promise 
was  the  performance  of  all  tlie  other 
promises,  the  paper  would  practically 


eration ;  and  a  true  conditional  prom-    amount  to  very  little ;  as  it  would  not 
ise  may  not  be  withdrawn,  because    become  enforceable  against  any  one 


founded  on  a  consideration  when 
made;  although  it  may  not  be  en- 
forced until  the  condition  has  been 
performed. 


subscriber  until  all  the  rest  had  vol- 
untarily taken  their  shares. 

71 


§  90.]  THK    LAW    OF    PRIVATE   CORPORATIONS.     [CHAP.  VI. 


in  good  faith  and  to  wish  to  join,  in  a  valid  agreement,  the  ques- 
tion would  be  merely  as  to  the  form  of  the  same.  Therefore, 
some  consideration  should  be  expressed  to  pass  to  D.  from  the 
other  parties  to  the  instrument  at  the  time  of  his  executing  it. 
To  this  end,  each  promise  could  be  expressed  to  be  made  in 
consideration  of  the  making  of  the  other  promises,  made  or  to 
be  made,  and  of  one  dollar  paid  by  some  party  on  behalf  of  all 
present  and  future  parties  to  the  agreement,  to  the  promisor  at 
the  time  of  his  executing  the  same ;  which,  for  greater  security, 
should  be  under  seal.1 

§  95.  It  may  be  added,  in  passing,  that  if  any  of  theparties 
to  the  instrument  are  infants,  their  promises  will  notoeTpnd- 
ing  on  them,  unless  ratified  by  them  after  coming  of  age  ;2  and 
that  if  the  object  of  incorporation,  as  expressed  in  the  agree- 
ment, is  illegal,  the  agreement  to  take  shares  will  bind  no  one. 
§  96.  When  there  are  conditions  in  an  agreement  to  take 
shares  in  a  corporation  to  be  formed,  the  instrument 
is  to  be  construed  with  reference  to  them,  so  as  to 
give  them  due  effect.3  Moreover,  in  construing  such 
conditional  agreements,  it  must  be  noticed  closely 
whether  the  condition  relates  to  the  promise  or  to  the  perform- 
ance of  the  promise.  If  the  promise  of  one  party  is  made  con- 
ditional upon  the  Snaking' of  the  promises  by  the  other  parties, 
such  promise  becomes  absolute  as  soon  as  the  other  promises 
are  made.  But  if  a  promise  is  made  conditional  upon  the  per- 
formance'of  the  other  promises,  such  a  condition,  as  before 
pointed  out,  would  go  far  towards  making  the  whole  agree- 
ment nugatory.4 

The  usual  condition  in  an  agreement  to  take  shares  in  a  cor- 
poration to  be  formed  is  that  the  promises  shall  not  be  enforced 
until  all  or  a  certain  amount  of  the  stock  of  the  future  com- 


Conditional 
agree- 
ments to 
take  shares. 


xIt  will  be  noticed  that  cases  like 
Methodist  Episcopal  Church  v.  Ken- 
dall, 121  Mass.  528,  and  other  cases 
cited  in  the  same  note  with  it  to  §  92, 
were  mostly  cases  of  "gratuitous'1 
subscriptions,  made  to  promote  some 
object  in  which  the  subscribers  had 
no  direct  pecuniary  interest.  Such 
cases,  therefore,  are  of  questionable 
application  in  discussing  the  binding 

72 


force  of  subscri  ptions  made  to  further 
some  private  money-making  business 
scheme  of  the  subscribers.  Compare 
Haskell  v.  Sells,  14  Mo.  App.  91. 

2  See  Lumsden's  Case,  L.  R.  4  Ch. 
31;  and  Reaveley's  Case,  1  De  Gex 
&  Sm.  550. 

3  See  North  Stafford  Steel,  etc., 
Co.  v.  Ward,  L.  R.  3  Ex.  172. 

*  See  §  93. 


CHAP.  VI.]  AGREEMENTS    TO    TAKE   STOCK. 


[§97. 


pany  is  agreed  to  be  taken.1  Such  a  condition  would  be  more 
apt  to  be  present  where  the  parties  to  the  agreement  sign  at 
different  times;  in  which  case,  as  beforepointed  out,  a  con- 
sideration shoulabe T^xpr^i^^o  mcfvefrom' the  representatives 
of  all  other  parties  to  each  party  upon  his  signing  the  instru- 
ment. If  this  were  done,  the  promises  would  be  binding  con- 
ditionally as  soon  as  made ;  and  upon  the  fulfillment  of  the  con- 
dition, that  is,  upon  promises  to  take  the  requisite  number  of 
shares  being  made,  they  would  become  absolute.  Should  this 
condition,  however,  relate  to  the  performance  of  the  promises, 
the  promises  might  amount  to  no  more  than  offers,  which  could 
be  withdrawn  at  any  time  before  the  fulfillment  of  the  condi- 
tion, for  it  may  be  said  that  until  then  they  never  had  any 
even  conditionally  binding  quality,  except  as  above  pointed 
out.2 

§  97.  If  the  condition  be  one  to  be  performed  by  the  corpora- 
tion when  organized,  then  generally  the  agreement  to  subscribe 
made  prior  to  its  organization  cannot  be  enforced  before  the 


1  When  the  amount  of  the  capital 
stock  is  inserted  in  the  subscription^ 
agree ment,  subscribers  may  refuse  to 
pay  auy  part  of  their  subscriptions 
until  the  full  amount  is  subscribed 
for.  Cabot  and  West  Springfield 
Bridge  v.  Chapin,  6  Cush.  50;  Salem 
Mill  Dam  Co.  v.  Ropes,  6  Pick.  23. 
See  Norwich,  etc.,  Navigation  Co.  v. 
Theobald,  1  Moo.  &  M.  151;  Water- 
ford,  etc.,  R.  Co.  v.  Dalbiac,  6  Ex. 
443;  Penobscot  R.  R.  Co.  v.  Dum- 
mer,  40  Me.  172;  Penobscot,  etc., 
R.  R.  Co.  v.  Bartlett,  12  Gray,  244; 
Burt  v.  Farrar,  24  Barb.  518;  Hughes 
v.  MTg  Co.,  34  Md.  316;  Boston, 
Barre,  etc.,  R.  R.  Co.  v.  Wellington, 
113  Mass.  79;  Erie,  etc.,  R.  R.  v. 
Owen,  32  Barb.  616;  Pierce  v.  Jer- 
sey Water  Works  Co.,  L.  R.  5  Ex. 
209;  Elder  v.  New  Zealand  Land 
Improvement  Co.,  30  L.  T.  N.  S. 
285;  California  Southern  Hotel  Co. 
v.  Russell,  88  Cal.  277;  Fair  Assn. 
v.   Walker,    88    Mich.    62;  Hards  v. 


Platte  Valley  Imp.  Co.,  35  Neb.  263; 
Macfarland  u.  West  Side  Imp't  Assn. 
53  Neb.  417;  but  see  Rensselaer, 
etc.,  Plank  Road  Co.  v.  Wetzel.  21 
Barb.  56;  McDougall  v.  Jersey  Im- 
perial Hotel  Co.,  10  Jur.  N.  S.  1043. 
See  §§  517-521. 

The_£rospectus  of  a  company  -to 
be  formed__stated  that  the  proposed 
capital  stockjwas_to_consist  of  tan 
thousand  shares  of  twenty-five 
pounds  each.  Only  fourteen_lmn^ 
died  of  these  shares  were  taken. 
Held,  that  the  agreement  of  a  person 
subscribing  for  shares  was  condi- 
tional on  the  fulfillment  of  the  terms 
of  flie  prospectus.  PitchforcL-  v. 
Davis,  5  Mees.  &  W.  2;  Acc^  Fox  v. 
CTTTton,  6  Bing.  779;  but  see  Hutt  v. 
Giles,  12  Mees.  &  W.  492.  When  the 
subscription-contract  is  part  oi  the 
prospectus,  the  terms  of  the  latter 
are  conditions.  Norwick,.  Lock. 
MTg  Co.  v.  Hockaday,  89  Va.  557. 

2  See  §  93. 

73 


§  97.]      THE  LAW  OF  PRIVATE  CORPORATIONS.  [CHAP.  VI. 

performance  of  the  condition,1  unless  it  is  the  promisors  them- 
selves who,  as  a  matter  of  fact,  prevent  the  fulfillment  of  the 
condition  in  order  to  invalidate  their  own  promises.2  In  the 
last  case  the  promisor  who  is  concerned  in  preventing  the  ful- 
fillment of  the  condition  may  take  no  advantage  of  its  non-ful- 
fillment ;  and  this  on  general  principles  of  good  faith  and  equity, 
and  in  accordance  with  the  law  relating  to  the  performance  of 
conditions  o-enerallv.3 


1  Effect  should  be  given  to  condi- 
tions in  a  letter  accepting  a  position 
as  provisional  committee-man,  and 
agreeing  to  take  shares.  Robert's 
Case,  3  De  Gex  &  S.  205;  affirmed,  2 
Mac.  &  G.  192;  see  Wood's  Case,  3 
De  G.  &  J.  85;  Burrows  v.  Smith,  10 
N.  Y.  550;  Union  Hotel  Co.  v.  Hersee, 
15  Hun,  371.  It  has  been  held,  where 
persons  acting  as  agents  for  a  contem- 
plated turnpike  company  obtained 
subscriptions  on  certain  conditions 
as  to  the  location  of  the  road,  that 
the  corporation  cannot  afterwards 
recover  on  those  subscriptions  with- 
out complying  with  the  conditions; 
and  that  on  the  definite  failure  of  the 
corporation  to  comply  with  them  pay- 
ments already  made  may  be  recovered 
back.  Frankfort  and  Shelbyville 
Turnpike  Co.  v.  Churchill,  6  T.  B. 
Monroe  (Ky.),  427.  The  agreement 
in  this  case  was  separate  from  the 
subscription,  but  was  formally  drawn 
in  writing,  and  contained  a  covenant 
to  return  the  moneys  received  unless 
the  road  was  run  as  agreed. 

On  the  other  hand,  it  has  also  been 
held,  where  a  general  turnpike  act 
conferred  no  power  on  the  commis- 
sioners to  acceptconditional  subscrip- 
tions, that  asubscription  conditioned 
on  the  laying  of  the  road  through  a 
specified  place  is  contrary  to  public 
policy  and  void.  Butternuts,  etc., 
Turnpike  Co.  v.  North,  1  Hill,  518; 
Fort  Edward,  etc.,  Plank  Road  Co.  v. 

74 


Payne,  15  N.  Y.  583.  Parol  declara- 
tions made  by  officers  of  the  company 
can  only  avail  a  subscriber  seeking 
to  invalidate  his  subscription  for 
shares  where  they  amount  to  fraud. 
Vicksburg,  etc.,  R.  R.  Co.  v.  McKean, 
12  La.  Ann.  638;  Martin  v.  Pensacola, 
etc.,  R.  R.  Co.,  8  Fla.  370;  Missis- 
sippi, etc.,  R.  R.  Co.  v.  Cross.  20  Ark. 
443.  So  parol  declarations  made  by 
promoters  as  to  route  will  not,  unless 
they  amount  to  fraud,  avail  the  sub- 
scriber. Braddock  v.  Philadelphia 
M.  &  M.  R.  R.  Co.,  45  N.  J.  L.  363. 
And  parol  agreements  made  at  the 
time  of  subscribing  for  shares,  and 
inconsistent  with  the  written  terms 
of  the  subscription,  are  void.  Con- 
necticut and  Passumsic  Rivers  R.  R. 
Co.  v.  Bailey,  24  Vt.  465;  Whitehall, 
etc.,  R.  R.  Co.  v.  Myers,  16  Abb.  Pr. 
(N.  S.)  34;  Haskell  v.  Sells,  14  Mo. 
App.  91;  Galena  &  S.  W.  R.  R.  Co. 
v.  Ennor,  116  111.  55.  It  is  a  defence 
to  an  action  upon  asubscription  that 
the  corporation  has  already  issued 
all  the  stock  which  it  was  authorized 
to  issue.  Railroad  v.  Knoxville,  98 
Tenn.  '_';  Newport  Cotton  Mill  Co.  v. 
Mims,  103  Tenn.  465.     See  §521. 

2  See  Upton  v.  Hansbrough,  3  Bis- 
sell,  417,  423. 

3  See  Raynay  v.  Alexander,  Yelv. 
66;  Hotham  v.  East  India  Co.,  1  T. 
R.  638. 


CHAP.  VI.]  AGREEMENTS   TO   TAKE   STOCK. 


[§  100. 


When  de- 
posits may 
be  with- 
drawn. 


§  98.  It  may  be  said,  as  incidental  to  the  preceding  discussion, 
that  where  a  number  of  persons  intending  to  form  a 
corporation  and  through  that  means  carry  on  some 
business,  raise  a  common  fund,  eventually  to  be  in- 
creased, but  beginning  with  deposits  placed  in  the 
hands  of  a  committee  with  authority  to  do  certain  acts,  it  is  not 
competent  for  any  one  of  such  subscribers  to  withdraw  his  funds 
so  deposited  until  it  has  become  evident  that  the  carrying  out 
of  the  scheme  is  impracticable.1 

§  99.  If  a  person  agrees  to  pay  a  deposit,  and  the  considera- 
tion of  that  agreement  fails,  he  need  not  perform  ; 2 
but,  nevertheless,  should  he  agree  to  pay  deposits  by   SSSnces. 
a  certain  day,  he  cannot  plead  to  an  action  for  not 
paying  them  on  or  before  that  day  that  the  projected  company 
has  become  abortive  since  that  day  ;  for  that  might  not  have 
happened  had  he  paid  his  deposits  as  agreed,  and  circumstances 
intervening  after  he  broke  his  promise  are  no  excuse  for  such 
breach.3     Where,  however,  a  person  subscribes  for  stock  in  a 
future  corporation,  as  the  contract  does  not  purport  to  be  with 
an  existing  corporation,  the  subscriber  is  not  estopped,  in  a  suit 
to  enforce  his  subscription,  from  denying  that  the  corporation 
ever  came  into  existence.4 

§  100.  Having  considered  the  general  question  of  the  valid- 
ity and  construction  of  an  agreement  to  take  shares   Legai  reia,. 
in  the  stock  of  a  future  corporation,  there  remain    j^"^.*^ 
for  consideration  the  legal  relations  arising-  from  such   valid  agree- 

TTlPTlt  to 

an  agreement.  Prima  facie  these  relations  are  such  take 
as  may  be  inferred  from  the  terms  of  the  instrument ;  s  ares' 
for  the  courts  ordinarily,  as  among  the  parties  to  the  instru- 
ment, will  enforce  its  provisions  according  to  their  tenor  and 
import.  Such  agreements  differ  much  from  each  other.  One 
might  readily  be  drawn  so  as  to  constitute  the  parties  thereto 
partners,  at  least  in  regard  to  the  scheme  of  incorporation  ;  as, 

i  Baird  v.  Ross,  2  Macqueen,  51 ; 
compare  Kent  v.  Jackson,  14  Beav. 
367;  Kidwelly  Canal  Co.  v.  Raby,  2 
Price,  93. 

2  See  Duke  v.  Andrews,  2  Ex.   290. 

3 Duke  v.  Dire,  1  Ex.  36;  Oldham 
v.  Brown,  7  Ellis  &  B.  163;  S.  C,  2 
Ellis  &  E.  398. 


4Rikhoff  v.  Brown's  Sewing  Ma- 
chine Co.,  68  Ind.  388;  Indianapolis 
Furnace,  etc.,  Co.  v.  Herkimer,  46 
Ind.  142;  see  Reed  v.  Richmond 
Street  R.  R.  Co.,  50  Ind.  342;  §§  537, 
538. 


75 


§  101.]  THE    LAW    OF   PRIVATE   CORPORATIONS.  [CHAP.  VT. 

for  example,  if  the  instrument  should  provide  that  the  parties 
thereto  should  act  as  each  other's  agents  in  the  furtherance  of 
the  scheme,  and  share  any  profits  or  losses  arising  before  the 
incorporation  of  the  company.  Such  provision,  however,  would 
ordinarily  be  absent,  and  by  merely  entering  into  a  binding 
agreement  to  take  shares  in  a  corporation  to  be  formed,  persons 
do  not  become  partners,  nor  liable  as  principals  for  each  other's 
acts  as  agents.1 

To  be  sure,  after  the  agreement  is  executed,  supposing  it  to 
be  a  mere  agreement  to  take  shares,  the  parties  thereto  may  so 
act  that  outsiders  are  justified  in  concluding  that  the  relation- 
ship of  principal  and  agent  or  of  partners  exists  among  them; 
and  this  on  principles  before  discussed  in  relation  to  promoters.2 
Therefore,  while  in  fact,  as  among  themselves,  no  relationship 
of  agency  or  partnership  exists,  they  may  be  held  responsible 
to  outsiders  for  the  acts  of  each  other,  either  as  principals  or  as 
partners,  according  to  the  circumstances. 

§  101.  To  what  extent  a  party  to  an  agreement  to  take  shares 
in  the  stock  of  a  corporation  to  be  formed  may,  by 

Assign-  l  .... 

meiit  of  assigning  his  interest  m  the  agreement,  relieve  min- 
er's inter-  self  from  future  liability,  will  depend  on  a  proper 
est'  construction  of  the  instrument  itself,  qualified  by  the 

general  maxim,  that  while  a  man  may  assign  or  waive  any 
rights  accruing  to  him  under  an  agreement,  he  cannot  divest 
himself  of  his  liabilities  arising  therefrom.3  It  would  be  most 
unjust  to  hold,  where  responsible  persons  have  joined  in  an 
agreement  to  furnish  funds  for  the  advancement  of  a  scheme 
of  incorporation,  and  to  take  shares  in  the  stock  of  the  future 
company,  that  under  such  circumstances  any  one  of  them  may 
avoid  fulfilling  his  contract,  by  assigning  his  interest  to  some 
irresponsible  person.  It  must  be  admitted,  however,  that  un- 
der somewhat  analogous  circumstances  the'  English  cases  hold 
that  a  shareholder,  even  in  a  company  of  unlimited  liability, 
may  free  himself  from  any  future  liability  by  transferring  his 
shares  to  a  man  of  straw  for  that  very  purpose,  provided  the 


iShibley  v.  Angle,  37  N.  Y.  626. 
See  Fay  v.  Noble,  7  Cush.  188. 
Thrasher  v.  Pike  County  R.  Co.,  25 
111.  393;  and  compare  Garnett  v. 
Richardson,  35  Ark.  144. 

76 


2  See  §  77. 

3  Graff  v.  Pittsburgh  and  Steuben- 
ville  R.  Co.,  31  Pa.  St.  489. 


CHAP.  VI.]  AGREEMENTS   TO   TAKE   STOCK.  [§  103. 

transfer  be  absolute.1     The  American  law  is  different  on  this 
point.2 

§  102.  Moreover,  by  assigning  his  interest  in  a  contract  to 
take  shares  in  the  stock  of  a  future  corporation,  a  person  may 
incur  liability  to  his  assignee,  at  least  if  he  purports  to  sell  shares 
in  the  stock  of  a  future  corporation,3  for,  should  such  a  corpora- 
tion never  be  organized,  he  might  have  to  refund  any  money 
paid  him  by  his  vendee.  Still,  in  the  absence  of  fraud,  the 
vendor  would  incur  no  liability  to  his  vendee  by  selling  him 
merely  his  right  to  shares  in  the  stock  of  the  corporation  when 
formed ;  for  here  there  is  no  failure  of  consideration  even  though 
the  corporation  be  never  formed,  because  the  vendor  sold  only 
his  right  to  shares  in  the  stock  of  a  certain  corporation  should 
it  thereafter  be  organized. 


103.  Persons  agreeing  to  take  shares  in  the  stock  of  a  cor- 
poration to  be  formed  necessarily  come  in  contact  with 
the  promoters  of  the  scheme  of  incorporation  ;  they   tions  bef-  *" 
usually  subscribe  on  the  faith  of  the  acts  and  repre-   scribersUb" 
sentations  of  the  latter,  and  nidge  as  to  the  ultimate   and  promo- 

'  Jo  ters.  >yJ*" 

success  of  the  undertaking  from  the  opinion  they  ^m^lA*****- 
have  formed  of  its  promoters.  The  promoters  of  the  plan  are 
in  a  better  position  to  judge  of  the  feasibility  and  desirableness 
of  the  scheme  than  are  persons  who  merely  agree  to  take  shares 
in  the  concern  when  it  shall  have  started.  Because  of  these 
and  similar  considerations  a  fiduciary  relationship  arises  be- 
tween the  promoters  and  persons  who  agree  to  subscribe  for 
shares  in  the  stock  of  the  future  corporation  ; 4  and  the  latter 
are  in  consequence  entitled  to  fair  and  open  treatment  from  the 
former.  It  follows  that  promoters  are  liable  to  persons  who 
subscribe  for  shares  in  the  stock  of  the  future  company  for 
damages  caused  by  any  fraudulent  misrepresentation  or  con- 
cealment on  their  part,  where  the  subscribers  have  relied  on 
their  representations,5  and  to  recover  such  damages  the  sub- 


1  Jessop's  Case,  2  De  G.  &  J.  638; 
DePass's  Case,  4  De  G.  &  J.  544; 
Harrison's  Case,  L.  R.  6  Ch.  286; 
Williams's  Case,  1  Ch.  D.  546.  See 
§§586,749. 

2  Nathan  v.  Whitlock,  9  Paige,  152; 
Marcy  v.  Clark,  17  Mass.  330.  See 
§§  586,  749. 


3  Kempson  v.  Saunders,  4  Bing.  5. 
See  Street  a.  Bailis,  2  P.  Wms.  217. 

4  Williams  v.  Page,  24  Beav.  654, 
611.  See  Brewster  v.  Hatch,  122  N. 
Y.  349. 

5  Hornblower  v.  Crandall,  7  Mo. 
App.  220;  aff'd  78  Mo.  581. 

77 


§  104.]  THE    LAW    OF    PRIVATE   CORPORATIONS.  [CHAP.  VI. 


When  pro- 
moters lia- 
ble to  sub- 
cribers  for 
deposits. 


scriber  can  bring  an  action  in  law  for  deceit,1  and  may  have 
a  right  in  equity  to  have  his  subscription  cancelled,2  provided 
by  such  cancellation  the  rights  of  other  and  innocent  persons 
are  not  infringed.  Promoters  may  also  be  responsible  to  sub- 
scribers for  the  misrepresentations  of  their  fellow-promoters,  if 
the  relationship  of  agency  or  partnership  existed  between  the 
promoters ;  or  if  they  had  acted  in  a  way  to  justify  subscribers 
in  inferring  the  existence  between  them  of  either  of  these  rela- 
tionships.3 
§  104.  That,  upon  the  failure  of  the  scheme  of  incorporation, 
subscribers  may  recover  back  from  the  promoters  de- 
posits paid  on  subscribing  for  shares  in  the  contem- 
plated corporation,  is  a  proposition  which  is  not 
always  true.  In  such  a  case  the  rights  of  the  sub- 
scriber who  has  paid  the  deposit  depend  on  the  intention  and 
meaning  of  the  parties  to  the  scheme,  as  expressed  in  the  sub- 
scription-agreement and  viewed  in  the  light  of  surrounding 
circumstances.4  If,  judging  of  the  matter  in  this  way,  it  ap- 
pears to  have  been  the  intention  that  the  deposits  should  be 
applied  to  the  furtherance  of  the  scheme,  then,  although  the 
scheme  proved  abortive,  the  moneys  will  have  been  applied  to 
the  purpose  for  which  they  were  presumably  destined  ;5  and  the 
subscribers  can  recover  back  only  such  moneys  as  either  have 
not  been  expended  and  so  remain  in  the  hands  of  the  promoters, 
or  such  as  have  been  spent  by  the  promoters  after  all  reasonable 
hope  for  the  success  of  the  undertaking  had  passed  away,  and 
under  such  circumstances  as  to  imply  wilful  mismanagement  or 
fraud  on  their  part.6     But  fraud  on  the  part  of  the  promoters 


1  Paddock  v.  Fletcher,  42  Vt.  389; 
Gerhard  v.  Bates,  2  El.  &  B.  476.  See 
Twycross  v.  Grant,  2  C.   P.  Div.  469. 

2  Kent  v.  Freehold  Land  Co.,  L.  R. 
4  Eq.  588.  An  innocent  misrepre- 
sentation, in  order  to  release  the  sub- 
scriber, must  extend  to  the  funda- 
mental nature  of  the  enterprise. 
Kennedy  v.  Panama,  etc.,  Mail  Co., 
L.  R.  2  Q.  B.  580.  False  statements 
in  the  prospectus  issued  by  promoters 
release  the  subscriber.  Metr.  C.  Crs' 
Ass'n  in  re,  [1892]  3  Ch.  1;  Land  Co. 
v.  Haupt,  90  Va.  533. 

78 


3Hornblower  v.  Crandall,  7  Mo. 
App.  220;  afFd  78  Mo.  581.  For  the 
liability  of  promoters  for  false  state- 
ments iu  the  prospectus,  see  §  77  and 
note. 

4  See  Moore  v.  Garwood,  4  Ex.  681. 

6  Garwood  v.  Ede,  1  Ex.  264; 
Clements  v.  Todd,  1  Ex.  286;  Jones 
v.  Harrison,  2  Ex.  52;  Willey  v.  Par- 
ratt,  3  Ex.  209. 

e  Watts  y.  Salter,  10  C.  B.  477.  See 
Ship  v.  Crosskill,  L.  R.  10 Eq.  73;  and 
compare  Vane  v.  Cobbold,  1  Ex.  798; 
Watson  v.  Charlemont,  10  Q.  B.  856. 


'/^^f^^-Q^tJ^^>f^^i^/ 


(P^nr\y^^      yj^l^^P^fT^t 


CHAP.  VI.]  AGREEMENTS   TO   TAKE   STOCK. 


[§  105. 


in  procuring  the  deposits  would  change  the  situation  and  entitle 
the  depositors  to  recover  back  the  whole  amount,  at  least  as 
between  them  and  the  fraudulent  promoters.1 

If,  however,  the  deposits  were  made  merely  in  order  to  com- 
ply with  some  resolution  or  statutory  requirement,  and  without 
any  intention  on  the  part  of  the  subscribers,  or  right  on  the  part 
of  the  promoters,  to  apply  the  money  in  furthering  the  organi- 
zation of  the  company,  then  the  subscribers  would  be  entitled 
to  have  their  entire  deposits  returned.2  Under  such  circum- 
stances, whether  the  promoters  would  be  accountable  for  de- 
posits received  by  others  of  their  number  must  be  decided  ac- 
cording to  principles  already  often  referred  to  ;3  generally  they 
would  not  be.4 

§  105.  It  goes  without  saving  that  whoever  agrees  to  take 
shares  in  the  stock  of  a  future  corporation  merely  in    „ 

i  i        •     -i         -,  n      Fraudulent 

order  that  others  may  be  induced  to  agree  as  well,  subscrip- 
having  a  secret  understanding  with  the  promoters  of 
the  scheme  that  no  liabilities  shall  attach  themselves  to  him  by 
reason  of  his  contract,  will  be  bound  to  fulfill  his  agreement,  at 
least  in  so  far  as  the  non-fuliillment  thereof  would  injure  inno- 
cent persons  who  have  acted  on  the  faith  of  it.5  And,  more- 
over, in  so  far  as  the  promoters  carry  out  this  fraudulent  secret 


1  See  Colt  v.  Woolaston,  2  P.  Wins. 
153;  Twycross  ».  Grant,  2  C.  P.  Div. 
469.  But  see  St.  Johns  Mfg.  Co.  v. 
Hunger,  106  Mich.  90.  A  subscriber, 
whose  subscription  has  been  obtained 
through  the  fraudulent  representa- 
tions of  a  promoter,  cannot  maintain 
an  action  for  money  had  and  received 
against  other  subscribers  who  are  not 
implicated  in  the  fraud.  Perry  v. 
Hale,  143  Mass.  540. 

2Nockels  v.  Crosby,  3  Barn.  &  Cr. 
814;  Ashpitel  v.  Sercombe,  5  Ex.  147. 
So  if  directors  (promoters)  under- 
take to  return  deposits  without  de- 
duction in  case  the  scheme  proves 
abortive,  as,  for  instance,  through 
failure  to  obtain  an  act  of  parlia- 
ment, they  will  be  liable  personally. 
Ward  v.  Londesborough,  12  C.  B. 
252. 


3  See  Walstab  v.  Spotteswood,  15 
H.  &  W.  501. 

4  See  Burnside  v.  Dayrell,  3  Ex. 
224,  commented  on  in  Thompson  on 
the  "  Liabilities  of  Agents  of  Corpo- 
rations,'1 p.  215. 

.  5  White  Mountains  R.  R.  Co.  v. 
Eastman,  34  N.  H.  134;  Custar  v. 
Titusville  Gas  Co.,  63  Pa.  St.  381; 
Minneapolis  Threshing  M.  Co.  v.  Da- 
vis, 40  Minn.  110.  See  Litchfield 
Bank  v.  Church,  29  Conn.  137;  Wil- 
son v.  Handley,  96  Va.  96;  Hardy  v. 
Swigant,  25  Col.  136,  and  §  521.  But 
an  agreement  between  a  subscriber 
and  another  subscriber  who  was  ac- 
tive in  procuring  the  subscription, 
that  the  former  shall  have  the  priv- 
ilege of  selling  his  shares  to  the  lat- 
ter at  any  time  within  a  year  at  the 
price  originally  paid,  is  not  void  or 

79 


§  108.]  THE   LAW   OF   PRIVATE   CORPORATIONS.   [CHAP.  VI. 

understanding  will  they  render  themselves  personally  liable  to 
persons  defrauded  and  injured  thereby.1 

§  106.  One  thing  further  as  to  the  relationship  between  the 
promoters,  and  persons  agreeing  to  take  shares  and 
tioiTof* 1Ca"  making  deposits.  Such  persons  enter  into  such  an 
deposits.  agreement  and  pay  their  preliminary  deposits,  ex- 
pecting that  a  corporation,  with  the  nature  and  general  pur- 
poses of  which  they  have  been  made  acquainted  by  the  pro- 
spectus and  representations  of  the  promoters,  will  be  organized  ; 
and  they  have  contracted  and  paid  their  money  with  this  spe- 
cial scheme  in  view.  Clearly,  if  the  promoters  apply  the  funds 
so  deposited  in  any  other  way  than  that  which  the  subscribers 
were  justified  in  contemplating,  the  subscribers'  moneys  have 
been  misapplied,  and  each  of  them  has  a  plain  claim  to  recover 
back  such  funds  from  any  promoter  responsible  for  their  mis- 
application. Such  a  misapplication  would  be  a  conversion  of 
the  funds  of  the  subscribers,  for  which  wrong  an  appropriate 
action  would  lie.  It  would  seem,  moreover,  that  any  depositor 
should  have  a  remedy,  not  only  to  obtain  damages  from  the 
promoters  for  any  misapplication  of  deposits,  but,  in  cases  where 
justice  could  not  otherwise  be  done,  that  a  depositor  might  com- 
pel the  promoters  to  apply  such  funds  to  the  furtherance  of  the 
scheme  for  which  they  were  subscribed,  at  least  so  far  as  it 
would  be  practicable  for  a  court  of  equity  to  enforce  such  ap- 
plication. -__^-^ — . 

107.  V7e~come  now  to  the  relations  between  a  person  who 


,*2/*v  Subscrip-      has  agreed  to  take  shares  in  the  stock  of  the  future 

'<*0l'  tions  gen- 


-t~      eraiiy'en-      corporation,  and  that  corporation  itself  when  organ- 

l*mt*r»   foroeable         ■       \  • 

by  the  cor-      lZeu. 

w°henor-  §  108.  First,  in  regard  to  enforcing  the  agreement 

ganized.  to  subscribe  for  shares.  This  was  an  agreement  be- 
tween the  parties  thereto  to  do  a  certain  thing,  to  wit,  to  sub- 
scribe for  shares  in  the  stock  of  a  certain  corporation  when  or- 
ganized ;  that  is,  it  was  an  agreement  to  invest  a  certain  amount 
of  capital  in  a  certain  manner,  to  be  used  for  a  certain  purpose. 
If  we  regard  the  corporation  when  formed  as  a  distinct  person, 
a  legal  difficulty  will  at  once  arise.     This  "person"  was  not  a 


contrary  to   public  policy,  if  not  ac- 
tually tainted    with  fraud.    Morgan 
v.  Struthers,  I3l  U.  S.  246. 
80 


i  See  Hall's  Case,  L.  R.  5  Ch.  707; 
Getty  v.  Devlin,  70  N.  Y.  504. 


^2<&&fc>S44&1S  £p/-rU?6'      ^/ZyCt^tz^t^rr^,     ^W- 


CHAP.  VI.]  AGREEMENTS  TO   TAKE   STOCK. 


[§  108. 


party  to  the  agreement,  did  not  even  exist  at  the  time  when  the 
agreement  was  made ;  what  standing  has  it  in  court  to  compel 
the  performance  of  the  agreement?1 

But  this  difficulty  is  entirely  gratuitous,  and  arises  only  from 
the  conception  of  a  company  as  an  entity,  which  at  the  very 
moment  of  the  completion  of  its  organization,  and  thereby,  be- 
comes a  "  person "  distinct  from  all  persons  interested  in  the 
corporate  enterprise.  If  we  regard  the  company  at  the  time  of 
its  incorporation  merely  as  the  aggregate  of  its  members  act- 
ing and  bound  to  act  in  a  certain  way,  and  to  employ  certain 
funds  in  a  certain  manner  for  a  certain  purpose,2  all  difficulty 


1  "A subscription  tfljfcake 

tVjft_jatng]f:   nf     a,    pnrpnrartnn    to    hft 

formed  enures  to_the_b_gn£fit_ofJ;hat 
corporation  \vlieii_fojrrneiLJ2__Iiiis- 
wold  v.  Peoria  University,  26  111.  41; 
Cross  v.  Pinckneyville  Mill  Co.,  17 
111.  57;  see  Eastern  Plank  Road  Co. 
v.  Vaughan,  20  Barb.  155;  S.  C,  14 
N.  Y.  546;  and  Angell  and  Ames  on 
Corp.,  §  523.  The  insolvencyjxf the_ 
corporation  is  no  ground  to  restrain 
the  collection  of  subscriptions  to  its 
slb^rTHiTrTWabash  Valley  R.  R. 
Co.,  21  111.  91.  Before  the^orgajijza- 
tion  of  a  corporation,  a  person  sub- 
scribed for  shares  as  trustee  for  said 
corporation;  held  that  he  was  liable 
individually  in  an  action  brought  af- 
ter the*TCorpoiation  had  become  in- 
solvent. Johnston,  Trustee,  v.  Allis, 
71  Conn.  207.  Penobscot,  etc.,  R.  R. 
Co.  v.  "Bummer,  40  "Me.  172,  seems 
to  ho  1(3  an  agreement  to  take  shares 
inthe  stock  of  a  future  corporation, 
to  Tie  as  to  the  corporation  a  proposal, 
which  is  Taindingly  accepted  by" the 
corporation  when  organized  recog- 
nizing the  shares  so  subscribed  for 
as  ""shares  of  its  stock.  Again  it  is 
held  that  a  subscription  to  shares  is 
a  mere  offer  which  may  be  withdrawn 
at  any  time  before  the  corporation  is 
organized;  because  there  is  no  other 
party  as  yet  in  existence.     Hudson 

6 


Real  Estate  Co.  v.  Tower,  156  Mass. 
.82;  Mill  Co.  v.  Felt,  87  Me.  234.  See 
.Thompson  v.  Page,  1  Mete.  565 ;  Stan- 
ton v.  Wilson,  2  Hill,  153;  Kennebec, 
etc.,  R.  R.  Co.  v.  Palmer,  34  Me.  366; 
Cleaves  v.  Brick  Church  T.  Co.,  1 
Sneed  (Tenn.),  491;  Buffalo,  etc.,  R. 
R.  Co.  v.  Gifford,  87  N.  Y.  294.  An 
unconditional  subscription  becomes 
binding  upon  the  formation  of  the 
corporation  within  a  reasonable  time, 
if  not  withdrawn.  Balfour  v.  Gas 
Co.,  27  Oreg.  300.  Cf.  Badger  P.  Co. 
u.  Rose,  95  Wis.  145.  The  right  of 
the  corporation  to  sue  is  not  always 
well  thought  out.  To  say  that  the 
agreement  enures  to  the  benefit  of 
the  corporation  when  formed  raises 
the  disputed  question  of  the  compe- 
tency of  a  person  not  party  to  a  con- 
tract to  sue  thereon.  To  be  sure,  the 
doctrines  of  ratification  may  be  re- 
sorted to  where  the  agreement  to 
subscribe  was  entered  into  with  per- 
sons authorized  or  purporting  to  act 
on  behalf  of  the  future  company. 
See  §  87. 

2  Persons  may  agree  with  each 
other  as  to  the  terms  on  which  they 
will  take  stock  in  a  corporation  to  be 
formed  by  them.  Under  our  system 
the  corporation  following  such  an 
agreement  would  be  the  mere  agency 
of  the  associates  created  for  the  sake 

81 


§  109.]  THE  LAW   OF  PRIVATE   CORPORATIONS.  [CHAP.  VI. 

will  be  avoided ;  and  we  shall  then  have  the  contract  enforced 
by  the  parties  thereto  acting  in  precisely  the  manner  con- 
templated, to  wit,,  as  a  corporation,  through  the/medium  of  cor- 
porate machinery  and  organization.  By  means-of  this  natural 
conception  all  difficulty  is  avoided,  and  no  violence  is  done  to 
the  strictest  requirements  of  logical  or  legal  thought. 

§  109.  Accordingly,  the  proposition  may  be  regarded  as  law 
throughout  the  United  States,  that  when  several  persons  mutu- 
ally agree  to  subscribe  for  shares  in  a  corporation  to  be  formed 
by  the  subscribers  for  the  advancement  of  their  interests,  the 
corporation  when  organized  may  recognize  the  subscribers  as 
shareholders,  and  enforce  the  subscriptions  ; *  and  especially  is 
this  true  when  the  subscription-agreement  is  made  with  persons 
who  by  statute  represent  the  future  corporation  for  the  purpose 
of  receiving  subscriptions.2  If,  however,  the  parties  to  the 
subscription-agreement  are  not  themselves  the  organizers  of 
the  corporation,  and  in  no  sense  represent  the  future  company, 
and  are  a  different  body  of  men  from  those  composing  the 
corporation  when  formed,  then  is  certainly  raised  the  difficult 
question  of  the  right  of  a  third  person  to  sue  on  a  contract.3 


of  convenience  in  carrying  out  the 
bargain.  Chater  v.  San  Francisco 
Sugar  Refining  Co.,  19  Cal.  219.  246. 
1  Atbol  Music  Hall  Co.  v.  Carey, 
116  Mass.  471;  Marysville,  etc.,  Co. 
v.  Johnson,  93  Cal.  538;  San  Joaquin 
Land,  etc.,  Co.  v.  West,  94  Cal.  399; 
Same  v.  Beecher,  101  Cal.  70;  Minne- 
apolis T.  M.Co.  v.  Davis,  40  Minn.  110; 
Richelieu  Hotel  Co.  v.  Military  E. 
Co.,  140  111.  248;  Buffalo  &  James- 
town K.  R.  Co.  v.  Clark,  22  Hun,  359; 
aff'd  87  N.  Y.  632;  Twin  Creek,  etc., 
Turnpike  Co.  v.  Lancaster,  79  Ky. 
552;  Boot  and  Shoe  Co.  v.  Hoit,  .">(> 
N.  H.  548;  Tonica,  etc.,  R.  R.  Co.  v. 
McNeely,  21  111.  71;  Johnston  v. 
Ewing  Female  University,  35  111.  518; 
Red  Wing  Hotel  Co.  v.  Friedrich,  26 
Minn.  112;  Whitsitt  V.  Presbyterian 
Church,  110111.125;  Haskell  r.  Sells, 
14  Mo.  App.  91.  See  Peninsular  Ky. 
Co.   v.   Duncan,   28   Mich.    130,    134; 

82 


Fair  Ass'n  v.  Walker,  83  Mich.  386, 
and  authorities  cited  in  note  1  to  §  91. 
Compare  Burt  v.  Farrer,  24  Barb.  518; 
Howe  v.  Flagg,  72  111.  397;  Marseilles 
Land  Co.  v.  Aldrich,  86  111.  504,  and 
the  cases  cited  in  notes  to  §  91. 

2  Delaware  and  Atlantic  R.  R.  Co. 
v.  Irick,  23  N.  J.  L.  321;  Hughes  v. 
M'f  g  Co.,  34  Md.  316. 

3  See  Lake  Ontario  Shore  R.  R.  Co. 
v.  Curtiss,  80  N.  Y.  219,  where  de- 
fendant and  others  signed  the  follow- 
ing instrument:  "We,  the  under- 
signed, citizens  of  Unionville  and  vi- 
cinity, pledge  ourselves  to  subscribe 
for  and  take  stock  iu  and  for  the  con- 
struction of  the  Lake  Ontario  Shore 
R.  R.  Co.,  to  the  amount  set  opposite 
our  names  respectively,  on  condition 
said  road  be  located  and  built  through 
or  north  of  the  village  of  Unionville." 

The  railroad  was  built  so  that  it  ful- 
filled the  condition  above,  but  it  was 


<^ 


CHAP.  VI.]  AGREEMENTS    TO   TAKE   STOCK. 


[§  no. 


§  110.  It  remains  to  consider  the  rights  of  the  parties  to  the 
original  agreement  as  against  the  corporation.     If  „.  , 

°  .  ,  .      ,    .  ii»i        Rights  of 

the  corporation  when  organized  is  composed  or  the  subscribers 
subscribers,  or  if  the  agreement  to  subscribe  is  made  corpora- 
with  persons  who  by  statute  represent  the  corpora-  tlon" 
tion  while  it  is  being  organized,  a  subscriber  acquires  by  his 
agreement  the  right  to  have  the  shares  subscribed  for  by  him 
allotted  to  him,  unless  his  subscription  is  made  after  the  full 
amount  of  the  capital  stock  authorized  by  the  charter  of  the 
corporation  is  subscribed  for.1 

It  will  be  remembered  that  all  the  parties  to  the  subscription- 
agreement  have  agreed  to  invest  certain  funds  for  the  accom-,^,,^-,^ 
plishment  of  a  certain  object,  and  that  these  funds  should  bej£>r*++-. 
managed  and  applied  for  the  furtherance  of  that  object  through^^*-,©^ 
the  medium  of  corporate  organization;  suppose  that  this  agree-' 
ment  is  violated,  citho»  through  the  managers  of  the  scheme 
procuring  a  charter  different  from  the  one  contemplated,  or  by« 

gHg^gdsaally  npunpplymff    ^inj^    nlrnnrl y  nnni  i  ilmlJTll  ;   that  is,> 


t^*& 


applV'W^ffLfleiii^y^m^iieTaTKTfor  purposes  other  than  those 
contemplated  by  the  original  agreement.  In  other  words,  it 
becomes  apparent  that  the  purposes  for  which  the  corporation 
is  actually  being  organized  differ  from  those  justifiably  contem- 
plated ;  that  another  scheme,  differing  from  the  original  plan, 
is  being  gone  into.  It  is  plain  that  any  one  of  the  original 
parties,  or  his  representatives,  can  say,  "  I  never  paid  deposits 
to  be  used  for  any  such  purpose."  And  it  is  further  evident, 
that,  as  between  him  and  any  body  or  individual  acting  in 
violation  of  the  terms  of  the  original  agreement,  he  may  claim 
to  be  released  from  his  contract,  and  perhaps  to  have  moneys 
paid  or  expended  by  him  reimbursed.  Thus,  as  between  a 
party  to  the  original  agreement  to  take  shares  and  the  corpora- 


held  that  this  agreement  did  not 
amount  to  a  subscription  to  plaintiff's 
stock,  and  that,  being  no  party  to 
the  agreement,  the  plaintiff  could 
maintain  no  action  on  it.  See  also 
California  Sugar  M'f 'g  Co.  v.  Schaf er, 
57  Cal.  396;  Strasburg  R.  R.  Co.  v. 
Echternacht,  21  Pa.  St.  220.  Com- 
pare Eastern  Plank  Road  Co.  v. 
Vaughan,  14  N.  Y.  546,  555. 


1  This  right  of  the  subscriber  con- 
stitutes in  the  main  the  consideration 
by  virtue  of  which  the  corporation 
may  enforce  his  subscription;  see 
notes  to  §  91,  and  cases  in  last  three 
notes.  See,  generally,  §§  515,  516; 
also  Birmingham  Nat.  Bk.  v.  Roden, 
97  Ala.  404. 


83 


§  111.]  THE   LAW   OF   PRIVATE   CORPORATIONS.  [CHAP.  VI. 


tion  when  organized,  any  material  divergence  of  the  corporate 
scheme  from  the  plan  justifiably  contemplated  by  a  party  to 
the  agreement  to  take  shares  at  the  time  of  his  signing  the 
same,  or  paying  deposits  in  accordance  therewith,  will  release 
him  from  his  contract,  and  may  entitle  him  to  recover  any 
moneys  paid  or  expended  by  him  in  pursuance  of  its  terms.1 
If  the  divergence  alluded  to  is  immaterial,  or  such  as  was  con- 
templated in  the  original  agreement  as  a  possibility  (i.  e.,  no 
divergehce  at  all) ;  or  if  a  party  has  acquiesced  in  the  diver- 
gence, which  may  be  implied  from  long-continued  neglect  to 
repudiate,  he  will  not  be  released  from  his  agreement  to  take 
shares.2  But  usually  from  mere  lapse  of  time,  unless  very 
great,  acquiescence  cannot  be  inferred  ;  there  must  be  some 
reason  to  infer  knowledge  on  the  part  of  the  dissenting  party 
of  the  violation,  and  neglect  to  repudiate  after  that  knowledge 
had  been  obtained.3 

§  111.  The  qualification,  "  as  between  the  party  to  the  agree- 
ment and  the  corporation  when  organized,"  is  to  be 
noted ;  for,  should  such  a  party  refrain  from  enforc- 
ing his  rights  for  any  considerable  length  of  time, 


Effect  of 
subscrib- 
ers' laches 


1  Knox  v.  Childersburg  Land  Co., 
86  Ala.  180;  Maysville,  etc.,  Co.  v. 
Johnson,  109  Cal.  192.  So  failure  to 
organize  within  a  reasonable  time 
releases  the  subscriber.  lb.  "  A 
person  who  agrees  to  take  shares  in 
a  company  formed  for  a  given  pur- 
pose and  with  a  given  capital,  is  not 
bound  to  accept  shares  in  a  company 
formed  for  another  purpose  or  with 
a  different  capital;  a  material  varia- 
tion from  the  original  scheme,  if  un- 
assented  to  by  a  subscriber  to  it, 
affords  an  answer  to  any  application 
for  calls  which  may  be  made  upon 
him."  2  Lindley  on  Part.,  G25, 
citing  Galvanized  Iron  Co.  v.  Wes- 
toby,  8  Ex.  17.  See  Rye's  Case,  3 
Jur.  N.  S.  460;  Ship's  Case,  2  De  G., 
J.  &  Sm.  544;  Stewart's  Case,  L.  R. 
1  Ch.  574;  Webster's  Case,  L.  R.  2 
Eq.  741. 

2  London,  etc.,  Assurance  Soc.   v. 

84 


Redgrave,  4  C.  B.  N.  S.  524.  "  But 
if  a  subscriber  to  a  company  binds 
himself  to  take  shares  in  a  company 
which  may  differ  more  or  less 
from  that  originally  proposed  to  be 
formed,  he  cannot  set  up  a  variation 
in  the  original  scheme  as  an  answer 
to  a  demand  for  payment  of  the 
capital  he  has  undertaken  to  con- 
tribute." 2  Lindley  on  Part.,  625. 
See  Midland,  etc.,  R.  Co.  v.  Gordon, 
16  M.  &  W.  803;  Nixon  v.  Brownlow, 
2  H.  &  N.  455;  S.  C,  3  H.  &  N.  686; 
Norman  v.  Mitchell,  5  De  G.,  M.  & 
G.  648. 

8  See  cases  cited  in  last  note  but 
one,  and  Nichol's  Case,  2  W.  N.  77; 
Bailey's  Case,  L.  R.  3  Ch.  592.  The 
repudiation  was  held  too  late  in  Law- 
rence's Case,  L.  R.  2  Ch.  412;  Brigg's 
Case,  L.  R.  1  Eq.  483;  Whitehouse's 
Case,  L.  R.  3  Eq.  790;  Taite's  Case, 
L.  R.  3  Eq.  795. 


CHAP.  VI.]  AGREEMENTS   TO   TAKE   STOCK.  [§  112. 

the  corporation,  or  the  other  shareholders  or  subscribers,  might 
claim  that  he  had  waived  his  rights,  or  at  least  was  estopped 
from  asserting  them  to  the  injury  of  any  one  who  had  reason- 
ably acted  on  the  supposition,  occasioned  by  the  delay,  that  he 
had  waived  them.  And  should  the  rights  of  any  outsiders  who 
had  contracted  with  and  become  creditors  of  the  corporation 
intervene,  the  subscribers  should  certainly  not  be  allowed  to 
withdraw  funds  or  claim  a  release  from  their  agreements  to  the 
detriment  of  persons  outside  the  corporation,  who  very  likely 
contracted  with  the  corporation  on  the  credit  of  those  funds  or 
agreements  to  subscribe.  Such  outside  creditors  could  well  say 
that  the  original  contracting  parties,  in  entering  on  such  an 
enterprise,  took  upon  themselves,  at  least  as  regards  outsiders 
acting  in  good  faith,  the  risk  of  internal  mismanagement  of  the 
affairs  of  the  corporation  and  misapplication  of  its  funds.  So 
it  behooves  a  dissenting  party  or  subscriber  to  dissent  actively 
at  once,  and  better  before  than  after  the  organization  of  the 
corporation  ;  and  if  after,  then  at  the  earliest  possible  moment.1 
§  112.  It  may  be  added,  finally,  that  not  only  may  a  party 
acting  promptly  claim  a  rescission  of  the  contract,  but  a  court 
of  equity  will  ordinarily  aid  him  with  an  injunction,  restrain- 
ing the  other  parties  to  the  contract  or  the  corporation  from 
acting  in  violation  of  his  rights.2 


1  Laches  begins  when  the  sub- 
scriber is  chargeable  with  notice. 
Laud  Co.  v.  Hauft,  90  Va.  533. 

2  See  Lord  Eldon's  valuable  judg- 
ments in  Natusch  v.  Irving,  Gow  on 


Part.  App.  576  (American  ed.  of 
1830),  and  in  Coust  v.  Harris,  Turn. 
&  R.  496.  Compare  Stocker  v.  Wed- 
derburn,  3  K.  &  J.  393. 

85 


§  114.]         THE    LAW   OF   PRIVATE   CORPORATIONS.  [CHAP.  VII. 


CHAPTER  VII. 

LEGAL  EFFECT  OF  ACTS   DONE  BY  OR  ON  BEHALF  OF 
A  CORPORATION. 


-Explanation  of  terms:  "Legal  ef- 
fect," §  113. 

"  Corporate  powers,"  §  114. 

Considerations  regarding  them, 
§  115. 


Divergency  of  interests,  §§  116,  117. 
All  persons  may  look  to  the  corpo- 
rate constitution,  §  118. 
Purpose  of  this  chapter,  §  119. 


Preliminary. 

§  113.  It  has  been  shown  in  a  previous  chapter1  that  a  cor- 
poration,  regarded  as  a  legal  institution,  is  the  sum 
tion  of  of  the  legal  relations  in  which  the  rules  of  law  con- 

"  Legal  tained  in  the  constitution  of  the  corporation  manifest 
effect."  themselves,  and  which  subsist  between  the  state,  the 
shareholders,  the  officers,  and  the  creditors  of  the  corporation 
in  respect  to  the  corporate  enterprise,  and  mainly  in  respect  to 
the  corporate  funds.  It  was  also  pointed  out,  that  the  term 
corporation  has  another  and  distinct  meaning ;  i.  e.,  the  body 
of  men  and  their  successors  whose  acts  caused  incorporation, 
and  who  thereby  became  a  corporation  or  body  corporate.  Ac- 
cordingly, by  the  phrase  "  legal  effect  of  acts  done  by  or  on 
behalf  of  a  corporation,"  is  meant  the  legal  relations  which  acts 
done  by  or  on  behalf  of  this  body  corporate  occasion.2 

§  111.  As  the  phrase  "corporate  powers"  will  often  be  used 

in  this  chapter,  to  explain  what  will  be  meant  by  it 

powers0"1  e    is  not  out  of  place.     By  the  contract  embodied  in 

the  constitution  of  the  corporation,  the  corporators3 


1  Chapter  III. 

2  See  §  445. 

3 The  term  "corporators,"  as  here 
used,  is  intended  to  signify  the  orig- 
inal body  of  subscribers  or  share- 
holders who  take  part  in  the  organi- 

86 


zation  of  the  corporation.  The  term, 
however,  as  used  in  some  enabling 
acts,  denotes  the  persons  who  exe- 
cute the  certificate  of  incorporation, 
and  thereby  become  a  body  corpo- 
rate.    Such  persons,  it  seems,  need 


CHAP.  VII.]    LEGAL   EFFECT   OF   CORPORATE   ACTS.  [§  114. 

agree,  under  the  express  sanction  of  the  state,  that  the  corpo- 
rate enterprise  shall  be  organized  and  managed  in  a  certain  man- 
ner, and  that  the  highest  authority  in  regard  to  the  corporate 
affairs  shall  be  vested  in  certain  persons.  These  persons  usually 
are  a  majority JLof  the  corporators  themselves,  and  the  way  in 
which  they  ordinarily  act  is  by  a  vote  in  a  duly  summoned  meet- 
ing of  the  bodyjcorporate.  This  majority  elect  directors,  whose 
authority  when  elected  to  represent  the  corporation  is  either 
derived  directly  from  the  constitution,  or  is  bestowed  by  the 
vote  of  the  majority  of  shareholders.  In  the  original  contract, 
or  in  the  constitution  in  which  it  is  embodied,  the  object  of  in- 
corporation and  the  means  of  attaining  it  are  specified ;  and 
t^fe  specificalRRr  indicates  the^xtent  of  discretion  and  powex. 
competently 2  conferred  by  all  the  corporators  acting  as  indi- 
viduals, on  themselves  as  a  body  corporate,  or  on  the  board  of 
directors. 

The  corporate  powers,  then,  are  the  powers  of  the  corpora- 
tion or  body  corporate  to  act  as  such  ;  and  'are  to  be  deduced 
from  the  object'of  incorporation  and  the  means  of  attaining  it 
authorized    by^the  constitution   of   the   corporation.3     Conse- 


not  themselves  be  shareholders.  See, 
e.  fir.,  the  New  Yotk  General  Corpo- 
ration Law,  Laws,  1892,  ch.  687,  §  4. 
"  Corporators,"  in,  this  hitter  sense, 
acting  in  pursuance  of  some  enabling 
act,  decide  on  the  "object  of  incorpo- 
ration, and  start  the  corporation. 
Shareholders,  Wto  are  not  of  their 
number,  by  taking  shares  in  the  stock 
of  the  corporation,. assent  to  the  acts 
of  the  corporator^.  The  gist  of  the 
matter  lies  herein:  that  whether  or 
.not  the  main  body  of  shareholders 
take  part  in  organising  the  corpora- 


those  holding  a  majority  of  shares; 
which  will  be  intended  hereafter 
when  a  "majority  of  shareholders" 
is  spoken  of. 

2  I.  e.,  with  the  sanction  of  law. 

3  The  purposes  of  incorporation  are 
always  important  in  determining  the 
scope  of  the  corporate  powers.  Thus 
a  corporation  may  purchase  an  inven- 
tion tending  to  facilitate  the  purposes 
of  its  incorporation  as  indicated  by 
the  corporate  name.  Dorsey  Har- 
vester Rake  Co.  v.  Marsh,  6  Fish  Pat. 
Cas.  387.     Again,  it  may  be  properly 


tion^they  ratify  its_  organization  by._within  the  powers  of  a  corporation 


becoming  shareholders;  and  agree  to 
be  bound  by  the  provisions  of  the 
certificate  of  incorporation  and  by 
those  of  the  enabling  act  in  pursuance 
of  which  the  certificate  is  executed 
anjlrfiled. 
1 1,  e.,  a  majority  "in  interest;" 


running  an  iron  furnace,  to  have  a 
supply  store.  Searight  v.  Payne,  6 
Lea  ( Tenn. ),  283.  And  a  corporation 
may  employ  an  agent  to  perform  ser- 
vices consonant  to  its  general  design, 
without  any  specific  autbority  to  do 
so.     Kitchen  v.*  Cape  Girardeau,  etc., 

87 


§  115.]         THE   LAW    OF   PRIVATE    CORPORATIONS.   [CHAP.  VII. 


Considera- 
tions re- 
garding the 
corporate 
powers. 


quently,  whether  a  given  act  is  within  the  corporate  powers, 
depends  on  whether  it  is  an  act  authorized  by  the  constitution 
to  be  done  for  the  attainment  of  the  object  of  incorporation.1 
§  115.  It  is  not  merely  for  the  convenience  of  the  corporators 
that  the  state,  by  giving  the  force  of  law  to  the  con- 
tract between  the  corporators,  sanctions  the  corporate 
powers.  In  the  creation  or  recognition  of  every  rule 
of  law  in  the  constitution  of  a  corporation,  and  con- 
sequently of  every  rule  the  function  of  which  is  to  regulate  the 
corporate  powers,  the  state  has  continually  in  view  the  security 
of  persons  dealing  with  the  corporation,  as  well  as  the  welfare 
of  the  public  so  far  as  the  public  may  be  interested  in  the 
^bject  of  incorporation.  The  oontract  embodied  in  the  consti- 
tution is  a  contract  made  with  the  intention  that  persons  other 
than  the  contracting  parties  shall  act  relying  on  its  terms.2 
Indeed  many  of  the  provisions  of  this  contract,  which  through 
incorporation  become  rules  of  law,  are  evidently  such  as  will 
manifest  themselves  in  the  rights  of  persons  other  than  share- 
holders. Accordingly,  every  one  will  have  a  right,  correspond- 
ing to  his  interests  in  the  corporate  enterprise,  to  insist  on  a 
proper  exercise  of  the  corporate  powers,  and  to  restrain  the 
corporation  from  improper  and  ultra  vires  action. 


R.  R.  Co.,  59  Mo.  514.  See,  also, 
Spangler  v.  Butterfield,  6  Col.  356, 
364.  In  Bank  v.  Flour  Co.,  41  O.  St. 
552,  the  court  reasoned  thus:  In 
determining  whether  an  act  is  within 
the  powers  of  a  corporation,  regard 
is  to  be  had  to  its  effect  and  the  real 
object  in  view;  e.  g.,  though  a  cor- 
poration may  not  ordinarily,  unless 
specially  authorized,  make  contracts 
of  suretyship,  yet  it  may  guaranty  a 
debt  of  its  president  to  a  third  per- 
son when  the  real  object  sought  is  to 
secure  its  own  indebtedness  to  him. 
1  It  follows  that  a  charter  or  ena- 
bling act  of  a  corporation  is  in  its 
general  nature  enabling  and  not  res- 
trictive; conferring  powers  which 
may  be  exercised,  rather  than  enu- 

88 


merating  those  which  may  not  be 
exercised.  Accordingly,  where  the 
charter  or  enabling  act  is  silent  in 
regard  to  any  class  of  acts,  the  pre- 
sumption will  be  that  the  corpora- 
tion lias  no  authority  to  do  them,  un- 
less tbey  are  incidental  to  the  exer- 
cise of  the  powers  expressly  granted. 
See  Thomas  v.  Railroad  Co.,  101  U.  S. 
71;  Head  v.  Providence  Ins.  Co.,  2 
Cranch,  127,  166;  »lso  §§  120,  121. 

2  A  corporation,  organized  pursu- 
ant to  an  agreement  authorized  by 
competent  legislation,  is  bound  by 
all  the  liabilities  imposed  by  the 
agreement  in  favor  of  third  persons. 
Welsh  v.  First  Div.  St.  Paul  and  Pac. 
R.  R.  Co.,  25  Minn.  314. 


CHAP.  Vn.]  LEGAL   EFFECT    OF   CORPORATE   ACTS.  [§  118. 

§  116.  It  must  be  borne  in  mind  that  the  interests  of  some 

persons  in  the  corporate  enterprise  will  be  opposed   Divergency 

to  the  interests  of  others.     While  it  is  for  the  inter-   of  inter- 
ests, 
ests  of   shareholders   that  the   corporate  enterprise 

shall  be  managed  so  as  to  insure  the  continuing  solvency  of  the 
corporation,  it  is  also  for  their  interests  that  dividends  may  be 
had  from  the  business.  The  interests  of  creditors,  on  the  other 
hand,  are  exclusively  that  the  corporation  shall  continue  able 
to  pay  the  principal  and  interest  of  its  indebtedness  ;  so  the  in- 
terests of  shareholders  may  readily  conflict  with  those  of  cred- 
itors. Again,  it  is  possible  that  the  interests  of  the  state,  or 
the  public  at  large,  may  be  opposed  to  the  interests  of  share- 
olders  and  creditors  alike  ;  and,  in  certain  cases,  where  usually 
improper  elements  would  be  present,  the  interests  of  directors 
might  diverge  from  those  of  the  public,  of  shareholders,  and  of 
creditors.  Finally,  not  only  may  the  interests  in  the  corporate 
enterprise  of  one  class  of  persons  be  opposed  to  the  interests  of 
another  class,  but  a  divergency  of  interest  may  readily  arise 
within  the  limits  of  a  single  class  ;  as*  for  instance,  when  the 
corporate  solvency  is  not  assured,  it  will  be  for  the  interests  of 
one  set  of  creditors  to  oppose  the  payment  of  debts  alleged  to  be 
due  another  set. 

§  117.  In  short,  incorporation,  and  subsequent  acts  in  respect 
to  the  corporate  enterprise,  give  rise  to  a  conflict  of  opposing 
interests  and  to  complicated  legal  relations,  all  of  which  inter- 
ests and  relations  must  be  regarded  in  applying  the  corporate 
funds.  And  to  say  that  these  funds  must  be  managed  with 
due  regard  to  the  interests  of  all,  implies  the  further  propo- 
sition that  the  managers  of  the  corporate  enterprise  are  account- 
able for  the  proper  disposition  of  these  funds  to  all  persons 
interested,  to  the  extent  of  the  respective  interests  of  such  per- 
sons. In  determining  the  legal  relations  arising  from  acts  done 
by  or  on  behalf  of  a  corporation,  the  importance  of  bearing  in 
mind  that  the  legally  protected  interests  of  different  persons  in 
the  corporate  enterprise  are  distinguishable  will  be  apparent 
throughout  this  chapter. 

§  118.  In  subscribing  for  shares,  in  managing  the  corporate 
enterprise,  and  in  contracting  on  the  credit  of  the  corporate 
funds,  everybody  may  rely  on  the  constitution  of  the  corpora- 

89 


§  119.]         THE   LAW   OF   PRIVATE   CORPORATIONS.  [CHAP.  VII.    . 


tion,  by  which  everybody  interested  in  the  corporate  enterprise 
A11  is  bound,  and  with  knowledge  of  which  every  one 

All  persons  J 


may  look      is  affected.1     Therefore,  the  acts  of  the  body  corpo- 

to  the  cor-  .  .  .  tj1       .  .  .        .  r  . 

pomte  con-  rate  done  in  accordance  with  this  constitution,  and 
s  i  u  ion.  j.jie  acj.g  Qj!  directors  anci  other  corporate  agents^ 
within  the  scope  of  their  authority  are  valid2  and  binding3  on  all 
persons.  The  management  of  the  corporate  enterprise  in  pursu- 
ance  of  tRe  "constitution  of  the  corporation  is  thefvroper  man- 
agement by  which  every  one  is  bound  and  to  which  no  one  can 
object.4 

§  119.  The  purpose  of  the  present  chapter  is  to  give  a  view 
„  .    of  the  legal  relations  which  acts  done  by  or  on  behalf 

Purpose  of  °  J 

this  chap-     of  a  corporation  occasion  between  the  corporatio 

(including  all  its  shareholders  and  existing  creditors) 
and  the  person  dealing  with  it  or  its  representative. 


1  See  §  195. 

2  An  act  is  valid  when  it  occasions 
the  apparently  intended  legal  rela- 
tions. 

s  To  say  that  the  act  of  one  person 
is  binding  on  another,  means  that  it 
occasions  the  legal  relations  'which 
would  have  been  occasioned  had 
such  other  person  done  the  act  him- 
self.    It    may   occasion    legal    rela- 


90 


tions  affecting  the  person  doing  it  aa 
well. 

4  The  propriety  of  acts  may  often 
depend  on  the  condition  of  the  corpo- 
rate affairs.  What  would  have  been 
a  lawful  and  proper  use  of  the  corpo- 
rate funds  when  the  corporation  was 
solvent,  may  be  both  "improper  and 
unlawful  when  the  corporation  be- 
comes insolvent. 


W 


PART  I. J      CONSTRUCTION   OF   CORPORATE  POWERS.         [§  120. 


PART  I. 

CONSTRUCTION  OF  CORPORATE  POWERS. 


General  rules    regarding   corporate 

powers,  §  120. 
Corporate  powers  to  be  construed  rea- 
sonably, §  121. 
Certain  powers  and  privileges  to  be 

construed  narrowly,  §  122. 
Power  to  raise  money,  §  123. 
By  issue  of  stock,  §  124. 
By    borrowing.     Corporations    may 

mortgage  tbeir  property.      Excep- 
tions, §  125. 
"Deferred  income-bonds,"  §  126. 
Power  to  guaranty,  §  127. 
Power   to   bold  land.     Statutes    of 

mortmain,  §  128. 
Power  to  acquire  personal  property, 

§  129. 
Power  to  alienate,  §  130. 
Power  to  transfer  franchises,  §§  131, 

132. 
Power  to  increase  or  decrease   the 

capital  stock,  §  133. 
Power  of  a  corporation  to  purchase 

its  own  stock,  §§  134,  135. 
A  corporation  may  reissue  its  shares 

purchased  by  it,  but  cannot  vote  on 

them,  §  136. 
Capacity  of    a  corporation  to   sue, 

§137. 
Suits  must  in  general  be  brought  in 

the  name  of  the  corporation,  §  138. 


When  a  shareholder  may  sue  on  be- 
half of  the  corporation,  §  139. 

Sbareholder  must  allege  demand  on 
the  corporation  to  sue,  §§  140,  141. 

Right  of  sbareholder  to  sue  in  re- 
spect of  injuries  already  accrued, 
§142. 

Service  of  process  on  corporations, 
§143. 

Effect  of  appointment  of  receiver, 
§144. 

Corporate  franchises  cannot  be  ques- 
tioned collaterally.  General  rule, 
§145. 

Scope  of  the  rule  when  an  estoppel 
affects  the  case,  §§  146-150. 

Scope  of  the  rule  when  no  estoppel 
exists,  §§  151-156. 

Defective  organization  remediable, 
§157.. 

Right  to  corporate  name,  §  158. 

Effect  of  misnomer,  §  159. 

Powers  of  banking  corporations, 
§161. 

Powers  of  railroad  corporations. 
Eminent  domain,  §§  162-164. 

Rights  of  the  corporation  as  to  land 
acquired  by  eminent  domain,  §  165. 

Eminent  domain  not  transferable, 
§166. 


§  120.  General  rules  regarding  the  powers  of  corporations 
have  often  been  laid  down,  both  in  text  books  and  in 
adjudicated  cases.  In  regard  to  these  rules  them- 
selves there  is  less  difference  of  opinion  than  in  re- 
gard to  their  application.  In  the  first  place,  corpora- 
tions ordinarily  have  still  the  common  law  capacities  which 

91 


General 
rules  re- 
garding 
corporate 
powers. 


§  120.]         THE   LAW   OF   PRIVATE  CORPORATIONS.  [CHAP.  VII. 

were  specified  and  discussed  in  Chapter  II.  Further,  it  is  es- 
tablished as  a  universal  rule  that  a  corporation  has  the  powers 
which  are  expressly  granted  to  it  by  its  constitution,  as  well  as 
those  powers  which  are  incidental  or  necessary  to  the  exercise 
of  its  express  powers  in  attaining  the  objects  of  its  incorpora- 
tion. Consequently,  whether  a  given  act  is  within  the  powers 
of  a  corporation  depends  on  the  construction  of  its  constitution. 
These  questions  of  construction,  however,  are  often  difficult,  as 
the  constitution  of  a  corporation  may  be  obscure ;  and  how  a 
court  will  decide  a  question  of  the  construction  of  corporate 
powers  may  even  depend  on  the  temperament  of  the  judges, 
and  whether  they  are  disposed  towards  a  liberal  construction, 
or  consider  it  in  general  the  wiser  policy  for  the  law  to  keep 
corporations  well  within  the  apparent  scope  of  their  powers.1 

Giving  the  opinion  of  the  Supreme  Court  of  the  United 
States  in  Thomas  v.  Railroad  Co.,2  Justice  Miller  said :  "  We 
take  the  general  doctrine  to  be  in  this  country,  though  there 
may  be  exceptional  cases  and  some  authorities  to  the  contrary, 
that  the  powers  of  corporations  organized  under  legislative 
statutes  are  such  and  such  only  as  those  statutes  confer.3  Con- 
ceding the  rule  applicable  to  all  statutes,  that  what  is  fairly 
implied  is  as  much  granted  as  what  is  expressed,  it  remains 
that  the  charter  of  a  corporation  is  the  measure  of  its  powers, 
and  that  the  enumeration  of  these  powers  implies  the  exclusion 
of  all  others."  Few  cases  consciously  militate  against  this 
general  statement.4 


1  The  remark  in  the  text  is  illus- 
trated by  the  difference  of  opinion 
which  for  a  century  has  raged  about 
the  meaning  of  the  words  "  necessary 
and  proper  "  as  used  in  the  Federal 
constitution;  a  difference  of  opinion 
which  has  often  drawn  the  lines  be- 
tween political  parties.  Is  a  measure 
"  necessary  and  proper  "  to  carry  out 
the  powers  of  congress  ?  The  answer 
of  most  persons  will  depend  partly  on 
whether  they  think  the  measure  a 
desirable  one,  and  partly  on  whether 
they  believe  in  extending  or  narrow- 
ing the  powers  of  the  central  govern- 
ment. 

92 


2 101  U.  S.  71,  82. 

3  Ace.  Oregon  Ry.  Co.  v.  Oregonian 
Ry.  Co.,  130  U.  S.  1.  In  construing 
the  powers  of  a  corporation,  refer- 
ence is  to  be  had,  not  only  to  its 
charter  or  enabling  act,  but  to  all 
statutes  affecting  the  corporation. 
See  Relfe  v.  Rundle,  103  U.  S.  222  ; 
Dorsey  Harvester  Rake  Co.  v.  Marsh, 
6  Fish.  Pat.  Cas.  387  ;  State  v.  Lin- 
coln Trust  Co.,  144  Mo.  562. 

4  "  The  charter  of  a  corporation, 
read  in  connection  with  the  general 
laws  applicable  to  it,  is  the  measure 
of  its  powers,  and  a  contract  mani- 
festly beyond  those  powers  will  not 


PART  I.]       CONSTRUCTION   OF  CORPORATE   POWERS.        [§  121. 

§  121.  It  is  also  pretty  well  established  that  charters  and 
enabling  statutes  (except  in  so  far  as  they  purport  to 
confer  extraordinary  franchises  or  exclusive  privi-   powers  to 
leges)  should  be  construed  fairly  and  not  strictly ;   struedrea- 
as  Chief  Justice  Bigelow  of  Massachusetts  said  in  sonably- 
Brown  v.  "Winnisimmet  Co. : 1  "  We  know  of  no  rule  or  princi- 
ple by  which  an  act  creating  a  corporation  for  certain  specific 
objects,  or  to  carry  on  a  trade  or  business,  is  to  be  strictly  con- 
strued as  prohibitory  of  all  other  dealings  or  transactions  not 
coming  within  the  exact  scope  of  those  designated.     Undoubt- 
edly the  main  business  of  a  corporation  is  to  be  confined  to  that 
class  of  operations  which  properly  appertain  to  the  general 
purposes  for  which  its  charter  was  granted.     But  it  may  also 
enter  into  contracts  and  engage  in  transactions  which  are  inci- 
dental or  auxiliary  to  its  main  business,  or  which  may  become 
necessary,  expedient,  or  profitable  in  the  care  and  management 
of  the  property  which  it  is  authorized  to  hold  under  the  act  by 
which  it  was  created." 2 


sustain  an  action  against  the  corpo- 
ration. But  whatever  under  the 
charter  and  general  laws,  reasonably 
construed,  may  fairly  be  regarded  as 
incidental  to  the  objects  for  which 
the  corporation  is  created,  is  not  to 
be  taken  as  prohibited.1'  Justice 
Gray  giving  the  opinion  of  the  Uni- 
ted States  Supreme  Court  in  Green 
Bay  and  Minn.  R.  Co.  v.  Union  S.  B. 
Co.,  107  U.  S.  98.  See  also,  Fort 
Worth  C.  Co.  v.  Bridge  Co.,  151  U.  S. 
294;  People  v.  Utica  Ins.  Co.,  15 
Johns.  358;  New  York  F.  Ins.  Co.  v. 
Sturgess,  2  Cow.  164  ;  Same  v.  Ely, 
2  Cow.  678  ;  Commonwealth  v.  Erie, 
etc.,  R.  R.  Co.,  27  Pa.  St.  339  ;  Dili- 
gent Fire  Co.  v.  Commonwealth,  75 
Pa.  St.  291;  Ely  o.  Water  Co.,  197 
Pa.  St.  81;  Steiner  v.  Steiner  Land  & 
Lumber  Co.,  120  Ala.  128. 

A  railroad  company  may  contract 
with  a  city  regarding  a  permission 
to  use  the  latter's  streets.  Indian- 
ola  o.  Gulf,  W.  T.,  and  P.  R'y,  56 
Tex.  554.     A   corporation  may  have 


a  trademark  and  may  sue  for  its  in- 
fringement. Insurance  Oil  Tank  Co. 
v.  Scott,  33  La.  Ann.  946.  When  a 
bank  takes  property  for  a  debt,  it 
can  make  the  expenditure  necessary 
to  put  it  into  a  productive  condition. 
Reynolds  v.  Simpson,  74  Ga.  454.  A 
corporation  created  under  the  laws 
of  a  state  of  the  Union,  whose  mem- 
bers are  citizens  of  the  United 
States,  may  locate  a  mining  claim 
upon  public  lands  of  the  United 
States.  McKinley  v.  Wheeler,  130 
U.  S.  630;  compare  United  States  v. 
Trinidad  Coal  Co.,  137  U.  S.  160. 

But  a  power  expressly  excepted 
from  a  grant  cannot  be  claimed 
as  incidental  to  a  power  expressly 
granted.  Plummer  v.  Penobscot 
Lumbering  Ass'n,  67  Me.  363.  And 
general  words  in  a  charter  are  not  to 
be  construed  to  authorize  a  corpora- 
tion to  do  what  is  indictable.  State 
v.  Krebs,  64  N.  C.  604. 

1  11  Allen,  326,  336. 

2  See,  also,  Railway  c.  Hooper,  160 

93 


§  122.]  THE   LAW   OF  PRIVATE   CORPORATIONS.  [CHAP.  VII. 


Certain 
powers  and 
privileges 
to  be  con- 
strued nar- 
rowly. 


§  122.  On  the  other  hand,  courts  have  decided,  as  exceptions, 
it  may  be  said,  to  the  general  rule  that  corporate 
constitutions  are  to  be  fairly  construed,  that  all  ex- 
clusive privileges,1  and  all  powers  granted  in  deroga- 
tion of  public  rights'-2  or  of  the  rights  and  franchises 
of  other  corporations,3  and  all  provisions  whereby 
the  state  restricts  its  own  action,'1  are  to  be  construed  strictly 
against  the  corporation ;  nothing  passing  by  implication. 

"Every  public  grant  of  property,  or  of  privileges  or  fran- 
chises, if  ambiguous,  is  to  be  construed  against  the  grantee  and 
in  favor  of  the  public ;  because  an  intention  on  the  part  of  the 
government  to  grant  to  private  persons,  or  to  a  particular  cor- 
poration, property  or  rights  in  which  the  whole  public  is  in- 
terested cannot  be  presumed,  unless  unequivocally  expressed 
or  necessarily  to  be  implied  in  the  terms  of  the  grant ;  and  be- 
cause the  grant  is  supposed  to  be  made  at  the  solicitation  of 
the  grantee  and  to  be  drawn  up  by  him  or  by  his  agents,  and 
therefore  the  words  used  are  to  be  treated  as  those  of  the  gran- 
tee. .  .  .  This  rule  applies  with  peculiar  force  to  articles  of 
association,  which  are  framed  under  general  laws,  and  which 
are  a  substitute  for  a  legislative  charter,  and  assume  and  define 
the  powers  of  the  corporation  by  the  mere  act  of  the  associates, 


U.  S.  514;  Toledo,  etc.,  R.  R.  Co.  v. 
Rodrigues,  46  111.  188;  Railway  Co. 
McCarthy,  99  U.  S.  258;  Clark  v. 
Farrington,  11  Wis.  306,  324.  In 
Michigan  a  bank  chartered  with 
power  to  locate  its  business  in  one 
county  has  no  power  to  establish  a 
branch  agency  in  another.  This  is 
an  act  fatal  in  quo  warranto.  People 
v.  Oakland  County  Bank,  Dougl. 
(Mich.)  282.  See  Detroit  Fire,  etc., 
Ins.  Co.  v.  Judge  of  Saginaw  Circuit, 
23  Mich.  492.  In  Chapman  v.  Colby, 
47  Mich.  46,  50,  Campbell,  J.,  says, 
giving  opinion  of  the  Court,  "  It  has 
uniformly  been  held  in  this  state 
that  corporations  cannot  remove 
from  place  to  place,  or  establish 
branches  for  the  transaction  of  their 
regular  corporate  business,  unless 
authorized  by  law." 

94 


1  See  Richmond,  etc.,  R.  R.  Co.  v. 
Louisa  R.  R.  Co.,  13  How.  71;  Per- 
rine  v.  Chesapeake  and  Delaware 
Canal  Co.,  9  How.  172;  People  v. 
Broadway  R.  R.  Co.,  126  U.  S.  29. 
Exclusive  privileges  and  monopolies 
are  not  to  be  presumed.  Charles 
River  Bridge  Co.  v.  Warren  Bridge 
Co.,  11  Pet.  420;  DeLancey  v.  Insu- 
rance Co.,  52  N.  H.  581;  Gaines  u. 
Coates,  51  Miss.  335;  Indianapolis 
Cable  R.  R.  Co.  v.  Citizens'  R.  R. 
Co.,  127  Ind.  369;  Turnpike  Co.  v. 
Montgomery  County,  100  Tenn.  417. 

2  See  Fertilizing  Co.  v.  Hyde  Park, 
97  U.  S.  059;  Turnpike  Co.  v.  Illi- 
nois, 96  U.  S.  63. 

3  Pennsylvania  R.  R.  Co.'s  Appeal, 
93  Pa.  St.  150;  Packer  v.  Sunbury 
and  Erie  R.  R.  Co.,  19  Pa.  St.  211. 

4  See  §  489. 


PART  I.]       CONSTRUCTION   OF   CORPORATE   POWERS.  [§  124. 


Power  to 

raise 

money. 


'I   without  any  supervision  of  the  legislature  or  of  any  public  au- 
thority."1 -     C/a+£e«/**~    £/5»*rT^- 

-    §  123.  ^\iore  definite  statements  may  now  be  made  respect- 
ing the  particular  powers  of  corporations.     And  first 
of  all  as  to  their  implied  power  to  raise  money.    Un- 
questionably, in  the  absence  of  express  restrictions, 

**% Corporation  has  impliedly  the  power  to  raise  money2  in  order 
to  carry  on  its  business,  i.  e.,  effect  the  purposes  of  its  incor- 
poration.3 But  by  what  means  may  it  raise  money  ?  Certainly 
not  by  any  means  that  an -individual  might  employ,  as,  for  in- 
stance, by  speculating  in  cotton  or  in  stocks.4  Rather,  the  con- 
•  stitution  of  a  corporation  being  in  its  general  nature  enabling 

-  rather  tha-n  restrictive,  the  correct  rule  would  seem  to  be  that 
a  corporation  may  raise  money  only  by  the  means  expressly  or 
impliedly  authorized  by  its  constitution. 

§  12-1.  It  goes  without  saying  that  in  order  to  raise  money  a 

_    corporation  may  issue  its  own  stock  to  the  amount 

allowed  by  its  charter  or  articles  of  association  ;  and,   ^(,^ssue  of 
^authorized  to  do  so,  ti^an  issue  preferred  stock.5 
BuUt  canrSft  vaiwlyissue  its  stock  below  par  as  full-paid  stock.6  flc* 
A  corporation  may  also  sell  its  property  in  order  to  raise  money.7  ^Wl   i 


1  Central  Transp.  Co.  v.  Pullman's 
Car  Co.,  139  U.  S.  24,  49,  Opiu.  of 
Court  per  Justice  Gray.  See  Oregon 
Ry.  v.  Oregonian  Ry.,  130  U.  S.  26, 
27;  Rockbold  v.  Canton  Society,  129 
111.  440. 

2  E.  g.,  in  order  to  raise  money,  a 
railroad  company  may  assign  its 
claim  for  unpaid  subscriptions  to  its 
stock.     Morris  v.  Cheney,  51  111.  451. 

3  But  only  for  purposes  properly 
within  the  scope  of  the  corporate 
objects.  See  In  re  Durham  County 
Building  Society,  Davis's  and  Wil- 
son's Cases,  L.  R.  12  Eq.  516;  In  re 
National  Permanent  Benefit  Build- 
ing Society,  ex  parte  Williamson, 
L.  R.  5  Ch.  309.  But  the  lender  of 
money  to  a  corporation  is  not  obliged 
to  see  that  its  officers  apply  it  to 
proper  corporate  purposes.  Wright 
v.  Hughes,  119  Ind.  324. 


4  See  Curtis  v.  Leavitt,  15  N.  Y.  9, 
268;  Jemison  v.  Citizens'  Svgs.  Bk., 
122  N.  Y.  135. 

But  it  has  been  held  that  a  cor- 
poration  is  not  restricted  to  means 
"  usual  and  necessary  "  in  carrying 
on  its  business;  but  may  choose 
among  the  means  convenient  and 
adapted  to  the  end  contemplated  by 
its  charter.  Madison,  etc.,  Plank 
Road  Co.  v.  Watertown,  etc.,  Plank 
Road  Co.,  5  Wis.  173;  see  Clark  v. 
Farrington,  11  Wis.  306,  324. 

5  See  §§571,  572. 

6  Oliphant  v.  Woodburn  Coal  & 
M'g  Co.,  63  Iowa,  332;  Kimball  v. 
Grate  Co.,  69  N.  H.  485;  see  Bent  v. 
Underdown,  156  Ind.  516.  See 
§§  522a,  701,  702.    - 

'  See  §  130. 


95 


§  125.]         THE  LAW   OF  PRIVATE   CORPORATIONS.  [CHAP.  VII. 

§  125.  A  corporation  is  impliedly  authorized  to  borrow 
money, !  and  has  the  incidental  power  to  give  se- 
mg.  orco£  curity  for  its  re-payment.2  As  such  security  a  cor- 
maymort.  poration  may  give  its  note;3  may  mortgage  its 
gage  their  property  ;4  and  may  issue  coupon  bonds  payable  to 
Excep-  bearer  secured  by  a  mortgage  of  its  property.5    But 

a  corporation  that  receives  from  the  state  special  or 
extraordinary  franchises  in  order  that  it  may  the  better  serve 


i  Curtis  v.  Leavitt,  15  N.  T.  9; 
Clark  v.  Titcomb,  42  Barb.  122;  Kent 
v.  Quicksilver  Mining  Co.,  78  N.  Y. 
159;  Oxford  Iron  Co.  v.  Spradley,  46 
Ala.  98;  Burr  v.  McDonald,  3  Gratt. 
(Va. )  215;  Union  Bank  v.  Jacobs,  6 
Humph.  (Tenn. )  515;  Booth  v.  Rob- 
insou,  55  Md.  419;  Thompson  v.  Lam- 
bert, 44  Iowa,  239;  Savannah  and 
Memphis  R.  R.  Co.  v.  Lancaster,  62 
Ala.  555  ;  Ward  v.  Johnson,  95  111. 
215;  Bradley  v.  Ballard,  55  111.  413; 
Commissioners  of  Craven  v.  Atlantic 
and  N.  C.  R.  R.  Co.,  77  N.  C.  289; 
Lucas  v.  Pitney,  27  N.  J.  L.  221; 
Phila.  and  Reading  R.  R.  Co.  v.  Stich- 
ter  (Sup.  Ct.  of  Penn.),  21  Am.  Law 
Reg.  N.  S.  713;  Wright  v.  Hughes, 
119  Ind.  324;  Bank  of  Australasia  v. 
Breillat,  6  Moo.  P.  C.  152,  193,  etc. ; 
In  re  International  Life  Assurance 
Soc,  L.  R.  10  Eq.  312;  Australian, 
etc.,  Co.  v.  Mounsey,  4  K.  &  J.  733. 
See,  also,  authorities  in  succeeding 
notes. 

2  Fifth  Ward  Savings  Bank  v.  First 
Nat.  Bank,  48  N.  J.  L.  513.  As  in- 
cidental to  its  implied  power  to  bor- 
row money,  an  insurance  company 
has  power  to  transfer  its  assets  in 
trust  for  the  security  of  lenders. 
Nelson  v.  Eaton,  26  N.  Y.  410;  see 
Hope  Mut.  Life  Ins.  Co.  v.  Perkins, 
38  N.  Y.  404.     And  a  mutual  insur- 


ance company  may  transfer  its  pre- 
mium notes  as  collateral  security  for 
its  debts.  Brookman  v.  Metcalf,  32 
N.  Y.  591.  Authority  given  by  the 
charter  of  a  corporation  to  its  board 
of  directors  to  execute  a  mortgage  or 
deed  of  trust  of  its  property  and 
franchises,  in  order  to  secure  its 
bonds,  does  not  negative  other  meth- 
ods. Uncas  Nat.  Bk.  v.  Rith,  23  Wis. 
339. 

8  A  business  corporation  has  im- 
plied power  to  make  negotiable  notes, 
and  to  indorse  accommodation  notes 
loaned  to  it.  Auerbach  v.  La  Seur 
Mill  Co.,  28  Minn.  291;  Rockwell  v. 
Elkhorn  Bank,  13  Wis.  653;  Lucas  v. 
Pitney,  27  N.  J.  L.  221;  Hamilton  v. 
New  Castle,  etc.,  R.  R.  Co.,  9  Ind. 
359;  Hardy  v.  Merri weather,  14  Ind. 
203;  Frye  v.  Tucker,  24  111.  181.  But 
see  James  v.  Rogers,  23  Ind.  451; 
Bacon  v.  Miss.  Ins.  Co.,  31  Miss.  116. 
The  note  of  a  corporation  signed  by 
its  treasurer  may  be  negotiable  al- 
though the  corporate  seal  is  attached. 
Bank  v.  Railroad  Co.,  5  S.  C.  156; 
Clark  v.  Read,  12  D.  C.  App.  Cas. 
343. 

4  Savannah  and  Memphis  R.  R.  Co. 
0.  Lancaster,  62  Ala.  555;  Kelly  v. 
Alabama  and  Cincinnati  R.  R.  Co.,  58 
Ala.  489;  Elec.  Lt.  Co.  of  Mobile  v. 
Rust,   117   Ala.    680;     Thompson    v. 


5  See  Commissioners  of  Craven  v.    bonds  below  par.     Gamble  v.  Water 


Atlantic  and  N.  C.  R.  R.  Co.,  77  N.  C. 
289.      A  corporation   may   issue   its 

96 


Co.,  122   N.    Y.    91.     See   Nelson   v. 
Hubbard,  96  Ala.  238. 


PART  I.]      CONSTRUCTION   OF   CORPORATE  POWERS.  [§  125. 

the  public  in  some  employment  in  which  the  public  has  a  pro- 
j  nounced  interest,  cannot  without  express  authority  mortgage 
f/Mftffimnchises.1  As  Justice  Gray  said  in  Richardson  v.  Sibley,2 
a  case  which  held  that  a  horse-railroad  could  not  mortgage  its 
road  and  franchises :  "  A  corporation  created  for  the  very  pur- 
pose of  constructing,  owning,  and  managing  a  railroad,  for  the 
accommodation  and  benefit  of  the  public,  cannot,  without  dis- 
tinct legislative  authority,  make  any  alienation,  absolute  or 
conditional,  either  of  the  general  franchise  to  be  a  corporation, 
or  of  the  subordinate  franchise  to  manage  and  carry  on  its  cor- 
porate business,  without  which  its  franchise  to  be  a  corporation 
can  have  little  more  than  a  nominal  existence." 3     When,  how- 


Lambert,  44  Iowa,  239 ;  Susquehanna 
Bridge  Co.  v.  General  Ins.  Co.,  3  Md. 
305;  Lehigh  Valley  Coal  Co.  v.  Agri- 
cultural Works,  63  Wis.  45;  Wright 
v.  Hughes,  119  Ind.  324;  Fitch  v. 
Steam  Mill  Co.,  80  Me.  34. 

The  power  to  mortgage,  when  not 
expressly  given  or  denied,  may  be  re- 
garded as  incidental  to  the  power  to 
take  and  hold  real  estate  and  make 
contracts.  Aurora  Agricultural  Soc. 
v.  Paddock,  80  111.  2G3;  West  v.  Madi- 
son County  Agricultural  Board,  82 
111.  205;  Taylor  v.  Agricultural,  etc., 
Asso.,  68  Ala.  229;  Jackson  v.  Brown, 
5  Wend.  590;  Central  Gold  Mining 
Co.  v.  Piatt,  3  Daly,  263;  Watts's  Ap- 
peal, 78  Pa.  St.  370,  391.  Authority 
in  the  charter  of  a  railroad  company 
"to  acquire,  alien,  transfer,  and  dis- 
pose of  property  of  every  kind,"  in- 
cludes the  power  to  mortgage.  Mc- 
Allister v.  Plant,  54  Miss.  106. 

A  corporation  having  authority  to 
mortgage  its  property  for  the  pur- 
pose of  carrying  on  its  business,  may 
execute  a  mortgage  to  secure  the  pay- 
ment of  future  advances.  Jones  v. 
Guaranty  and  Indemnity  Co.,  101 
U.  S.  622.  But  a  corporation  formed 
under  the  New  York  Manufacturing 
Companies'  Act  of  1848  has  authority 
to  mortgage  its  property  only  to  se- 

7 


cure  the  payment  of  a  debt;  not  to 
raise  money.  Carpeuter  v.  Black 
Hawk  Gold  Mfg.  Co.,  65  N.  Y.  43; 
see  Davidson  v.  Westchester  Gas- 
light Co.,  99  N.  Y.  559.  The  scope 
of  Carpenter  v.  Black  Hawk  Gold 
Mg.  Co.  is  narrowed  down  to  very 
little  by  Lord  v.  Yorker  Fuel  Gas  Co., 
99  N.  Y.  547. 

1  Coe  v.  Columbus,  etc.,  R.  R.  Co., 
10  Ohio  St.  372;  Atkinson  v.  Marietta, 
etc.,  R.  R.  Co.,  15  Ohio  St.  21;  State 
v.  Morgan,  28  La.  Ann.  482;  Pullan 
v.  Cincinnati,  etc.,  R.  R.  Co.,  4  Biss. 
35;  Daniels  v.  Hart,  118  Mass.  543; 
Palmer  y.  Forbes,  23111.  301;  Frazier 
v.  Railway  Co.,  88  Tenn.  138.  See 
Carpenter  v.  Black  Hawk  Gold  Mg. 
Co.,  65  N.  Y.  43.  50;  Lord  v.  Yon- 
kers  Gas  Co.,  99  N.  Y.  547.  But  see 
Kennebec,  etc.,  R.  R.  Co.  v.  Portland, 
etc.,  K.  R.  Co.,  59  Me.  9,  23;  Shepley 
v.  Atlantic,  etc.,  R.  R.  Co.,  55  Me. 
395,  407. 

2  11  Allen,  65,  67. 

3  See  Commonwealth  v.  Smith,  10 
Allen,  448.  Power  to  sell  its  property 
conferred  on  a  corporation  in  strong 
and  general  terms,  includes  the  power 
to  mortgage.  Willamette  Mg.  Co.  v. 
Bank  of  British  Columbia,  119  U.  S. 
191.  Compare  East  Boston  R.  R.  Co. 
v.  Eastern  R.   R.   Co.,   13  Allen,  422, 

97 


§  127.]         THE  LAW   OF   PRIVATE   CORPORATIONS.  [CHAP.  VII. 


income 
bonds.' 


ever,  authority  to  pledge  the  franchises  of  a  corporation  exists, 
there  is  implied,  as  incidental  thereto,  the  power  to  pledge 
everything  necessary  to  their  enjoyment,  including  property 
not  yet  acquired  by  the  corporation.1 

§  126.  Sometimes  a  corporation,  as  for  instance  a  railroad 
,in  .      a     com  pan  v,  issues  securities  of  a  peculiar  nature,  like 

"  Deferred  r      -  '  r 

"  deferred  income  bonds ; "  which  may  be  irredeem- 
able, and  entitled  to  interest  only  after  a  certain 
percentage  of  dividends  has  been  paid  on  the  stock.  In  a  re- 
cent Pennsylvania  case,  a  railroad  corporation  was  held  to  have 
the  implied  power  to  issue  such  securities.2 

§  127.  Finally,  in  order  to  raise  money,  a  corporation  is  not  re- 
stricted to  borrowing  on  its  own  securities  ;  for  it  has 
guaranty.  ^een  ne^  tnat  a  railroad  corporation,  having  power 
to  raise  money  on  its  own  bonds,  may  guaranty  the 
bonds  of  cities  and  counties  which  have  been  lawfully  issued  to 
aid  the  company  to  build  its  road;3  and  also  that  a  railroad  cor- 
poration may  guaranty  the  bonds  of  another  railroad  company 
whose  road  it  competently  leases.4 

With  respect  to  the  amount  of  money  that  a  corporation  may 
borrow,  no  more  definite  rule  can  be  laid  down  than  this  general 
proposition  :  in  the  absence  of  express  restriction,5  it  is  legally 
competent  for  a  corporation  to  borrow  Avhatever  mone3Ts  may 
be  required  for  its  business.6  A^t^  *f  ^&CkL    ^£<t,    <?<*&. 


^<v 


where  it  was  said  that  the  right  to 
mortgage  might  be  inferred  from  the 
terms  of  a  statute  not  expressly  au- 
thorizing it.     See  §§  304,  305. 

1  Phillips  v.  Winslow,  18  B.  Mon. 
(Ky.)  431;  see  §§676,  817. 

2  Phila.  and  Reading  R.  R.  Co.  v. 
Stichter,  21  Am.  Law  Reg.  N.  S.  713. 
But  in  Taylor  v.  Phila.  and  Reading 
R.  R.  Co.,  7  Fed.  Rep.  386  (U.  S. 
Cir.  Ct. ),  it  was  decided  to  be  beyond 
the  power  of  the  same  corporation  to 
issue  these  very  bonds;  the  court  tak- 
ing the  view  that  the  transaction  was 
not  a  loan,  there  being  no  promise  to 
return  the  principal.  See  Kent  t;. 
Quicksilver  Mining  Co.,  78  N.  Y. 
159,  177. 

98 


3  Railroad  Co.  v.  Howard,  7  Wall. 
392;  see  Bonner  v.  City  of  New  Or- 
leans, 2  Woods,  135;  Ellerman  v.  Chi- 
cago Junction  Rys.,  49  N.  J.  Eq.  218. 

4  Low  v.  Cal.  Pacific  R.  R.  Co.,  52 
Cal.  53.  But  see  Northside  Ry.  Co. 
o.  Worthington,  88  Tex.  562;  Mining 
Co.  v.  Iron  Co.,  22  U.  S.  App.  334. 
Compare  Bank  v.  Flour  Co.,  41  O.  St. 
525;  Holm  v.  Brewing  Co.,  21  N.  Y. 
App.  204. 

5  See  Ossipee  H.  and  W.  Co.  v. 
Canney,  54  N.  H.  295;  Auerbach  v. 
LaSeur  Mill  Co.,  28  Minn.  291;  also 
§  286. 

0  Barry  v.  Merchants'  Exchange 
Co.,  1  Sandf.  Ch.  280,  308. 


f**yi'* 


**7 


xzri- 


&-r%r7«<H*4    r+ +>>". 


PAET  I.]       CONSTRUCTION    OF   CORPORATE   POWERS.  [§  128. 

§  128.  At  common  law  every  corporation  aggregate  had  in- 
cidentally the  power  to  purchase,  hold,  and  alienate 
such  real  estate  as  the  purposes  of  its  incorporation   hoiTiand. 
required.1     But  this  common  law  capacity  was  an-   statutes  of 

1  .  mortmain. 

nulled  as  far  back  as  the  time  of  Henry  III.,  by  the 
beginning  of  the  series  of  statutes  of  mortmain,  of  which  the 
latest  was  passed  in  the  ninth  year  of  George  II.  These  statutes 
were  at  first  intended  merely  to  prevent  the  accumulation  of 
real  estate  in  the  hands  of  the  Church ;  but  by  later  enact- 
ments,2 civil  or  lay  corporations  as  well  as  ecclesiastical  were 
forbidden  to  purchase  lands.3  In  this  country  the  statutes  of 
mortmain  have  not  been  re-enacted  nor  generally  assumed  to 
be  in  force.4  Accordingly,  the  law  would  seem  to  be  that  a 
stock  corporation  may  purchase  such  real  estate  as  is  essential 
or  reasonably  necessary  in  its  business  for  carrying  out  the 
purposes  of  its  incorporation  ;  and  this  proposition  applies  es- 
pecially to  corporations  formed  under  general  enabling  stat- 
utes.5 Further,  a  corporation  authorized  to  hold  land,  may 
take  a  fee  although  its  own  term  of  existence  is  limited  to  a 


1  See  Chap.  II;  Angell  and  Ames 
on  Corp.,  §  145;  1  Kyd  on  Corp.,  69; 
2  Kent's  Com.,  277;  McCartee  v. 
Orphan  Asylum,  9  Cow.  437,  462; 
People  v.  La  Rue,  67  Cal.  526. 

2  15  R.  II,  c.  5. 

8  For  a  history  and  discussion  of 
the  statutes  of  mortmain,  see  1  Kyd, 
78-104. 

4  2  Kent's  Com.,  282;  see,  also, 
Page  o.  Heineberg,  40  Vt.  81 ;  Odell 
v.  Odell,  10  Allen,  1,  6;  Perin  v. 
Carey,  24  How.  465,  507;  Potter  v. 
Thorntou,  7  R.  I.  252.  These  sta- 
tutes are  in  force  in  Pennsylvania,  3 
Binney,  626.  But  how  far  they  would 
be  applied  to  business  or  stock  cor- 
porations is  questionable;  see  Miller 
v.  Porter,  53  Pa.  St.  292. 

6  State  v.  Mansfield,  23  N.  J.  L. 
510;  State  v.  Newark,  1  Dutch.  315; 
2  Kent's  Com.,  282;  see  Riley  v. 
Rochester,  9  N.  Y.  64;  Bostock  v. 
North  Staffordshire  R'y,  4  El.  &  Bl. 
798;  compare  Page  v.  Heineberg,  40 


Vt.  81;  Coleman  v.  San  Rafael  Turn- 
pike Co.,  49  Cal.  517;  People  v.  Pull- 
man Car  Co.,  175  111.  149. 

A  turnpike  company  may  hold 
under  lease  premises  necessary  for 
storing  implements  used  in  road  re- 
pairs, and  sheltering  its  servants. 
Crawford  v.  Longstreet,  43  N.  J.  L. 
325.  A  corporation,  e.  g.  a  railroad 
company,  has  no  implied  power  to 
purchase  lands  except  for  the  pur- 
poses of  its  incorporation;  it  has  no 
indefinite  power  to  purchase  for  any 
purpose.  Case  v.  Kelly,  133  U.  S.  20. 
See,  also,  S.  &.  N.  Ala.  R.  R.  Co.  v. 
Highland  Ave.  &  Belt  R.  R.  Co.,  119 
Ala.  105. 

But  when  a  corporation  is  author- 
ized to  hold  land  for  some  specified 
purpose,  the  presumption  is  that  land 
acquired  by  it  was  acquired  for  that 
purpose.  Mallet  v.  Simpson,  94  N. 
C.  37;  Stockton  Svgs.  Bank  i>.  Sta- 
ples, 98  Cal.  189. 

"  Corporations    when     considered 

99 


§  130.]        THE  LAW   OF   PRIVATE   CORPORATIONS.    [CHAP.  VII. 


period  of  years :  i.  e.,  for  purposes  of  alienation  it  takes  the 
fee,  while  for  the  purposes  of  enjoyment  of  the  land,  in  the 
nature  of  things  its  estate  must  be  limited  in  time  to  the  term 
of  its  own  existence.1 

§  129.  The  power  of  a  corporation  to  acquire  per- 
sonal property  is  unlimited,  unless  there  are  special 
restrictions  in  its  constitution.2 

§  130.  In  the  course  of  its  business,  and  for  the 
furtherance  of  the  ends  of  its  incorporation,  a  cor- 
poration may  alienate,3  or  lease,4  a  portion  or  even 
the  whole  of  its  property  ;  and  may  assign  its  property  in 
trust  for  the  benefit  of  its  creditors.5  But  the  proposition,  that 
to  accomplish  the  ends  of  its  incorporation  a  corporation  may 
deal  with  its  property  just  as  an  individual,  is  too  broad.6    And 


Power  to 
acquire 

personal 
property. 


Power  to 
alienate. 


with  reference  to  their  powers  to 
take  and  hold  real  estate  may  be 
classified  as  follows: — 

"  First,  those  whose  charter  or  law 
of  creation  forbids  that  they  should 
acquire  or  hold  real  estate.  In  which 
case  a  corporation  cannot  take  or 
hold  real  estate ;  and  a  deed  or  devise 
to  it  passes  no  title. 

"  Secondly,  those  whose  charter  or 
law  of  creation  is  silent  on  the  sub- 
ject. In  such  case,  as  a  general  rule, 
there  is  no  power  to  acquire  and  hold 
such  property.  But  if  the  objects 
for  which  the  corporation  was  formed 
cannot  be  accomplished  without  ac- 
quiring and  holding  the  title  to  real 
estate,  the  power  to  do  so  is  implied. 

"Thirdly,  those  corporations  whose 
charter,  etc.,  authorizes  them  in 
some  cases,  or  for  some  purposes,  to 
take  and  hold  the  title  to  real  estate. 
In  these  cases,  as  the  corporation  may 
for  some  purposes  acquire  and  hold 
title,  it  cannot  be  questioned  by  any 
party,  except  the  state,  whether  the 
real  estate  has  been  acquired  for  the 
authorized  purposes  or  not. 

"Fourthly,  those  whose  charter, 
etc.,  confer  a  general  power  to  acquire 
and  hold  real  estate.     Such  corpora- 

100 


tions  may  take  and  hold  real  estate  as 
freely  and  as  fully  as  natural  per- 
sons." Hay  ward  v.  Davidson,  41 
Ind.  212. 

For  the  effect  of  a  conveyance  to  a 
corporation  of  property  which  it  is 
unauthorized  t'o  take,  see  §  303. 

1  Nicoll  v.  New  York  and  Erie  R. 
R.,  12  N.  Y.  121;  People  v.  O'Brien, 
111  N.  Y.  1;  Rives  v.  Dudley,  3 
Jones  Eq.  (N.  C.)  126. 

2 1  Kyd,  104;  Barry  v.  Merchants' 
Exchange  Co.,  1  Sandf.  Ch.  280. 
Statutes  of  mortmain  do  not  apply  to 
personal  property.     1  Kyd,  104. 

3  Wilson  v.  Miers,  10  C.  B.  N.  S. 
348;  Hancock  v.  Holbrook,  9  Fed. 
Rep.  353. 

*  See  Featherstonhaugh  v.  Lee  Moor 
Porcelain  Clay  Co.,  L.  R.  1  Eq.  318. 
Plant  v.  Macon  O.  &  1.  Co.,  103  Ga. 
666;  Coal  Creek  Co.  v.  Tennessee, 
etc.,  Coal  Co.,  106  Tenn.  661. 

5  State  v.  Bank  of  Maryland,  6  Gill 
&  J.  (Md.)  205;  Union  Bank  v.  Elli- 
cott,  ib.  363;  Ardesco  Oil  Co.  v.  North 
Am.  Oil  Co.,  66  Pa.  St.  375;  Fouche 
v.  Brower,  74  Ga.  251;  Boynton  v. 
Roe,  114  Mich.  401. 

u  For  instance,  it  is  held  that  a  cor- 
poration cannot  form  a  partnership 


PART  I.]   CONSTRUCTION  OF  CORPORATE  POWERS.    [§  130. 

the  preceding  statements  regarding  the  power  of  a  corporation 
to  alienate  its  property  are  subject  to  the  following  qualifica- 
tions :  a  corporation  cannot  alienate  or  assign  its  property  re- 
gardless of  the  rights  of  its  creditors,  or  of  a  dissenting  minority 
of  shareholders  ;!  and  a  corporation  owing  duties  to  the  public 
cannot,  without  special  authority,  alienate,  lease,  or  mortgage 
its  franchises,  or  do  any  act  that  may  disable  it  from  perform- 
ing its  public  duties  in  the  manner  indicated  by  its  constitution.* 


with  another  corporation  or  with  an 
individual.  People  v.  North  River 
Sugar  Refining  Co.,  121  N.  Y.  582; 
Mallory  v.  Oil  Works,  86  Tenn.  598; 
Marine  Bank  v.  Ogden,  29  111.  248; 
Whittenton  Mills  v.  Upton,  10  Gray, 
582;  compare  Allen  v.  Woonsocket 
Co.,  11  R.  I.  288;  French  v.  Donohue, 
29  Minn.  Ill;  So.  Car.  &  Ga.  Ry.  Co. 
v.  Aug.  So.  R.  R.  Co.  107  Ga.  164. 
This  proposition  certainly  holds  true 
when  the  business  for  which  the 
partnership  is  formed  is  ultra  vires 
the  corporation;  thus  a  railroad  cor- 
poration has  no  power  to  form  a 
partnership  with  an  individual  to 
run  a  line  of  boats.  Gunnw.  Central 
Railroad,  74  Ga.  509;  compare  Cleve- 
land Paper  Co.  v.  Courier  Co.,  67 
Mich.  152.  But  one  manufacturing 
company  can  take  shares  in  another 
in  payment  of  a  debt.  Howe  v.  Bos- 
ton Carpet  Co.,  16  Gray,  493;  al- 
though forbidden  to  purchase  stock 
in  other  corporations.  Holmes,  etc., 
Mfg.  Co.  v.  Holmes,  etc.,  Metal  Co., 
127  U.  S.  252.  Whether  the  purchase 
of  shares  in  another  corporation  is 
ultra  vires  or  not  depends  on  the 
purpose  for  which  it  was  made,  and 
whether,  under  the  circumstances, 
it  was  a  reasonable  or  necessary 
means  of  carrying  out  corporate  ob- 
jects. Hill  v.  Nisbet,  100  Ind.  341. 
There  is  great  difference  of  opinion 
on  this  point.  It  is  frequently  held 
that  a  corporation  cannot,  without 
statutory  authority,  purchase  shares 


of  stock  in  another  corporation;  nor 
can  it  give  itself  such  power  by  its 
articles  of  incorporation.  People  v. 
Chicago  Gas  Trust  Co.,  130  111.  268; 
Railway  Co.  v.  Iron  Co.,  46  O.  St.  44. 
See  also  Commercial  Fire  Ins.  Co.  v. 
Board  of  Revenue,  99  Ala.  1.  Lanier 
Lumber  Co.  v.  Rees,  103  Ala.  622; 
Hotel  Co.  v.  Schram,  6  Wash.  134. 
Compare  Byrne  v.  Schuyler,  etc., 
Co.,  65  Conn.  336;  Nassau  Bank  v. 
Jones,  95  N.  Y.  115;  Military  I. 
Assn.  v.  S.  T.  &  I.  Ry.  Co.,  105  Ga. 
420;  State  v.  Newman,  51  La.  An. 
833;  Means  v.  Imp't  Co.,  126  N.  C. 
662;  McAlester  Mfg.  Co.  u.  Florence 
C.  &  I.  Co.,  128  Ala.  240;  So.  B.  &  L. 
Assn.  v.  Casa  Grande  Stable  Co.,  128 
Ala.  624;  De  la  Vergne  Co.  v.  Germ. 
Sav.  Inst.,  175  U.  S.  40.  Contra,  Davis 
v.  U.  S.,  etc.,  Co.,  77  Md.  35;  Booth 
v.  Robinson,  55  Md.  419.  It  has  been 
held  that  power  to  take  stock  in  an- 
other corporation  gives  no  power  to 
transfer  all  the  assets  of  the  corpora^ 
tionto  such  other  corporation  in  pay- 
ment for  such  stock.  Morris  v.  Ely- 
ton  Land  Co.,  125  Ala.  263. 

1  See  §§  608  and  609  for  a  discussion 
of  the  right  of  a  majority  to  dispose 
of  the  corporate  assets  and  close  the 
business  of  the  corporation.  And, 
for  a  discussion  of  assignments  by 
corporations  for  the  benefit  of  credi- 
tors, with  or  without  preferences, 
see  §  668. 

2  See  §§  304,  305,  125. 

101 


§  132.]         THE   LAW    OF   PRIVATE   CORPORATIONS.    [CHAP.  VII. 


131.  The  general  statement  is  often  made,  that  a  corpora- 
tion cannot  transfer  its  franchises  to  another  corpora- 


Power  to 

transfer        tion,  or  to  an  individual.1     Especially,  it  is  said,  a 

franchises.  ,•  p       •  ,      p  ■  •       ,      i 

corporation  cannot  transfer  its  franchise  to  be  a  cor- 
poration.2 And  this  on  the  ground  that  a  grant  of  franchises 
or  privileges  from  the  legislature  to  a  body  of  men  gives  to  that 
body  no  authority  to  transfer  these  franchises  and  privileges  to 
others.  In  effect,  such  a  transfer  would  be  a  conferring  of  the 
power  to  act  as  a  corporation,3  a  power  which,  it  is  needless  to 
say,  only  the  legislature  can  confer.  If  a  corporation  is  ex- 
pressly authorized  to  transfer  its  franchises,  then  its  grantee 
receives  them  indirectly  from  the  legislature  by  virtue  of  ex- 
press power  conferred  on  the  corporation  to  authorize  another 
body  of  men  to  exercise  its  franchises  or  similar  ones.4 

§  132.  These  statements  are  all  correct  enough.  The  trouble 
with  them  is  that,  except  in  regard  to  a  single  class  of  corpora- 
tions, they  have  little  practical  import.  The  class  of  corpora- 
tions referred  to  are  railroad  and  other  corporations  charged 
with  the  performance  of  public  duties,  and  receiving  special 
franchises  the  better  to  enable  them  to  fulfill  these  duties. 
And  in  regard  to  such  corporations  there  is  a  further  reason 
why  it  is  incompetent  for  them  to  transfer  their  franchises,  i.  e., 
the  general  rule  forbidding  them  to  do  any  act  that  may  put  it 
out  of  their  power  to  serve  the  public  as  they  were  intended  to 
serve  it.5     But  what  do  the  franchises  of  an  ordinary  business 


1  See  Carpenter  v.  Black  Hawk  Gold 
Mg.  Co.,  65  N.  Y.  43,  50;  Branch  v. 
Jessup,  106  U.  S.  468,  484. 

2  Meyer  v.  Johnston,  53  Ala.  237; 
Coe  v.  Columbus,  etc.,  R.  R.  Co.,  10 
Ohio  St.  372 ;  Eklridge  v.  Smith,  34 
Vt.484;  Willamette  Mfg.  Co.  v.  Bank, 
119  U.  S.  191;  Snell  v.  Chicago,  133 
111.  413,  430;  Pennison  v.  Railroad 
Co.,  93  Wis.  344.  Franchises  to 
build,  own,  and  manage  a  railroad 
are  not  necessary  corporate  rights, 
but  may  be  enjoyed  by  natural  per- 
sons; and  mny  be  assigned  by  the 
corporation  possessing  them.  Not 
so  as  to  the  franchise  to  be  a  cor- 
poration.     Ragan    v.   Aiken,    9  Lea 

102 


(Tenn.),  609;  State  v.  Ry.  Co.,  140 
Mo.  539;  State  v.  Water  Co.,  61  Kan. 
547. 

8  State  of  Ohio  v.  Sherman,  22  Ohio 
St.  411,  428;  Memphis  &  L.  R.  R.  R. 
Co.  v.  Railroad  Commissioners,  112 
U.  S.  609,  622. 

4  How  far  the  first  corporation  could 
exercise  its  franchises  after  a  trans- 
fer of  them  would  depend  on  the  con- 
struction of  its  constitution,  and  es- 
pecially on  the  construction  of  tlie 
power  therein  contained  to  transfer 
the  corporate  franchises. 

6  See  §§304,  305,  125,  and  §§490, 
491,  as  to  transferring  special  im- 
munities.    As  a  matter  of  fact,  ques- 


PART  I.]       CONSTRUCTION    OF   CORPORATE   POWERS.  [§  133. 

or  manufacturing  corporation  amount  to  ?  To  nothing  but  a 
legal  competency  to  act  in  a  certain  manner,  which  they  have 
acquired  by  complying  with  certain  formalities.  There  is 
nothing  special  or  extraordinary  about  their  franchises.  In 
truth,  their  franchises  are  hardly  worth  transferring.  Persons 
acquiring  their  property  by  purchase  or  under  foreclosure  may 
readily  form  themselves  also  into  a  corporation,  if  corporate  or- 
ganization is  desired.  Unquestionably  the  particular  competency 
which  a  body  of  men  by  complying  with  certain  statutory  pro- 
visions have  acquired  is  not  transferable  to  another  body  who 
have  not  complied  with  those  provisions ;  any  more  than  may 
be  transferred  the  competency  to  act  as  a  limited  partnership, 
which  persons  may  have  acquired  through  compliance  with  the 
statute  authorizing  limited  partnerships.  Just  as  in  regard  to 
limited  partnerships,  so  in  regard  to  corporations,  the  general 
intention  of  enabling  statutes  is  that  persons  who  have  com- 
plied with  certain  formalities  may  act  as  a  corporation ;  that 
others  may  not.1 

§  133.  When  the  capital  stock  is  fixed  in  amount  by  the  con- 
stitution of  the  corporation,  as  is  ordinarily  the  case,  the  cor- 


tions  regarding  the  validity  of  a 
transfer  or  mortgage  of  franchises 
almost  always  arise  in  relation  to 
corporations  of  this  class. 

*See  Fietsam  v.  Hay,  122  111.  293. 
"The  franchise  of  becoming  and 
being  a  corporation,  in  its  nature,  is 
incommunicable  by  the  act  of  the 
parties  and  incapable  of  passing  by 
assignment."  Memphis  &  L.  R.  R.  R. 
Co.  v.  Railroad  Commissioners,  112 
U.  S.  609,  619,  Opin.  of  Court  per 
Matthews,  J.  See  §131.  Validly 
mortgaging  the  charter,  property, 
and  franchises  of  a  railroad  corpo- 
ration does  not  transfer  the  right  or 
capacity  to  be  that  identical  corpora- 
tion; though  it  would  transfer  such 
franchises  as  are  more  appropriate  to 
the  construction,  maintenance,  and 
operation  of  the  railroad  as  a  public 
highway  and  the  right  to  make  profit 


therefrom.  The  only  right  of  cor- 
porate existence  that  could  pass 
would  be  the  right  to  organize  under 
the  then  laws  of  the  state.  "  The 
franchise  to  be  a  corporation  re- 
mained in  and  was  exercised  by  the 
old  corporation,  notwithstanding  the 
mortgage  of  its  charter,  until  the  new 
corporation  was  formed  and  organ- 
ized; it  was  then  surrendered  to  the 
state,  and  by  a  new  grant  then  made, 
passed  to  the  corporators  of  the  new 
corporation,  it  was  held  and  exer- 
cised by  them  under  the  constitu- 
tional restrictions  then  in  being." 
lb.  p.  623.  See,  with  above,  El- 
dridge  v.  Smith,  34  Vt.  484;  State  v. 
Irrigating  Co.,  40  Kan.  96. 

Indirectly  a  transfer  of  the  fran- 
chises of  a  corporation  can  be  ac- 
complished by  a  purchase  of  all  the 
stock  by   the  would-be  transferees. 

103 


§  13^.] 


THE   LAW   OF   PRIVATE   CORPORATIONS.    [CHAP.  VII. 


Power  to 
increase  or 
decrease 
the  capital 
stock. 


poration  has  no  power  to  increase  or  diminish  its  stock,  unless 
expressly  authorized  so  to  do  ; x  nor  has  it  the  power 
to  increase  or  decrease  the  number  of  shares  into 
which  the  capital  stock  is  divided.2  And  when  power 
is  given  to  increase  or  decrease  the  capital  stock  or 
the  number  of  shares  into  which  it  is  divided,  the  mode  of  pro- 
ceeding indicated  by  the  statute  or  articles  of  association  must 
be  substantially  adhered  to.3 

§  134.  In  regard  to  the  power  of  a  corporation  to  purchase 
shares  of  its  own  stock,  there  is  a  difference  of  opin- 
ion.    The  English   decisions   seem   unanimously  to 
negative  the  possession  of  this   power  by  corpora- 
tions ;  and  Mr.  Brice's   proposition — "  Corporations 
cannot,  whatever  the  nature  of  their  business,  with- 
out an  express  and  very  clear  power  in  that  behalf, 
deal  in  their  own  shares  " — may  be  regarded  as  expressing, 
though  somewhat  vaguely,  from  his  use  of  the  word  "  deal." 
the  English  law  on  this  subject.4 


Power  of  a 
corpora- 
tion to  pur- 
chase 
shares  of 
its  own 
stock. 


i  New  York  and  N.  H.  R.  R.  Co.  v. 
Schuyler,  34  N.  Y.  30;  Sutherland  ». 
Olcott,  95  N.  Y.  93;  Einstein  v.  R.  G. 
&  E.  Co.,  146  N.  Y.  46;  Grangers,' 
etc.,  Ins.  Co.  v.  Kamper,  73  Ala.  325; 
Smith  v.  Goldsworthy,  4  Q.  B.  430; 
see  Railway  Co.  v.  Allerton,  18  Wall. 
233,  235;  Droitwitch  Patent  Salt  Co. 
v.  Curson,  L.  R.  3  Ex.  35;  Cooke  v. 
Marshall,  191  Pa.  St.  315;  and  com- 
pare In  re  Financial  Corporation, 
Holmes's  Case,  L.  R.  2  Ch.  714. 

2  Oldtown  R.  R.  Co.  v.  Veazie,  39 
Me.  571;  Salem  Mill  Dam  Co.  v. 
Ropes,  6  Pick.  23,  32. 

3  Spring  Co.  v.  Knowlton,  103  U.  S. 
49;  Knowlton  v.  Congress  Spring  Co., 
57  N.  Y.  518.  See  State  v.  McGrath, 
86  Mo.  239,  and  compare  Columbia 
N.  Bk.'s  App.,  16  Weekly  Notes  of 
Cases  (Pa.),  357;  and  cases  cited  in 
the  two  preceding  notes.  Share- 
holders may  waive  formalities  in- 
tended for  their  protection.  Nelson 
v.  Hubbard,  96  Ala.  238. 

However,    a    corporation     having 

104 


earned  a  dividend,  and  possessing  the 
power  to  increase  its  capital  stock, 
may  declare  a  stock  dividend.  How- 
ell v.  Chicago  and  N.  W.  R'y  Co., 
51  Barb.  378.  AVhen  an  increase  of 
stock  is  contemplated  by  the  articles 
of  association,  and  made  in  the  exer- 
cise of  a  power  given  by  statute,  and 
in  the  manner  prescribed  by  statute, 
if  the  new  stock  is  properly  disposed 
of,  so  that  in  the  disposition  plain- 
tiff's rights  are  observed,  the  motives 
leading  the  majority  of  shareholders 
(and  directors)  to  vote  for  it  are  im- 
material. Jones  v.  Morrison,  31 
Minn.  140.     See,  also,  §  568. 

4  "Ultra  Vires,"  2d  Am.  ed.  94; 
Zulueta's  Claim,  L.  R.  5  Ch.  444;  In 
re  Marseilles  Extension  R'y  Co.,  ex 
parte  Credit  Foncier  of  England,  L. 
R.  7  Ch.  161;  see  Evans  v.  Coventry, 
25  L.  J.  Ch.  489;  Hall's  Case,  L.  R.  5 
Ch.  707.  Compare  Hope  v.  Interna- 
tional Financial  Soc'y,  L.  R.  4  Ch.  D. 
327;  Teasd ale's  Case,  L.  R.  9  Ch.  54. 
Even  though    the   corporation    has 


PART  I.]      CONSTRUCTION    OF   CORPORATE   POWERS.  [§  135. 

§  135.  In  America,  on  the  other  band,  the  weight  of  author- 
ity clearly  indicates  that  there  is  nothing  in  itself  illegal  or 
ultra  vires  in  the  purchase  of  its  own  shares  by  a  corporation  ; 
and  that  whether  the  purchase  is  valid  depends  on  the  condi- 
tion of  the  corporate  affairs,  the  purpose  for  which  the  pur- 
chase was  made  (or  the  shares  received  by  the  corporation),  and 
on  the  relation  to  the  corporation  of  the  persons  questioning  the 
validity  of  the  transaction.1  Thus  a  solvent  corporation  may 
receive  fully  paid-up  shares  of  its  own  stock  in  payment  of  or 
as  security  for  a  debt  owing  the  corporation.2  But  an  insol- 
vent corporation  can  neither  purchase,  nor  receive  in  payment 
of  debts  owing  it,  shares  of  its  own  stock :  especially  when  the 


power  to  purchase  shares  in  other 
corporations.  Same  cases.  Coppin 
v.  Greenless  &  Co.,  38  Ohio  St.  275, 
follows  the  English  rule,  and  holds 
that  an  executory  contract  between 
a  corporation  and  a  shareholder  for 
the  purchase  of  its  own  stock  by  the 
former  cannot  be  enforced,  and  will 
not  sustain  an  action  for  damages 
against  the  corporation.  For  the 
power  of  a  corporation  to  purchase 
shares  in  the  stock  of  another  cor- 
poration, see  §  130,  note. 

1  Vail  o.  Hamilton,  85  N.  Y.  453, 
457;  Dupee  v.  Boston  Water-power 
Co.,  114  Mass.  37,  43;  Clapp  v.  Peter- 
son, 104  111.  26;  Chicago,  Pekin,  etc., 
R.  R.  Co.  v.  Marseilles,  84  111.  145; 
S.  C,  84  111.  643;  Fraser  v.  Ritchie, 
8  111.  App.  554;  Republic  Life  Ins. 
Co.  v.  Singert,  135  111.  150;  Blalock 
v.  M'f'g  Co.,  110  N.  C.  99;  Hartridge 
v.  Rockwell,  R.  M.  Charton  (Ga.), 
260;  Iowa  Lumber  Co.  v.  Foster,  49 
Iowa,  25;  Verplanck  v.  Mercantile 
Ins.  Co.,  1  Edw.  Ch.  (N.  Y.)  84.  04; 
City  Bank  v.  Bruce,  17  X.  Y.  507; 
Dock  v.  Cordage  Co.,  167  Pa.  St. 
370;  Coleman  v.  Columbia  Oil  Co., 
51  Pa.  St.  74;  compare  Morgan  v. 
Lewis,  46  O.  St.  1;  Bank  v.  Wicker- 
sham,  99  Cal.  655;  Chapman  v.  Iron- 
clad Co.,  62  N.  J.  L.  497.     Unissued 


stock  of  a  corporation  was  by  an 
agreement  of  all  the  shareholders 
(who  were  also  directors),  there  be- 
ing no  creditors,  paid  for  with  the 
funds  of  the  corporation  and  issued 
to  one  of  their  number  in  trust  for 
them  all.  Held,  the  issue  could  not 
be  impeached.  Jones  v.  Morrison, 
31  Minn.  140.  Agreement  held 
valid,  whereby  corporation  in  selling 
its  shares,  agreed,  upon  a  given  no- 
tice, to  repurchase  at  a  given  price; 
rights  of  creditors  not  being  in- 
volved. Vent  v.  Dul u th,  etc.,  Co., 
64  Minn.  307.  Statutes  regarding  the 
purchase  by  a  corporation  of  its  stock 
are  collected,  with  authorities,  by 
Mr.  E.  C.  Moore,  Jr.,  in  8  Southern 
Law  Rev.  N.  S.  369. 

2  Taylor  ».  Miami  Exporting  Co., 
6  Ohio,  177;  State  Bank  v.  Fox,  3 
Blatchf.  431 ;  City  Bank  v.  Bruce,  17 
N.  Y.  507;  Ex  parte  Holmes,  5  Cow. 
426;  Barto  v.  Nix,  15  Wash.  563. 
See  Cooper  v.  Frederick,  9  Ala.  738; 
Barton  r.  Port  Jackson,  etc.,  Plank 
Road  Co.,  17  Barb.  307.  Compare 
First  National  Bk.  v.  Nat.  Exchange 
Bk.,  92  U.  S.  122.  So  it  is  said  a 
corporation  may  receive  its  shares 
in  exchange  for  property  owned  by 
it.     Clapp  o.  Peterson,  104  111.  26. 

105 


§  137.]         Till':    LAW    OF    PRIVATE   CORPORATIONS.    [CHAP.  VII. 

shares  are  not  fully  paid-up  or  when  individual  liability  exists 
respecting  them  ;  for,  under  such  circumstances,  the  effect  would 
be  to  impair  the  corporate  assets  to  the  detriment  of  creditors 
and  holders  of  other  shares.1  In  general,  no  purchase  by  a 
corporation  of  its  stock  can  relieve  the  prior  holder  from  his 
statutory  individual  liability  to  creditors.2 

§  13(>.  When  a  corporation  has  competently  purchased  shares 
a  corpora-  °f  its  own  stock,  it  may  hold  them  unextinguished 
reissue^  an^  reissue  them;3  but  while  the  corporation  holds 
shares  the  shares,  it  cannot  exercise  in  regard  to  them  privi- 

puifhasea  ,  .  °  r 

by  it ;  but  leges  which  pertain  to  an  ordinary  shareholder.  Ks- 
voteon  pecially  it  cannot  vote  on  them  ;  and  this  last  prop- 
them.  osition  is  not  affected  by  the  fact  that  the  shares 

stand  in  the  name  of  some  trustee  for  the  corporation,  or  in  the 
names  of  the  directors.4 

§  137.  In  the  enforcement  of  its  rights,  a  corporation  has 
equal  capacity  with  an  individual  to  bring  actions,5  compro- 


1  Currier  v.  Lebanon  Slate  Co.,  56 
N.  H.  262;  Savings  Bank  v.  Wulfe- 
kuhler,  19  Kans.  60;  Crandall  v.  Lin- 
coln, 52  Conn.  73;  Columbian  Bank's 
Estate,  147  Pa.  St.  422;  Adams,  etc., 
Co.  v.  Deyette,  5  S.  Dak.  418.  Tbe 
purchase  of  its  own  stock  by  a  cor- 
poration, made  in  good  faith,  with 
nothing  in  the  apparent  condition  of 
the  company  to  suggest  insolvency, 
will  be  set  aside  at  the  suit  of  cred- 
itors injured  by  it.  The  fact  that 
the  shareholder  did  not  know  at  the 
time  of  the  indebtedness  does  not 
make  the  transaction  valid,  for  he  is, 
as  to  creditors,  affected  with  notice 
of  all  the  equities  attaching  to  the 
corporate  property  as  a  trust  fund. 
Com'l  Nat.  15k.  v.  Burch,  141111.519; 
Clapp  o.  Peterson,  104  111.  20.  The 
directors  of  a  corporation  which  is 
in  process  of  dissolution  cannot  pur- 
chase the  shares  of  some  of  the  stock- 
holders. Augsburg  Land  &  I.  Co.  v. 
Pepper,  95  Va.  92.     See  §§  552,  747. 

2  See  §  747. 

8  State  v.  Smith,  48  Vt.  266;   City 
106 


Bank  v.  Bruce,  17  N.  Y.  507;  Wil- 
liams o.  Savage  Mfg.  Co.,  3  Md.  Ch. 
418;  Rivanna  Navigation  Co.  v.  Daw- 
son, 3  Gratt.  (Va. )  19,  25;  Clapp  v. 
Peterson,  104111.  26;  Commonwealth 
v.  Boston  and  A.  R.  R.  Co.,  142 
Mass.  146. 

4  Vail  ».  Hamilton,  85  N.  Y.  453; 
Ex  parte  Holmes,  5  Cow.  426; 
Brewster  v.  Hartley,  37  Cal.  15; 
Monsseaux  ».  Urquhart,  19  La.  Ann. 
482;  American  Railway  Frog  Co.  v. 
Haven,  101  Mass.  398. 

The  corporation  cannot  as  repre- 
senting shares  held  by  it  give  its  as- 
sent to  a  mortgage  of  corporate 
property,  in  order  to  make  up  the 
assent  of  two-thirds  of  the  share- 
holders as  required  by  statute.  Vail 
v.  Hamilton,  supra.     See  §  185. 

5  A  corporation  has  the  right  to 
sue  at  common  law,  see  §§12,  14; 
and  has  power  to  execute  a  bond  in 
a  judicial  proceeding.  Collins  v. 
Hammock,  59  Ala.  448. 

A  corporation  may  take  an  assign- 
ment of  a  judgment  in  payment  of 


RART  I.]      CONSTRUCTION   OF   CORPORATE   POWERS.  [§  137. 

mise  them,1  and  refer  matters  to  arbitration.2     A  corporation 
may  sue  to  recover  damages  for  a  libel  against  it  in 
its  business;3  to  restrain  a  nuisance  on  its  property;4   a corpora-0 
to  enjoin  others  from  using  its  corporate  name  to   g^10     . 
the  injury  of  its  trade;5  or,  in  admiralty,  to  recover 
for  services  rendered  as  a  salvor.6     Pleading  the  general  issue 
admits  the  capacity  of  a  corporation  plaintiff  to  sue,  and  re- 
lieves it  from  proving  its  corporate  existence;7  and  going  to 


indebtedness  to  it,  and  may  prose- 
cute the  same.  Bailey  v.  Malheur 
Irr.  Co.,  36  Or.  544. 

iSee  First  Nat.  Bk.  t:.  Nat.  Ex- 
change Bk.,  92  U.  S.  122;  Stewart  v. 
Hoyt,  111  U.  S.  373.  A  corporation 
may  confess  judgment.  Prouty  v. 
Prouty,  etc.,  Shoe  Co.,  155  Pa.  St. 
112;  Electric  Lighting  Co.  v.  Leiter, 
19  Dis.  Col.  575;  Snyder  Bros.  v. 
Bailey,  165  111.  447. 

2  Alexandria  Canal  Co.  v.  Swann,  5 
How.  83;  see  Day  v.  Essex  County 
Bank,  13  Vt.  97;  Boston  and  L.  R. 
R.  Co.  v.  Nashua,  etc.,  R.  R.  Co., 
139  Mass.  463;  compare  Sawyer  v. 
Winnegance  Mill  Co.,  26  Me.  122. 

3  Trenton  Mut.  Life  Ins.  Co.  v. 
Perrine,  23  N.  J.  L.  (3  Zab.)  402; 
Hahnemannian  Life  Ins.  Co.  v. 
Beebe,  48  111.  87;  Shoe  and  Leather 
Bk.  v.  Thompson,  23  How.  Pr.  ( N.  Y. ) 
253;  Knickerbocker  Life  Ins.  Co.  v. 
Ecclesine,  42  How.  Pr.  (N.  Y.)  201; 
Same  o.  Same,  2  J.  &  S.  (N.  Y. 
Super.  Ct.)  76;  Metropolitan  Omni- 
bus Co.  v.  Hawkins,  4  H.  &  N.  87; 
Morton  County  Bank  v.  Day,  73 
Minn.  195;  Morrison-Jewell  Filtra- 
tion Co.  v.  Lingaine,  19  R.  I.  316. 

4  Central  Bridge  Co.  v.  Lowell,  4 
Gray,  474. 

6  Newby  v.  Oregon  Cent.  R.  Co., 
Dearly,  609;  Holmes  v.  Holmes,  MTg 
Co.,  37  Conn.  278;  Higgins  Co.  v. 
Higgins  Soap  Co.,  144  N.  Y.  462;  of. 
Hygeia  Ice  Co.  v.  N.  Y.  Hygeia  Ice 
Co.,  140  N.  Y.  94;  Lamb  Knit  Goods 


Co.  o.  Lamb  Glove  &  Mitten  Co., 
120  Mich.  159;  Red  Polled  Cattle 
Club  v.  Red  Polled  Cattle  Club,  108 
Iowa,  105.  Not,  however,  if  the 
plaintiff  corporation  is  engaged  in 
an  illegal  business.  Portsmouth 
Brewing  Co.  v.  Portsmouth  B.  &  B. 
Co.,  67  N.  H.  433.  It  seems  a  foreign 
corporation  cannot  enjoin  a  domestic 
corporation  from  using  the  same 
name.  Hazleton  B.  Co.  v.  Hazleton 
T.  B.  Co.,  142  111.  494.  But  a  domes- 
tic corporation  may  enjoin  a  foreign 
corporation.  Amer.  Clay  M'f'g  Co. 
v.  Idem,  198  Pa.  St.  189.  An  indi- 
vidual may  restrain  a  corporation 
from  using  a  name  which  violates 
his  rights.  Armington  et  al.  v. 
Palmer,  21  R.  I.  109.  A  corporation 
may  recover  damages  for  false  repre- 
sentations, acted  upon  by  it,  al- 
though such  representations  were 
made  to  individuals  before  the 
formation  of  the  corporation;  such 
individuals  subsequently  becoming 
the  sole  stockholders  and  directors 
of  the  corporation.  Scolfield  Gear 
&  Pulley  Co.  v.  Scolfield,  71  Conn.  2. 

8  The  Camanche,  8  Wall.  448;  The 
Blackwall,  10  Wall.  1.  A  corporation 
may  acquire  a  lien  for  materials  fur- 
nished as  an  individual.  Fagan  v. 
Boyle  Ice  Machine  Co.,  65  Tex.  324. 

7  Morse  Arms  M'f'g  Co.  v.  United 
States,  16  Ct.  of  Claims,  296;  Mc- 
Intire  v.  Preston,  10  111.  48;  Phoenix 
Bank  o.  Curtis,  14  Conn.  437;  Prince 
v.    Commercial    Bank,    1    Ala.    241; 

107 


x»   ^t^~r&    >^V^     &*ZO    .       %%?.    32  <?# 


§  138.]         THE   LAW    OP    PRIVATE   CORPORATIONS.    [CHAP.  VII. 

trial  on  the  merits  has  a  similar  effect.1  In  some  states  it  is 
not  necessary  for  a  corporation  plaintiff  to  allege  its  incorpo- 
ration.2 ^ 
/^w§  138.  When  in  order  to  enforce  corporate  rights  or  avert 
wrongs  threatening  the  corporate  interests  it  is  neces- 
tii'^rJnjr  sarv  to  sue,  the  rule  is  thai  the  suit  must  be  brought 
fnthename  DV  tne  corporate  management  in  the  name  of  the  cor- 
20!i<LS2j^    poration.     This  rule  applies  to  suits  both  at  law  and 

poration.         l  .  .  L  * 

in  equity.3  Individual  shareholders  are  not  the  proper 
parties  to  sue  or  defend  on  behalf  of  corporate  interests.4  If, 
however,  the  corporate  management  refuses  or  fails  to  enforce 


Mississippi,  etc.,  R.  R.  Co.  v.  Cross, 
20  Ark.  443;  Rockland,  etc.,  Steam- 
boat Co.  v.  Sewall,  78  Me.  167.  But 
this  was  not  the  English  rule,  nor 
has  it  been  so  held  in  all  the  states. 
See  Williams  v.  Bank  of  Michigan,  7 
Wend.  540,  and,  generally,  Angell 
and  Ames  on  Corp.,  §§  632  et  seq. 

1  United  States  v.  Insurance  Cos., 
22  Wall.  99;  Conard  v.  Atlantic  Ins. 
Co.,  1  Pet.  386,  450;  Lehigh  Bridge 
Co.  v.  Lehigh  Coal  Co.,  4  Rawle,  9; 
First  Parish  v.  Cole,  3  Pick.  232, 
245. 

2  German  Reformed  Church  v. 
Von  Puechelstein,  27  N.  J.  Eq.  30; 
Phoenix  Bank  v.  Donnell,  40  N.  Y. 
410;  compare  Baltimore  &  O.  R.  R. 
Co.  v.  Sherman,  30  Grat.  (Va.)602, 
But  see  §§  1775-6  of  the  New  York 
Code  of  Civil  Procedure,  and  Con- 
cordia Savings  Ass'n  v.  Reed,  93 
N.  Y.  474.  Where  the  name  used  by 
the  plaintiff  in  pleading  "  argues  a 
corporation,"  corporate  organization 
need  not  be  averred.  Sayers  v.  First 
Nat.  Bk.,  89  lnd.  230. 

3  Bradley  v.  Richardson,  2  Blatchf. 
343;  Mauney  v.  High  Shoals  M'f'g 
Co.,  4  Ired.  Eq.  (N.  C.)  11)5;  see 
Insane  Hospital  u.  Higgins,  15  111. 
185;  Campbell  v.  Brunk,  2.".  111.  225. 

4  Silk  M'f'g  Co.  a.  Campbell,  27  N. 
J.  L.  539;  Blackman  v.  Central  R.  R. 

108 


Co.,  58  Ga.  189;  Henry  v.  Elder,  63  Ga. 
347;  see  Bronson  u.  LaCrosse,  etc.,  R. 
R.  Co.,  2  Wall.  283;  Park  v.  Petroleum 
Co.,  25  W.  V.  108;  Mayer  v.  Bristol 
Hotel  Co.,  163  Mo.  59.  Shareholders 
who  have  been  allowed  to  put  in  an- 
swers in  the  name  of  the  corporation 
cannot  be  regarded  as  answering  for 
the  corporation  itself.  In  a  special 
case,  where  there  is  an  allegation  that 
the  directors  fraudulently  refused  to 
attend  to  the  interests  of  the  cor- 
poration, a  court  of  equity  will  in 
its  discretion  allow  a  shareholder  to 
become  a  party  defendant  in  order 
to  protect  from  unfounded  claims 
against  the  corporation  his  own  in- 
terests and  those  of  such  other  share- 
holders as  choose  to  join  him  in  the 
defence.  Bronson  v.  LaCrosse,  etc., 
R.  R.  Co.,  2  Wall.  283.  See,  also, 
Kanawha  Coal  Co.  v.  Ballard,  etc., 
Coal  Co.,  43  W.  Va.  721.  A  share- 
holder cannot  prosecute  an  appeal 
from  a  judgment  against  the  cor- 
poration. State  of  Florida  v.  Florida 
Central  I  J.  R.  Co.,  15  Fla.  690.  On 
the  other  hand,  a  stockholder  is 
ordinarily  bound  by  decrees  against 
the  corporation,  although  not  per- 
sonally a  party.  Hawkins  v.  Glenn, 
131  U.  S.  319;  Howard  v.  Glenn,  85 
(la.  238;  Heggie  v.  Bldg.  Ass'n,  107 
N.  C.  581. 


PART  I.]    CONSTRUCTION  OF  CORPORATE  POWERS.   [§  139. 

corporate  rights,  and  an  irreparable  injury  to  the  corporate 
interests  is  threatened,  a  shareholder,  in  a  case  where  the  cor- 
poration itself  would  be  entitled  to  an  injunction,  may  bring 
suit  on  behalf  of  himself  and  others  interested  who  may  join, 
to  enjoin  the  threatened  injury.1  In  such  case  the  shareholder 
should  set  forth  in  his  complaint  or  bill  the  efforts  that  he  has 
made  to  induce  the  corporation  to  act  in  the  matter,  should 
allege  its  refusal  or  failure  to  sue,  and  should  make  it  a  party 
defendant  in  the  action. 

§  139.  The  first  leading  case  on  the  right  of  a  shareholder  to 
sue  under  such  circumstances  is  Dodge  v.  Woolsey,2 
where   the   Supreme   Court  of    the   United    States   when  a 

1  .        .  share- 

held  that  a  shareholder  in  a  bank  could  maintain  a   holder  may 

bill  to  enjoin  the  collection  of  an  unlawful  state  tax   half  of  the 

on  the  bank,  the  directors  having  declined  to  sue   tion°ra" 

under   circumstances   that  rendered  their  refusal  a 

breach  of  trust.3 


\ 


1  A  bill  may  be  filed  by  share- 
holders to  enjoin  the  setting  up  of  a 
claim  for  purchase-money  against 
the  lands  of  a  company,  the  ground 
of  the  bill  being  that  the  party 
setting  up  the  claim  induced  the 
complainants  to  buy  shares  by 
fraudulently  representing  that  the 
property  sold  to  the  company  was 
unincumbered,  and  that  he  had  no 
interest  in  it,  the  ageuts  of  the  com- 
pany joining  in  such  misrepresenta- 
tions. The  company  should  be  made 
a  party  defendant,  although  the 
relief  prayed  is  really  in  its  favor. 
Jones  v.  Bolles,  9  Wall.  364.  Share- 
holders were  admitted  to  defend  on 
behalf  of  the  corporation  in  Morrill 
v.  Little  Falls  M'f'g  Co.,  46  Minn. 
260.  See,  Fitzwater  v.  Bank,  62  Kas. 
163. 

2  18  How.  331.  The  present  discus- 
sion relates  to  actions  by  sharehold- 
ers against  outsiders;  and  has  but 
incidental  reference  to  the  right  of 
shareholders  to  sue  the  corporation 
and  restrain  it  by  legal  process  (for 


which  see  §§553-557);  or  to  their 
right  to  sue  the  officers  for  a  breach 
of  duties  owing  primarily  to  the  cor- 
poration (for  which  see  §§  683-691). 
3  "  The  judgment  of  the  court  in 
Dodge  v.  Woolsey  authorizes  the 
stockholder  of  a  company  to  institute 
a  suit  in  equity  in  his  own  name 
against  a  wrongdoer  whose  acts  oper- 
ate to  the  prejudice  of  the  interests 
of  stockholders,  such  as  diminishing 
their  dividends,  and  lessening  the 
value  of  their  stock,  in  a  case  where 
application  has  first  been  made  to  the 
directors  of  the  company  to  institute 
a  suit  in  its  own  name,  and  they  have 
refused.  This  refusal  of  the  board 
of  directors  is  essential  in  order  to 
give  to  the  stockholder  any  standing 
in  court,  as  the  charter  confers  upon 
the  directors  representing  the  body 
of  shareholders  the  general  manage- 
ment of  the  business  of  the  company. 
There  must  be  a  clear  default  on 
their  part,  involving  a  breach  of  duty, 
within  the  rule  established  in  equity, 
to  authorize  a  stockholder  to   insti- 

109 


§  140.]         THE   LAW    OF    PRIVATE   CORPORATIONS.    [CHAP.  VII. 


§  140.  Unless  the  facts  stated  in  the  complaint  clearly  show 
the  corporation  to  be  in  no  position  to  protect  itself, 
Share-  so  that  any  attempt  of  the  shareholder  to  procure  it 

must  allege  to  act  for  its  own  protection  would  be  utterly  useless,1 
thecorpo-  the  shareholder  must  allege  a  demand  by  him  on  the 
sue.°n  t0  corporate  management  to  bring  suit ; z  and  should  set 
forth  in  his  complaint  facts  showing  to  the  court 
that  his  endeavors  have  been  real  and  earnest,  and  that  he  has 
left  undone  nothing  which  in  reason  he  might  have  done  to  pre- 
vail on  the  corporate  management  to  bring  the  action.3  More- 
over, it  must  be  shown  in  the  complaint  that  the  refusal  of  the 


tute  the  suit  in  his  own  behalf,  or 
for  himself  and  other  stockholders 
who  may  choose  to  join."  Opinion 
of  the  Court  per  Nelson,  J.,  in  Mem- 
phis Cityc.  Dean,  8  Wall.  64,  73;  see, 
also,  People  v.  State  Treasurer,  24 
Mich.  468;  and  see  Hawes  v.  Oak- 
land, 104  U.  S.  450,  459;  cf.  Dicker- 
man  v.  Northern  Trust  Co.,  176  U.  S. 
181. 

1  Barr  v.  New  York,  L.  E.  &  W.  R. 
R.  Co.,  96  N.  Y.  444;  S.  C,  125  N.  Y. 
163;  Perry  v.  Tuscaloosa  Co.,  93  Ala. 
364.  Where  the  corporation  is  prac- 
tically dissolved,  and  all  its  officers 
have  absconded,  a  shareholder  may 
sue  a  person  to  whom  the  officers 
have  fraudulently  and  without  con- 
sideration conveyed  the  corporate 
property;  and  under  such  circum- 
stances need  not  allege  a  previous 
application  to  the  corporation.  Wil- 
cox v.  Bickel,  11  Neb.  154.  See, 
also,  People  v.  Hektograph  Co.,  10 
Abb.  N.  C.  (N.  Y.)  358;  Davis  v.  Rail- 
road Co.,  1  Woods,  661;  Crumlish  v. 
Railroad  Co.,  28  W.  Va.  623.  Yet  the 
United  States  Supreme  Court  holds 
that  even  where  a  corporation  has 
passed  the  term  of  its  corporate  exist- 
ence— its  existence,  however,  under 
the  enabling  act  continuing  for  the 
purpose  of  winding  up  its  business — 
a  shareholder,  to  entitle  him  to  bring 
suit,  must  allege  efforts  to  prevail  on 

110 


the   corporation   to   sue.     Taylor  v. 
Holmes,  127  U.  S.  489. 

2  Detroit  v.  Dean,  106  U.  S.  537; 
Hawes  v.  Oakland,  104  U.  S.  450; 
Shawhan  v.  Zinn,  79  Ky.  300;  Morgan 
v.  Railroad  Co.,  1  Woods,  15;  Ware 
v.  Bazemore,  58  Ga.  316;  Tubwiler 
v.  Tuscaloosa  Coal  Co.,  89  Ala.  391; 
Mack  v.  Coal  Co.,  90  Ala.  396;  Roman 
v.  Woolfolk,  98  Ala.  219;  State  v. 
Mitchell,  104  Tenn.  336;  Ulmer  v. 
Real  Estate  Co.,  93  Me.  324;  Wolf  v. 
K.  R.  Co.,  195  Pa.  St.  91;  Harding  v. 
Amer.  Glucose  Co.,  182  111.  551;  cf. 
Kennedy  v.  Gibson,  8  Wall.  498.  This 
proposition,  it  is  said,  does  not  apply 
to  a  bill  filed  by  a  creditor  of  the  cor- 
poration against  a  wrongdoer.  Loth 
rop  v.  Stedman,  42  Conn,  583  (U.  S. 
Cir.  Ct). 

3  Hawes  v.  Oakland,  104  IT.  S.  450. 
461;  Dimpfell  v.  Ohio,  etc.,  R.  Co., 
110  U.  S.  209;  Bacon  v.  Irvine,  70 
Cal.  221;  Dannineyer  ».  Coleman,  11 
Fed.  Rep.  97;  Pacific  Railroad  v. 
Missouri  Pacific  R.  R.  Co.,  2  McCrary, 
227;  Boyd  v.  Sims,  87  Tenn.  771; 
Rathbone  v.  Gas  Co.,  31  W.  Va.  798; 
Home  Mining  Co.  v.  McKibbin,  60 
Kas.  387;  Morgan  v.  King,  27  Colo. 
539;  L.  &  N.  R.  R.  Co.  v.  Neal,  adm., 
128  Ala.  149.  See,  also,  the  cases  in 
the  preceding  note.  To  give  a  small 
minority  of  shareholders  a  standing 
in  equity  to  contest  and  set  aside  an 


/ 


PART  I.J       CONSTRUCTION    OF   CORPORATE   POWERS.  [§  141. 

directors  to  sue  is  a  breach  of  trust  on  their  part,  and  not  a 
mere  error  of  judgment  in  a  matter  properly  within  their  dis- 
cretion.1 Finally,  it  is  always  essential  that  the  corporation 
itself  should  be  made  a  party  defendant.2 

§  141.  In  Hawes  v.  Oakland,3  where  the  rules  under  discus- 
sion received  the  most  careful  consideration,  the  following  state- 
ment was  made  by  Justice  Miller,  giving  the  opinion  of  the 
court : — 

"  We  understand  [the  doctrine  of  the  English  and  American 
cases,  including  Dodge  v.  Woolsey]  to  be  that  to  enable  a  stock- 
holder in  a  corporation  to  sustain  in  a  court  of  equity  in  his 
own  name  a  suit  founded  on  a  right  of  action  existing  in  the 
corporation  itself,  and  in  which  the  corporation  itself  is  the 
appropriate  plaintiff,  there  must  exist  as  the  foundation  of  the 
suit — 

"  Some  action  or  threatened  action  of  the  managing  board  of 
directors  or  trustees  of  the  corporation  wThich  is  beyond  the  au- 
thority conferred  on  them  by  their  charter  or  other  source  ofy        -*■ 


"  Or  such  a  fraudulent  transactiorrcompletea  or  conxeinplatedy^j^i 


by  the  acting  managers,  in  connection  with  some  other  party,-'***^ 
or  among  themselves,  or  with  other  shareholders,  as  will  result-'^V^t?! 
in  serious  injury  to  the  corporation,  or    the  interests  of  the    x 
other  shareholders  ;  ,y-  _J 

"  Or  where  the  board  of  directors,  or  a  majority  of  them,  are  p  y 
acting  for  their  own  interest  in  a  manner  destructive  of  the 


corporation  itself,  or  the  rights  of  other  shareholders;  (?* 

"  Or  where  the  majority  of  shareholders  themselves  are  op-  *Jr**v* 


ultra  vires  act  of  directors  to  which 
a  large  majority  of  shareholders 
make  no  objection,  it  must  appear 
that  complainants  were  shareholders 
at  the  time  of  the  transactions  com- 
plained of,  or  that  the  shares  have 
devolved  on  them  since  by  operation 
of  law.  Dimpfell  v.  Ohio  &  Miss.  R. 
Co.,  110  U.  S.  209. 

1  See  the  cases  in  last  note  but  one ; 
also  Memphis  Gas  Co.  v.  Williamson, 
9Heisk.   (Tenn.)  314,  337;  Dodger. 


Woolsey,    supra  ;    Memphis   City  v.  3  /V/r* 
Dean,  supra  (§  139,  note). 

2  See  cases  in  preceding  notes.  It 
has  even  been  said  that  the  failure  to 
make  the  corporation  a  party  is  not  a 
mere  defect  of  parties  to  be  taken 
advantage  of  by  special  demurrer, 
but  leaves  the  shareholder  without  a 
cause  of  action;  the  part}'  entitled  to 
the  relief,  i.  e.,  the  corporation,  not 
being  before  the  court.  Shawhan  v. 
Zinn,  79  Ky.  300. 

s  104  U.  S.  450,  460. 

Ill 


§  142.]        THE  LAW   OF   PRIVATE   CORPORATIONS.    [CHAP.  VII. 


pressively  and  illegally  pursuing  a  course  in  the  name  of  the 
corporation  which  is  in  violation  of  the  rights  of  the  other  share- 
holder, and  which  can  only  be  restrained  by  the  aid  of  a  court 
of  equity.1 

"  Possibly  other  cases  may  arise  in  which,  to  prevent  irre- 
mediable injury  or  a  total  failure  of  justice,  the  court  would  be 
justified  in  exercising  its  powers,  but  the  foregoing  may  be  re- 
garded as  an  outline  of  the  principles  which  govern  this  class 
of  cases. 

"  But,  in  addition  to  the  existence  of  the  grievances  which 
call  for  this  kind  of  relief,  it  is  equally  important  that  before 
the  shareholder  is  permitted  in  his  own  name  to  institute  and 
conduct  a  litigation  which  usually  belongs  to  the  corporation, 
he  should  show  to  the  satisfaction  of  the  court  that  he  has  ex- 
hausted all  the  means  within  his  reach  to  obtain  within  the 
corporation  itself  the  redress  of  his  grievances,  or  action  in  con- 
formity to  his  wishes.  He  must  make  an  earnest,  not  a  simu- 
lated, effort  with  the  managing  body  of  the  corporation,  to 
induce  remedial  action  on  their  part,  and  this  must  be  made 
apparent  to  the  court.  If  time  permits,  or  has  permitted,  he 
must  show,  if  he  fails  with  the  directors,  that  he  has  made  an 
honest  effort  to  obtain  action  by  the  stockholders  as  a  body,  in 
the  matter  of  which  he  complains.  And  he  must  show  a  case 
if  this  is  not  done,  where  it  could  not  be  done,  or  it  was  not 
reasonable  to  require  it."2 

§  142.  The  cases  hitherto  cited  are  scarcely  authority  for  the 
proposition  that   a   shareholder,  on  the   improper  refusal  of 


1  That  stockholders  may  sue  under 
the  conditions  stated  in  these  last 
two  paragraphs  was  held  in  Barr  v. 
New  York,  L.  E.  &.  W.  R.  R.  Co,  96 
N.  Y.  444  ;  Slatterly  v.  St.  Louis, 
etc.,  News  Co.,  91  Mo.  217.  See 
Sheridan  v.  Sheridan  Electric  Light 
Co.,  38  Hun  (N.  Y.)  396. 

2  The  doctrines  of  Hawes  v.  Oak- 
land were  approved  and  reiterated  in 
Detroit  v.  Dean,  100  U.  S.  537^  See, 
also,  Moore  v.  Silver  Valley  Mfg.  Co., 
104  N.  C.  534;  State  v.  Railway  Co., 
45  S.  C.  470. 

Rule  94  of  the  Rules  of  Practice 

112 


for  Courts  of  Equity  of  the  United 
States  expresses  the  Federal  doc- 
trine.    It  is  as  follows: — 

"Every  bill  brought  by  one  or 
more  stockholders  in  a  corporation 
against  the  corporation  and  other 
parties,  founded  on  rights  which  may 
properly  be  asserted  by  the  corpora- 
tion, must  be  verified  by  oath,  and 
must  contain  an  allegation  that  the 
plaintiff  was  a  shareholder  at  the 
time  of  the  transaction  of  which  he 
complains,  or  that  his  share  had  de- 
volved on  him  since  by  operation  of 
law;  and  that  the  suit  is  not  a  collu- 


PART  I.]   CONSTRUCTION  OP  CORPORATE  POWERS.     [§  143. 

the  corporation  to  act,  may  bring  a  suit  against  an  outsider  on 
any  ordinary  right  of  action  pertaining  to  the  cor- 
poration, to  recover  damages  for  injuries  which  have  Share-° 
already  been  suffered.1  The  shareholder  must  show 
that  he  would  suffer  irremediable  loss  were  he  not 
allowed  to  bring  suit  ;2  and  this  will  be  more  difficult 
to  show  when  the  right  of  action  results  from  past 
injuries. 

§  143.  Kegarding  service  of  process  on  corporations,  little 
may  be  said  of  general  applicability,  as  this  is  largely 
a  matter  of  local  practice,  regulated  in  nearly  all  the   process  on 
states  by  statutes  which  designate  the  mode  of  ser-   JJKf8" 
vice  and  the  officer  to  whom  it  may  be  made.3    A 
corporation  may  appear  voluntarily  by  attorney,  and  such  ap- 


holder  to 
sue  in 
respect  of 
injuries 
already 
accrued. 


sive  one  to  confer  on  a  court  of  the 
United  States  jurisdiction  of  a  case 
of  which  it  would  not  otherwise  have 
cognizance.  It  must  also  set  forth 
with  particularity  the  efforts  of  the 
plaintiff  to  secure  such  action  as  he 
desires  on  the  part  of  the  managing 
directors  or  trustees  and,  if  neces- 
sary, of  the  shareholders,  and  the 
causes  of  his  failure  to  obtain  such 
action."  104  U.  S.  IX.  See  Quincy 
v.  Steel,  120  U.  S.  241.  Possibly  with 
a  view  to  protecting  Federal  courts 
from  a  mass  of  cases  in  which  the 
request  and  refusal  are  collusive, 
and  gone  through  with  merely  that 
the  suit  may  be  brought  in  a  Federal 
court,  the  Supreme  Court  of  the 
United  States  limits  strictly  the  right 
of  shareholders  to  sue  for  the  corpo- 
ration. The  state  courts  are  not  so 
strict.  In  the  majority  of  cases 
where  this  question  arises,  suit  is 
brought  by  shareholders  against  the 
corporation  or  its  officers  to  prevent 
improper  or  ultra  vires  acts,  or  ob- 
tain damages  for  the  same.  For  the 
competency  of  shareholders  to  sus- 
tain suits  against  the  corporation 
under  such  circumstances,  see  §§  554 
-560;    and  for    the    competency  of 

8 


shareholders  to  sue  the  wrongfully 
acting  officers  of  a  corporation,  see 
§§  685-691. 

1  Samuels  ».  Central  Overland  Ex- 
press Co.,  McCahon  (Kaus. ),  214;  S. 
C.  under  name  of  Samuel  v.  Holla- 
day,  1  Woolw.  400.  Compare  Carter 
o.  Ford  Plate  Glass  Co.,  85  Ind.  180. 
Yet  this  distinction  seems  question- 
able. It  is  disapproved  in  City  of 
Chicago  v.  Cameron,  120  111.  447,  458, 
in  which  case  the  lapse  of  eleven 
years  was  held,  under  the  circum- 
stances, not  to  constitute  laches  on 
the  part  of  the  shareholders. 

2  See  Detroit  v.  Dean,  106  U.  S. 
537,  542.  In  general,  the  English 
authorities  accord  with  what  has 
been  stated  in  the  text;  see  Russel 
v.  Wakefield  Waterworks  Co.,  L.  R. 
20  Eq.  474;  Gray  v.  Lewis,  L.  R.  8 
Ch.  1035 ;  Foss  v.  Harbottle,  2  Hare, 
461;  Mozley  v.  Alston,  1  Phill.  790. 
They  are  more  fully  discussed  in 
§§  553-557. 

3  See,  e.  g.,  Great  West.  M'g  Co.  v. 
Woodmas,  etc.,  Co.,  11  Col.  46.  For 
a  discussion  of  the  validity  of  ser- 
vice on  foreign  corporations,  see 
§§  395-399. 

113 


§  145.]        THE   LAW   OF   PRIVATE   CORPORATIONS.    [CHAP.  VII. 


pearance  gives  jurisdiction  to  the  same  extent  as  actual  service 

of  process.1     And  a  corporation  may  be  punished  for  contempt 

in  disobeying  an  injunction.2 

§  144.  So  long  as  a  corporation  is  not  dissolved,  the  appoint- 
ment of  a  receiver  of  its  assets  does  not  prevent 
bringing  suit  against  it  on  a  cause  of  action  arising 
from  transactions  which  took  place  prior  to  the  ap- 
pointment of  the  receiver.3 
§  145.  The  following  is  a  rule  of  wide  application.  When  a 
body  of  men  are  acting  as  a  corporation  under  color 
of  apparent  organization  in  pursuance  of  some  charter 
or  enabling  act,  their  legal  authority  to  act  as  a  cor- 
poration cannot  be  questioned  collaterally,  but  only  in 
a  direct  proceeding  in  the  nature  of  a  quo  warranto. 
Under  such  circumstances,  if   their  organization  is 

irregular,  they  constitute  a  corporation  de  facto}  Although  this 

Okerstrom,   70  Minn.    303.     "As 


Effect  of 
appoint- 
ment of 
receiver. 


i?*'»^  Corporate 
franchises 
cannot  be 
questioned 
collate- 
rally. 
General 
rule. 


1  Attorney-General  v.  Guardian 
Mutual  Ins.  Co.,  77  N.  Y.  272. 

2  Golden  Gate,  etc.,  M'g  Co.  v  Su- 
perior Court,  65  Cal.  187;  compare 
Hedges  v.  Superior  Court,  67  Cal. 
405;  Sercomb  v.  Catlin,  128  111.  556. 

3  Pringle  v.  Woolwortb,  90  N.  Y. 
502;  Kincaid  v.  Dwinelle,  59  N.  Y. 
548.  Suits  pending  against  a  corpo- 
ration are  not  abated  by  the  appoint- 
ment of  a  receiver  in  the  same  court. 
Mercantile  Ins.  Co.  v.  Jaynes,  87  111. 
199;  Toledo,  etc.,  R.  Co.  v.  Beggs,  85 
111.  80.  Appointment  of  a  receiver 
does  not  dissolve  prior  valid  liens, 
acquired  by  attachment  or  otherwise. 
Graham  v.  Mat.  Aid  Soc,  161  Mass. 
357.  An  attachment  by  a  domestic 
creditor  of  the  assets  of  a  foreign 
corporation  will  not  be  defeated  by 
a  prior  appointment  of  a  receiver  in 
the  state  of  its  domicile.  Solis,  Rec'r, 
v.  Blank,  199  Pa.  St.  600. 

4  Society  Perun  v.  Cleveland,  43  O. 
St.  481;  Stout  o.  Zulick,  48  N.  J.  L. 
599,  601 ;  Baltimore  &  P.  R.  R.  ».  Fifth 
Baptist  Church,  137  U.  S.  568;  Bibb 
v.  Hall,  101  Ala.  79;  Harris  v.  Gate- 
way Land  Co.,  128  Ala.  652;  Johnson 

114 


against  all  persons  who  have  entered 
into  contracts  with  bodies  assuming 
to  act  in  a  corporate  capacity,  it  is 
sufficient  for  such  bodies  to  .show 
themselves  corporations  de  facto. 
This  cannot  be  done  by  showing 
that  they  have  acted  as  corporations 
for  any  period  of  time,  however  long. 
Two  things  are  necessary  to  be 
shown  in  order  to  establish  the  ex- 
istence of  a  corporation  de  facto, 
viz  :  1.  The  existence  of  a  charter, 
or  some  law  under  which  a  corpora- 
tion with  the  powers  assumed  might 
lawfully  be  created;  and  2,  a  user  by 
the  party  to  the  suit  of  the  rights 
claimed  to  be  conferred  by  such 
charter  or  law."  Selden,  J.,  in 
Methodist  Episcopal  Union  Church 
v.  Pickett,  19  N.  Y.  482,  485.  See 
St.  Louis,  etc.,  R.  R.  Co.  v.  Belleville 
Ky.  Co.,  158  111.  390.  Compare  Uni- 
ted States  Bank  v.  Stearns,  15  Wend. 
314;  St.  Paul  Fire  Ins.  Co.  v.  Allis, 
24  Minn.  75;  De  Witt  v.  Hastings,  69 
N.  Y.  518;  Factors,  etc.,  Ins.  Co.  v. 
New  Harbor  Protection  Co.,  37  La. 
Ann.  233;  Hicks  v.  Converse,  37  La. 


PART  I.]      CONSTRUCTION   OF   CORPORATE   POWERS.  [§  146. 

general  rule  is  of  all  but  universal  applicability  when  the  per- 
son seeking  to  question  the  validity  of  the  corporate  organiza- 
tion is  affected  with  some  estoppel  arising  from  his  own  acts, 
yet  even  then  it  is  subject  to  limitations ;  and  a  fortiori  is  it 
subject  to  limitations  when  no  such  estoppel  exists.  Its  appli- 
cation when  there  exists  an  estoppel  affecting  the  party  attack- 
ing the  corporate  organization  will  first  be  considered. 

§  146.  When  a  body  of  men  have  been  acting  as  a  corpora- 
tion de  facto,  under  color  of  apparent  organization, 
and  it  is  sought  to  hold  them  to  the  legal  consequences   the  rule, 
which  would  have  attended  their  actions  had  they   ^toppei 
been  legally  organized  as  a  corporation,  they  will  be   affectsthe 
estopped  from  denying  the  legality  of  their  corporate 
organization. lC  On  the   other   hand,  when  a  person  has   con- 
tracted with   such  a  body  as  a  corporation,  he   also  will  be>  r  ' 
estopped  from  denying  their  legal  incorporation  when  sued  on    >  p 
his  contract.2    As  Justice  Gray  said  in  a  recent  decision  of  the 


5 


ft 


^ 

^ 


V 


Ann.  484;  Hudson  v.  Green  Hill 
Seminary,  113  111.  618;  Rose  Hill,  etc., 
Road.  Co.  v.  People,  115  111.  133; 
Brown  v.  Atlantic  Ry.  Co.,  113  Ga. 
462;  Taylor  v.  St.  Ry.  Co.,  91  Me. 
193. 

1  Georgia  Ice  Co.  v.  Porter,  70  Ga. 
637.  To  a  suit  on  a  contract  to  pay 
money,  or  on  its  note,  a  corporation 
cannot  plead  nul  tiel  corporation. 
McCullough  v.  Talladega  Ins.  Co., 
46  Ala.  376;  Empire  M'f'g  Co.  v. 
Stuart,  46  Mich.  482.  Even  though 
the  contract  be  made  after  the  expi- 
ration of  the  defendant's  charter. 
Brady  ».  Insurance  Co.,  2  Pennewell, 
237.  A  corporation  by  appearing  in 
a  suit  admits  its  corporate  existence. 
Missouri  River,  etc.,  R.  R.  Co.  v. 
Shirley,  20  Kans.  660.  A  corpora- 
tion is  estopped  from  setting  up,  in 
defence  to  an  action,  the  falsity  of 
its  certificate  of  organization  or  the 
fact  that  no  certificate  had  been  filed. 
Dooley  i\  Cheshire  Glass  Co.,  15  Gray, 
494;  Merrick  v.  Reynolds  Engine, 
etc.,  Co.,  101   Mass.  381;  Humphrey 


v.  Patrons'  Mercantile  Ass'n,  50 
Iowa,  607;  see  Hawes  v.  Anglo-Saxon 
Petroleum  Co.,  101  Mass.  385;  Kelly 
v.  Newburyport  Horse  R.  R.,  141 
Mass.  496.  When  a  corporation  ac- 
cepts a  charter  from  Tennessee,  and 
acts  as  a  Tennessee  corporation,  it 
will  be  estopped,  in  a  suit  against  it 
on  its  obligations,  from  ousting  the 
jurisdiction  of  a  Federal  court  by 
denying  its  Tennessee  citizenship. 
Blackburn  v.  Selma  M.  and  M.  R.  R 
Co.,  2  Flippin,  525.  But  see  Heini 
v.  Adams,  etc.,  M'f'g  Co.,  81  Ky.  300, 
overruled  in  Walton  v.  Riley,  85  Ky. 
413. 

2  Frost  v.   Frostburg  Coal  Co.,  24 
How.  278;  Commercial  B'k  v.  Pfeif- 
fer,   108  N.  Y.   242;  Booske  c.  Gulf 
Ice  Co.,  24  Fla.  551;  French  v.  Dono-  ^ 
hue,   29   Minn.   Ill;    Job 
vester  Co.  v.  Clark,  30 
Fianz   v.   Teutonia   Building  Ass'n, 
24  Md.  259;  Keene  v.  Van  Reuth,   48 
Md.  184;  Ramsey   v.   Peoria   Mariner- 
Ins.    Co.,    55    111.   311;  Stoutmore  v    - 


Clark,    70   Mo.    471; 


Studebaker   v 

115 


^^ 


§  146.]        THE   LAW   OF   PRIVATE   CORPORATIONS.    [CHAP.  VII. 

Supreme  Court  of  the  United  States :  l  "  One  who  deals  with  a 
corporation  as  existing  in  fact,  is  estopped  to  deny  as  against 
the  corporation  that  it  has  been  legally  organized."  Or  as  Judge 
Cooley  expressed  the  same  principle  more  at  length  in  Swart- 
wout  v.  Michigan  Air  Line  Railroad  Co. : 2  "  Where  there  is 
thus  a  corporation  de  facto  with  no  want  of  legislative  power 
to  its  due  and  legal  existence ;  where  it  is  proceeding  in  the 
performance  of  corporate  functions,  and  the  public  are  deal- 
ing with  it  on  the  supposition  that  it  is  what  it  professes  to  be, 
and  the  questions  suggested  are  only  whether  there  has  been 
exact  regularity  and  strict  compliance  with  the  provisions  of 
the  law  relating  to  incorporation  ;  it  is  plainly  a  dictate  of 
justice  and  of  public  policy,  that  in  controversies  between  the 
de  facto  corporation  and  those  who  have  entered  into  contract 
relations  with  it,  as  corporators  or  otherwise,  such  questions 
should  not  be  suffered  to  be  raised."3 


Montgomery,  74  Mo.  101;  Ryan  v. 
Vallandingham,  7  Ind.  416;  Beatty 
v.  Bartholomew  County  Agricultural 
Soc,  76  Ind.  91;  Jones  v.  Kokomo 
B'ld'g  Ass'n,  77  Ind.  340;  Smelser  v. 
Wayne  Turnpike  Co.,  82  Ind.  417; 
Jones  v.  Cincinnati  Type  Foundry 
Co.,  14  Ind.  89;  Butchers  and  Dro- 
vers' Bank  v.  McDonald,  130  Mass. 
264;  Spahr  v.  Farmers'  Bank,  94  Pa. 
St.  429;  Jones  v.  Bank  of  Tennessee, 
8  B.  Mon.  (Ky.)  122;  Cahill  v.  Citi- 
zens' Mut.  B'ld'g  Ass'n,  61  Ala,  232; 
Imboden  v.  Etowah,  etc.,  M'f'g  Co., 
70  Ga.  86;  Christian,  etc.,  Grocery 
Co.  v.  Fruitdale  Lumber  Co.,  121 
Ala.  340;  Petty  v.  Brunswick  Ry. 
Co.,  109  Ga.  666;  Equitable  B.  &  L. 
Ass'n  v.  Bidwell,  60  Neb.  169;  Wash- 
ington Ins.  Ass'n  v.  Stanley,  38  Or. 
319.  Compare  Brown  v.  Mortgage 
Co.,  110  111.  235;  Hudson  v.  Green 
Hill  Seminary,  113  111.  618;  Town  of 
Searcy  v.  Yarnell,  47  Ark.  269.  A 
person  who  has  conveyed  land  to  a 
corporation  is  estopped  from  suing 
to  recover  it  on  the  ground  that  at 
the  time  of  his  conveyance  the  cor- 

116 


poration  had  not  been  duly  organ- 
ized, and  so  was  incapable  of  taking. 
Baker  v.  Neff,  73  Ind.  68;  Jones  ». 
Hale,  32  Or.  465.  These  principles 
are  embodied  in  a  statute  in  Iowa 
Code,  §  1089;  see  Carrothers  v.  New- 
ton Spring  Co.,  61  Iowa,  681. 

1  Close  v.  Glenwood  Cemetery,  107 
U.  S.  466. 

2  24  Mich.  389,  393. 

3  See,  also,  City  of  St.  Louis  v. 
Shields,  62  Mo.  247;  Boise  City  Canal 
Co.  v.  Pinkham,  1  Idaho,  790;  Good- 
rich v.  Reynolds,  31  111.  490;  German 
Ins.  Co.  v.  StraW,  13  Phila.  512;  Mer- 
chants and  Planters'  Line  v.  Waga- 
ner,  71  Ala.  581;  Bates  v.  Wilson, 
etc.,  Co.,  14  Col.  140.  See,  also, 
Marsh  v.  Matliias,  19  Utah,  350. 
This  estoppel  applies  even  when  it 
is  sought  to  allege  that  the  corpora- 
tion was  formed  under  an  unconsti- 
tutional law.  Winget  v.  Building 
Ass'n,  128  111.  67.  Compare  Eaton 
v.  Walker,  76  Mich.  579. 

Contracting  with  a  corporation  un- 
der its  amended  charter,  by  the  name 
which  the  amended  charter  author- 


PART    I.]     CONSTRUCTION    OF   CORPORATE   POWERS.  [§  148. 


§  147.  Consequently,  fraud  in  obtaining  the  charter  of  a  cor- 
poration cannot  be  interposed  as  a  defence  by  one  of  its  debt- 


allege  that  it  has  done  acts  forfeiting  its  franchises.2 

§  148.  Further,  persons  who  have  contracted  with  a  corpora- 
tion as  such,  and  have  thus  acquired  claims  against  it,  are  es- 
topped from  denying  its  corporate  existence  for  the  purpose  of 
holding  its  shareholders  liable  as  partners.3  This  last  proposi- 
tion, however,  does  not  hold  where  the  enabling  act  under 
which  the  corporation  is  formed  expressly  provides,  or  by  the 
general  tenor  of  its  terms  clearly  indicates,  that  the  sharehold- 
ers shall  receive  no  protection  from  their  organization  unless 
the  requirements  of  the  act  are  fully  complied  with.4     Nor  does 


ized  it  to  take,  estops  a  person  from 
denying  the  acceptance  of  the  amend- 
ment. Eppes  v.  Miss.,  Gainesville, 
etc.,  R.  R.  Co.,  33  Ala.  33.  A  person 
claiming  title  under  a  deed  which  re- 
cites that  it  is  suhject  to  a  mortgage 
to  a  corporation,  is  estopped  from 
questioning  the  legal  organization  of 
such  corporation.  Hasenritter  v. 
Kirchhoffer,  79  Mo.  239. 

1  Pattison  v.  Albany  Building  Ass'n, 
63  Ga.  373;  Kishacoquillas,  etc., 
Turnpike  Co.  v.  McConaby,  16  S.  & 
R.  (Penn. )  140;  Kayser  v.  Trustees 
of  Bremen,  16  Mo.  88.  But  only  on 
quo  warranto.  Charles  River  Bridge 
B.Warren  Bridge,  7  Pick.  344;  see  Au- 
rora, etc.,  R.  R.  Co.  v.  Lawrence- 
burgh,  56  Ind.  80. 

2  Chubb  v.  Upton,  95  U.  S.  665; 
Slocum  v.  Providence  Steam  &  Gas 
Pipe  Co.,  10  R.  I.  112;  Freeland  v. 
Pennsylvania  Central  Ins.  Co.,  94 
Pa.  St.  504;  compare  Swartwout  v. 
Michigan  Air  Line  Co.,  24  Mich.  389; 
Toledo  and  Ann  Arbor  R.  R.  Co.  v. 
Johnson,  49  Mich.  148;  and  see  in 
detail  with  full  authorities,  §§  537- 
539,  738,  739. 

8  Sniders'  Sons  Co.  v.  Troy,  91  Ala. 
224;  Rutherford  v.  Hill,  22  Oreg.  218; 


Fay  v.  Noble,  7  Cush.  188;  Trow- 
bridge v.  Scudder,  11  Cush.  83;  First 
Nat.  Bk.  v.  Almy,  117  Mass.  476; 
Humphreys  v.  Mooney,  5  Colorado, 
282;  Merchants  and  Manufacturers' 
Bk.  u.  Stone,  38  Mich.  779;  Second 
Nat.  Bk.  v.  Hall,  35  Ohio  St.  158; 
Planters',  etc.,  Bank  v.  Padgett,  69 
Ga.  159;  Stout  v.  Zurich,  48  N.  J.  L. 
599.  See  New  York  Iron  Mine  v. 
First  Nat.  Bk.  39,  Mich.  644;  Stafford 
Nat.  Bk.  v.  Palmer,  47  Conn.  443; 
Doty  u.  Patterson,  155  Ind.  60;  Saw- 
tell  v.  Hewitt,  50  La.  Ann.  3;  Los  An- 
geles Holiness  Band  v.  Spires,  126  Cal. 
541.     See  §  739. 

4  See  Singer  v.  Given,  61  Iowa,  93; 
Marshall  v.  Harris,  55  Iowa,  182;  Eis- 
feld  v.  Kenworth,  50  Iowa,  389; 
Kaiser  v.  Lawrence  Savings  Bk.,  56 
Iowa,  194;  Garnet  v.  Richardson,  35 
Ark.  145;  Ferris  v.  Thaw,  72  Mo.  446. 
See  Smith  v.  Colorado  Fire  Ins.  Co., 
14  Fed.  Rep.  399.  When  there  is  no 
"  organization  "  beyond  filing  arti- 
cles, no  subscriptions,  no  adoption  of 
by-laws,  no  properly  elected  officers, 
the  parties  taking  part  are  individu- 
ally liable.  Walton  v.  Oliver,  49  Kan. 
107.     See  §  739,  notes. 

117 


§  150.]        THE    LAW   OF   PRIVATE   CORPORATIONS.    [CHAP.  VII. 

it  hold  where  the  authority  under  which  the  would-be  share- 
holders have  attempted  to  form  themselves  into  a  corporation 
is  no  authority  at  all,  so  that  their  organization  never  had  even 
the  appearance  of  validity  :  as. if,  for  instance,  a  body  of  men 
in  New  Jersey  should  attempt  to  form  themselves  into  a  corpo- 
ration under  the  laws  of  New  York.1  Such  a  body  would  not 
constitute  a  de  facto  corporation. 

§  149.  The  foregoing  rules,  as  resting  on  principles  of  estoppel, 
are  subject  to  still  further  qualifications.2  The  principle  of  es- 
toppel cannot  be  carried  so  far  as  to  bar  the  plea  that  the  con- 
tract on  which  suit  is  brought  is  illegal :  malum  prohibitum  or 
malum  in  se ;  for,  from  motives  of  public  policy  the  law  will 
not  lend  itself  to  enforce  such  a  contract.3  Likewise  the  law 
will  not  aid  an  illegal  enterprise  b}r  enforcing  a  contract  at  the 
suit  of  a  corporation  incorporated  for  an  illegal  purpose.4  If, 
however,  there  is  nothing  illegal  in  the  purposes  for  which  a 
corporation  has  been  formed,  the  illegal  nature  of  the  de  facto 
legislature  that  incorporated  or  purported  to  incorporate  it  will 
not  so  infect  it  with  illegality  as  to  render  it  incapable  of  suing 
in  its  corporate  name.5 

§  150.  As  a  final  and  obvious  limitation  on  these  rules  as 
resting  on  estoppel,  it  must  appear  that  there  is  an  estoppel 
affecting  the  party  who  would  deny  the  corporate  existence. 
As  was  said  in  Dojde  v.  JSTizner : 6  "  There  are  certainly  many 


iHill  v.  Beach,  12  N.  J.  Eq.  31. 
Compare  Methodist  Episcopal 
Church  v.  Pickett,  19  N.  Y.  483,  485; 
Lewis  v.  Tilton,  64  Iowa,  220.  A 
corporation  organized  under  a  void 
law  cannot  enforce  a  mortgage  made 
to  it.  But,  if  not  organized  for  an 
unlawful  purpose,  its  receiver  can 
demand  an  accounting  for  the  debt 
in  a  court  of  equity.  Burton  v. 
Schildbach,  45  Mich.  504. 

2  An  estoppel  cannot  be  relied  on 
in  the  face  of  a  statute.  Thus  where 
the  civil  code  prescribes  that  an  un- 
authorized corporation  canuot  ap- 
pear in  court,  a  defendant  may  plead 
that  the  corporation  cannot  sue. 
World  ngmen's  Bank  «.  Converse,  29 

118 


La.  Ann.  369;  see  Nat.  B'k  v.  Phoenix 
Warehousing  Co.,  6  Hun,  71. 
8  See  §§297  et  seq. 

4  Detroit  Schuetzen  Bund  v.  De- 
troit Agitations  Verein,  44  Mich. 
313.  A  shareholder  is  not  estopped 
by  his  subscription  from  denying  the 
lawful  existence  of  a  corporation 
prohibited  by  the  state  constitution. 
St.  Louis  Colonization  Ass'n  v.  Hen- 
nessy,  11  Mo.  App.  555;  see,  also, 
Chicora  Co.  v.  Crews,  6  S.  C.  243, 
and,  semble  contra,  Importing  and 
Exporting  Co.  v.  Locke,  50  Ala.  332. 

5  United  States  v.  Insurance  Cos., 
22  Wall.  99. 

« 42  Mich.  332,  336.  See,  also, 
Mansfield,  etc.,  R.  R.  Co.  v.  Drinker, 


PART  I.]   CONSTRUCTION  OF  CORPORATE  POWERS.    [§  151. 

cases  in  which  a  recognition  of  corporate  existence  by  dealing 
with  the  corporation  will  estop  from  questioning  it.  But  this 
doctrine  rests  on  the  ground  that  such  action  creates  relations 
and  encourages  conduct  which  there  may  be  difficult}'  in  un- 
doing. In  ordinary  cases  such  recognitions  have  been  consid- 
ered as  binding.  But  this  rule  is  one  originating  in  equitable 
principles,  and  cannot  be  applied  universally.  There  would 
be  no  sense  in  applying  it  where  no  new  rights  have  intervened, 
and  where  such  recognition  has  itself  been  brought  about  by 
fraudulent  dealing  carried  on  for  the  very  purpose  of  entrapping 
a  party  into  the  action  on  which  such  recognition  is  rested. 
If  there  was  no  corporation  in  fact,  and  if  there  are  no  facts 
which  make  it  legally  unjust  to  permit  its  denial,  it  is  difficult 
to  understand  what  room  there  is  for  an  estoppel." 

§  151.  The  application  of  the  general  rule  against  collateral 
attacks  on  corporate  franchises  to  cases  where  there    ~ 

r  Scope  of 

is  no  estoppel  affecting  the  person  seeking  to  impugn   the  rule 
them,  may  now  be  considered.     Under  such  circum-   estoppel 
stances  the  rule  applies  whenever  one  or  both  of  the   exists- 
following  reasons  hold  good.     The  first  reason  lies  in  the  ob- 
vious principle  that  a  person  to  be  entitled  to  maintain  a  legal 
proceeding  questioning  the  rights,  immunities,  or  privileges  of 
others,  must  himself  have  some    title,  or  legal   or  equitable 
interest,  in  the  subject  in  regard  to  which  the  rights,  privileges, 
or  immunities  exist.     Otherwise  he  has  no  standing  in  court.1 
When  one  man  is  exercising  a  right  of  way  over  another's  land, 
a  third  person  with  no  interest  in  the  land  cannot  maintain  an 
action  to  try  the  validity  of  the  right  of  way,  for  in  plain  Eng- 


30  Mich.  124;  Day  v.  Insurance  Co., 
75  Iowa,  694.  After  the  charter  has 
expired  a  person  is  not  estopped  from 
pleading  nul  tiel  corporation  to  a  suit 
brought  by  the  defunct  corporation. 
The  action  must  be  brought  in  some 
other  manner.  Krutz  b.  Paola  Town 
Co.,  20  Kans.  297;  contra  St.  Louis 
Gas  Light  Co.  v.  St.  Louis,  11  Mo. 
App.  55  ;  aff'd  84  Mo.  202.  West 
Mo.  Land  Co.  v.  Kansas  City  Sub. 
Belt  R'y  Co.,  161  Mo.  595;  Compare 
Brooklyn  Steam  Transit  Co.  v.  Brook- 


lyn, 78  N.  Y.  524;   Newton  MTg  Co. 
v.  White,  42  Ga.  148. 

1  A  junior  mortgagee  cannot  defeat 
the  rights  of  a  senior  mortgagee,  a 
corporation,  by  setting  up  defects  in 
the  latter's  organization.  William- 
son v.  Kokomo  B'ld'g  Ass'n,  89  Ind. 
389.  See  §  146  and  note.  A  transfer 
of  land  by  a  de facto  corporation  is 
valid  against  everyone  except  the 
state.  Crenshaw  v.  Ullman,  113  Mo. 
633. 

119 


§  152.]        THE   LAW   OF   PRIVATE  CORPORATIONS.    [CHAP.  VII. 


lish  it  is  none  of  his  business.  Likewise,  the  question  whether 
a  body  of  men  acting  as  a  corporation  are  legally  incorporated, 
is  not  the  affair  of  a  person  whose  rights  are  in  no  way  affected. 
That  a  body  of  men  shall  not  without  due  incorporation  act  as 
a  body  corporate  is  undoubtedly  public  policy.  According-ty, 
any  one  may  bring  the  matter  to  the  attention  of  the  attorney- 
general,  who,  on  receiving  the  information,  may  institute,  on 
behalf  of  the  state,  a  proceeding  in  the  nature  of  &quo  warranto. 
But  a  private  person  cannot  do  this  in  his  own  name.1 

A  case  well  illustrating  the  hardship  and  injustice  which 
might  result  could  any  one  at  his  will  impugn  the  legality  of 
corporate  organization,  is  that  of  the  Cincinnati,  Lafayette,  etc., 
Railroad  Co.  v.  Danville  and  Vincennes  Railway  Co.2  The  de- 
fendant corporation,  relying  on  technical  defects  in  the  organ- 
ization of  the  plaintiff,  had  instituted  proceedings  to  acquire, 
by  virtue  of  defendant's  delegated  right  of  eminent  domain, 
the  land  on  which  the  plaintiff's  road  was  built,  and  in  these 
proceedings  had  entirely  ignored  the  plaintiff  and  its  right  of 
way,  acquired  by  purchase  over  this  land,  the  defendant's  hope 
being  thus  to  avoid  making  compensation  to  the  plaintiff  for 
the  plaintiff's  right  of  way.  The  plaintiff  brought  suit  to 
restrain  these  proceedings,  and  the  court  sustained  the  action, 
holding  that,  notwithstanding  the  plaintiff's  defective  organi- 
zation, the  defendant  could  not  appropriate  its  property  without 
making  compensation. 

§  152.  Accordingly,  where  two  railroad  companies  have  each 
authority  to  build  and  run  a  railroad  between  the  same  termini, 
neither  can  take  exceptions  to  any  irregularity  in  the  exercise 
of  the  other's  franchises,  unless  it  can  show  a  particular  injury 
to  itself.3  If,  however,  a  railroad  company  is  chartered  with 
the  exclusive  right  to  build  a  railroad  between  two  given  points, 


1  Louisiana  Savings  Bank,  Matter 
of,  35  La.  Aim.  196  ;  North  v.  State, 
107  Ind.  356.     See  §  460. 

2  75  111.  113.  Compare  Union 
Branch  R.  R.  Co.  v.  East  Tenn., 
etc.,  R.  R.  Co.,  14  Ga.  327. 

3  Erie  R'y  Co.,  v.  Delaware,  L.  & 
W.  R.  R.  Co.,  21  N.  J.  Eq.  2S3.  See 
West  Jersey  R.  R.  Co.  v.  Cape  May, 
etc.,   R.   R.   Co.,  34  N.  J.  Eq.   164  ; 

120 


Market  St.  R'y  Co.   v.   Central  R'y 
Co.,  51  Cal.  583. 

A  chartered  turnpike  company  has 
no  right  of  action  against  a  railroad 
company  subsequently  chartered  to 
run  between  the  same  termini  and 
along  the  same  line  of  travel  for  di- 
verting its  custom.  Washington,  etc., 
T.  Road  v.  Baltimore  &  O.  R.  R.  Co., 
10  G.  &  J.   (Md.)  392;  White  River 


PART  I.]   CONSTRUCTION  OF  CORPORATE  POWERS.    [§  153. 

it  may  enjoin  another  company,  possessing  no  adequate  and 
constitutional  authority,  from  building  a  road  between  the  same 
points.1  Likewise,  where  a  street  railway  company  has  the 
right  that  no  other  parallel  railway  shall  be  built  within  three 
blocks,  it  may  enjoin  an  invasion  of  its  rights  without  further 
proof  of  damage  than  that  its  right  is  invaded.2  0^o?*r-< 

YY^lf^  §  153.  The  second  reason  why  a  person,  although  affected  by  /\  % 
no  estoppel,  may  not  collaterally  question  the  validity  of  cor-        - 
porate  franchises  lies  in  the  great  hardship  to  which  corpora- ^*=- 
tions  would  be  subject  if  they  could  be  forced  in  any  proceeding, 
in  order  to  enforce  their  rights,  to  prove  the  absolute  legal  reg- 
ularity of  their  organization.     And  thus  it  is,  that  only  in  a 
direct  proceeding  brought  in  proper  form  to  test  the  validity  of 
its  franchises,  or  in  a  proceeding  where  the  corporation  is  itself 
seeking  to  exercise  a  special  franchise,  which  the  other  party 
denies  to  exist,  or  which  the  corporation  is  entitled  to  exercise 
only  by  virtue  of  its  regular  and  complete  organization,  can  the 
corporation  be  compelled  to  prove  anything  more  than  a  de 
facto  organization. 

Mackall  v.  Chesapeake,  etc.,  Canal  Co.3  is  an  instructive  case 
in  point.  There  the  property  of  the  canal  company,  by  its 
charter  exempted  from  taxation,  had  been  sold  under  a  tax  sale, 
and  the  purchaser,  to  sustain  the  valid ity  of  the  sale,  pleaded 
that  the  company  had  forfeited  its  privileges.  But  the  court 
held,  that  the  question  of  the  company's  forfeiture  of  its  right 
to  hold,  free  from  taxation,  property  no  longer  in  use  for  canal 
purposes,  could  be  judicially  determined  only  in  a  direct  pro- 
ceeding by  the  public  authorities,  and  could  not  be  made  an  is- 
sue for  the  first  time  in  the  trial  of  a  question  of  private  right 
between  the  company  and  a  purchaser  under  a  tax  sale.4 


T.  Co.  v.  Vermont  Central  R.  R.  Co., 
21  Vt.  590;  Thorpe  v.  Rutland  &  B. 
R.  R.  Co.,  27  Vt.  140,  152.     See  §453. 

1  Raritan  &  D.  B.  R.  R.  Co.  o.  Del- 
aware, etc.,  Canal  Co.,  18  N.  J.  Eq. 
546;  Boston  &  L.  R.  R.  Co.  v.  Salem, 
etc.,  R.  R.  Co.,  2  Gray  (Mass.),  1; 
Pontchartrain  R.  R.  Co.  v.  New  Or- 
leans, etc.,  R.  R.  Co.,  11  La.  Ann.  253. 

2  St.  Louis  R.  R.  Co.  v.  Northwest- 
ern St.  L.  R'y  Co.,  69  Mo.  65.     Such 


exclusive  franchises  are,  of  course, 
to  be  construed  strictly  against  the 
grantee;  see  Louisville  &  P.  R.  R. 
Co.  v.  Louisville  City  R'y  Co.,  2  Duv. 
(Ky. )  175,  and  §453;  and  may  be 
taken  by  eminent  domain.  See 
§470. 

3  94  U.  S.  308. 

4  See,  also,  Toledo  &  Ann  Arbor 
R.  R.  Co.  v.  Johnson,  49  Mich.  148; 
Osborne  v.  People,  103  111.  224;  New 

121 


§  155.]         THE   LAW    OF    PRIVATE   CORPORATIONS.    [CHAP.  VH. 


§  154.  It  is  evident  that  no  reason  heretofore  stated  for  the 
rule  against  allowing  collateral  attacks  on  corporate  franchises 
applies  where  the  corporation  is  seeking  to  enforce  against  a 
person  affected  by  no  estoppel  some  right  which  the  corpora- 
tion possesses  only  by  virtue  of  its  regular  and  legal  organiza- 
tion;  for  in  such  cases  the  legal,  not  the  de  facto,  organization 
of  the  corporation  forms  the  basis  of  its  rights,  and  there  is  no 
hardship  in  putting  the  corporation  to  the  proof  of  the  validity 
of  its  franchises,  when  it  is  itself  in  the  same  proceeding  basing 
its  right  directly  on  them. 

Thus,  in  a  Michigan  case,  a  subscription  had  been  made  to 
the  stock  of  a  certain  railroad  company,  and  subsequently  from 
this  company  and  others  a  consolidated  compan}^  was  formed. 
The  consolidated  company  then  brought  suit  to  recover  the 
subscription,  basing  its  action  on  its  succession,  under  the  stat- 
ute authorizing  the  consolidation,  to  the  rights  of  the  former 
companies ;  and  the  court  allowed  the  plea,  that  the  consoli- 
dated company  had  not  complied  with  the  terms  of  the  statute 
under  which  it  had  been  formed.1 

§  155.  Again,  on  the  regular  incorporation  and  continuing 
validity  of  the  franchise  of  a  railroad  company  depends  its 
right  by  the  delegated  power  of  eminent  domain  to  take  prop- 
erty for  its  use.  Accordingly,  if  by  non-fulfillment  of  condi- 
tions in  its  charter,  the  corporation  has  forfeited  its  franchises, 


Jersey  Southern  R.  R.  Co.  v.  Long 
Branch  Commissioners,  39  N.  J.  L. 
28  ;  Truckee,  etc.,  Turnpike  Co.  v. 
Campbell,  44  Cal.  89  ;  Freeland  v. 
Pennsylvania  Central  Ins.  Co.,  94  Pa. 
St.  504,  513;  Keene  v.  Van  Reuth,  48 
Md.  184;  Denver  and  Swansea  R'y 
Co.  v.  Denver  City  R'y  Co.,  2  Col. 
673;  Montgomery  v.  Merrill,  18  Mich. 
339,  343  ;  Hackensack  Water  Co. 
o.  De  Kay,  36  N.  J.  Eq.  548;  Asso- 
ciation v.  Fenner,  13  Phila.  107;  Pix- 
ley  v.  Roanoke  Nav.  Co.,  75  Va.  320; 
Lagrange,  etc.,  R.  R.  Co.  v.  Rainey, 
7  Coldw.  (Tenn.)  420;  and  compare 
Schulenberg  v.  Harriman,  21  Wall. 
44;  Van  Wyck  v.  Knevals,  106  U.  S. 
360. 

A  plea  to  an  action  brought  by  a 

122 


corporation,  that  it  has  forfeited  its 
charter,  is  demurrable,  unless  a  judi- 
cial declaration  of  the  forfeiture  is 
alleged.  West  v.  Carolina  Life  Ins. 
Co.,  31  Ark.  476;  Logan  v.  Vernon, 
etc.,  R.  R.  Co.,  90  Ind.  552  ;  see 
§  432. 

1  Mansfield,  etc.,  R.  R.  Co.  v. 
Drinker,  30  Mich.  124.  The  subscrib- 
er had  done  no  acts  recognizing  the 
consolidated  company,  and  so  was 
affected  by  no  estoppel.  See,  also, 
New  Orleans  Gas  Light  Co.  v.  Lou- 
isiana Light,  etc.,  Co.,  11  Fed.  Rep. 
277.  Compare  Deaderick  v.  Wilson, 
8  Bax.  (Tenn.)  108,  128;  Maryland 
Tube  Works  v.  West  End  Imp.  Co., 
87  Md.  207. 


PART  I.]       CONSTRUCTION   OF    CORPORATE   POWERS.  [§  157. 


this  may  be  pleaded  by  any  one  whose  property  the  corporation 
is  seeking  to  condemn.1  And  in  a  proceeding  to  condemn  land 
for  a  railroad,  it  has  been  held  that  an  owner  ma}*-  den}^,  and 
thus  force  the  corporation  to  prove,  its  due  legal  incorporation.2 

§156.  Likewise  a  person,  affected  by  no  estoppel,  against 
whom  a  special  separately  granted  franchise  is  sought  to  be 
exercised,  may,  without  questioning  the  general  validity  of  the 
corporate  organization,  deny  the  right  of  the  company  to  exer- 
cise that  particular  franchise.  Thus,  a  corporation  was  organ- 
ized to  construct  a  bridge  over  a  navigable  stream,  and  by  dis- 
tinct action  on  the  part  of  the  county  supervisors  received  the 
franchise  to  take  tolls  for  twenty  years.  It  was  held  that  a 
person  sued  for  tolls  could  plead  that  its  right  to  demand  them 
had  expired  by  the  lapse  of  the  twenty  years.3 

§  157.  If  a  corporation  is  defectively  organized  at  the  begin- 
ning, legislative  recognition  of  it  as  a  corporation    Defective 
will  cure  the  defects,4  which  often  may  be  cured  by   ( 
proper  measures  taken  on  the  part  of  the  corporation.3 


tion  re- 
mediable. 


1  Matter  of  Brooklyn,  W.  and  N. 
Railway  Co.,  72  N.  Y.  245;  see  §  166. 

2  Powers  v.  Hazleton,  etc.,  R'y  Co., 
33  Ohio  St.  429;  Atkinson  v.  Marietta, 
etc.,  R.  R.  Co.,  15  O.  St.  21.  Contra, 
McAuley  r.  Columbus,  Cbicago,  etc., 
R'y  Co.,  83  111.  348;  Peoria  &  P.  W. 
R'y  Co.  v.  Peoria  &  F.  R'y  Co.,  105 
111.  110;  Reisner  v.  Strong,  24  Kan. 
410;  Schroeder  v.  Detroit,  etc.,  R'y 
Co.,  44  Mich.  387;  St.  Joseph,  etc., 
R'y  Co.  v.  Sbambaugh,  106  Mo.  557. 
Compare  Buncombe  T.  Co.  v.  Mc- 
Carson,  1  Dev.  &  Bat.  (N.  C.)  Law, 
306;  Railroad  Co.  v.  Lumber  Co., 
114  N.  C.  690;  Farham  v.  D.  &  H. 
Canal  Co.,  61  Pa.  St.  265;  National 
Docks  R.  R.  Co.  v.  Central  R.  R.  Co., 
32  N.  J.  Eq.  755.  A  court  of  equity 
will  enjoin  a  railroad  company  im- 
properly and  fraudulently  organized 
from  condemning  land.  Niemeyer 
v.  Little  Rock,  etc.,  R'y  Co.,  43  Ark. 
111.     Compare  East  &  West    R.  R. 


Co.  v.  East  Tennessee,   etc.,    R.  R. 
Co.,  75  Ala.  275. 

3  Grand  Rapids  Bridge  Co.  v. 
Prange,  35  Mich.  400.  See  Denver 
and  Swancy  R'y  Co.  v.  Denver  City 
R'y  Co.,  2  Col.  673.  Compare  Truc- 
kee,  etc.,  Turnpike  Co.  v.  Campbell, 
44  Cal.  89;  Pixley  v.  Roanoke  Navi- 
gation Co.,  75  Va.  320;  Attorney- 
General  v.  Utica  Ins.  Co.,  2  Johns. 
Ch.  371. 

4  Comanche  County  v.  Lewis,  133 
U.  S.  198;  Kanawha  Coal  Co.  v. 
Kanawha  and  Ohio  Coal  Co.,  7 
Blatchf.  391 ;  Basshor  v.  Dressel,  34 
Md.  503;  People  v.  Perrin,  56  Cal. 
345;  White  v.  Coventry,  29  Barb.  305; 
Cochran  v.  Arnold,  58  Pa.  St.  399; 
State  v.  Lincoln  Trust  Co.,  144  Mo. 
562.  A  statute  curing  the  defects  in 
the  organization  of  a  de  facto  corpora- 
tion is  not  repugnant  to  a  constitu- 
tional provision  prohibiting  the  crea- 
tion of  corporations  by  special  act. 


6  See  Augur  Steel  Axle,  etc.,  Co. 


Whittier,  117  Mass.  451. 

123 


§  159.]         THE   LAW    OF   PRIVATE   CORPORATIONS.    [(JHAP.  VIL 


§  158.  It  may  be  mentioned  here  that  even  where  there  is 
no  statute  forbidding  the  formation  of  corporations 

Right  to  .  °  r 

corporate  with  names  similar  to  those  of  corporations  already 
in  existence,1  a  corporation  will  be  protected  in 
the  exclusive  use  of  its  name;2  especially  when  its  namVTlesig- 
nates  the  nature  of  the  goods  which  it  manufactures.3  A  cor- 
poration has  no  implied  power  to  change  its  name;1  though  it 
would  seem  that  a  corporation  may  acquire  a  name  by  usage  or 
reputation,5  and  may  even  have  more  names  than  one.6 

§  159.  The   misnomer   of   a  corporation   in   contracting  or 

pleading  has  an  effect  similar  to  the  misnomer  of  an 

Effect  of  a     individual.     If,  from  the  body  of  a  written  contract 

misnomer.  '  J 

in  which  a  corporation  is  misnamed,  the  corporation 
intended    can    be    ascertained,   the  misnomer  is   immaterial.7 


Central  Agricultural  Ass'n  v.  Ala- 
bama Gold  Life  Ins.  Co.,  70  Ala.  120; 
see,  Brown  v.  Atlanta  Ry.  Co.,  113 
Ga.  462. 

1  See,  e.  g.,  New  York  Laws  of 
1875,  chap.  611,  §  4. 

2  In  Tennessee  a  petition  to  chan- 
cery for  incorporation  may  be  op- 
posed if  the  proposed  name  for  the 
corporation  is  similar  to  that  of  an 
existing  corporation;  and  the  court 
may  require  the  name  to  be  modified. 
Ex  parte  Walker,  1  Teun.  Ch.  97. 
Compare  Diummond  Tobacco  Co. 
v.  Handle,  114  111.  412;  In  re  First 
Presbyterian  Church,  111  Pa.  St.  156. 

3  Holmes  v.  Holmes  M'f'g  Co.,  37 
Conn.  278;  compare  Newby  v.  Ore- 
gon Cent.  R.  R.  Co.,  Deady,  60'J;  see 
§137. 

*  Sykes  v.  People,  132  111.  32;  Cin- 
cinnati C.  Co.  v.  Bate,  96  Ky.  356;  nor 
acquire  a  new  name  by  usagr.  ib.  Sec 
Reg.  v.  Registrar,  etc.,  10  Q.  B.  839. 
But  where  the  name  of  a  corporation 
is  changed  by  the  legislature,  and  by 
its  new  name  it  is  made  the  succes- 
sor of  all  its  rights  and  liabilities,  it 
may  under  the  new  name  sue  on  a 
note  made  to  it  under  the  old  name; 
although  the  note   is  not  indorsed. 

124 


Trustees  of  Northwestern  College  v. 
Schwagler,  37  Iowa,  577.  As  to  the 
right  of  a  corporation  to  change  its 
name  under  the  New  York  statute  of 
1870,  see  United  States  Mercantile, 
etc.,  Ass'n,  in  re,  115  N.  Y.  176;  un- 
der the  Illinois  statute,  see  Illinois 
Watch  Case  Co.  v.  Pearson,  140  111. 
423.  Under  California  Statute,  see 
Matter  of  La  Societe  Francaise  d' 
Epargnes,  123  Cal.  525. 

5  Smith  v.  Plank  Road  Co.,  30  Ala. 
650;  Dutch  West  India  Co.  v.  Van 
Moses,  1  Stra.  612,  614;  South  School 
District  v.  Blakeslee,  13  Conn.  227. 

6  Minot  v.  Curtis,  7  Mass.  441. 
Knight  o.  Mayor  of  Wells,  1  Ld; 
Raym.  80. 

7  Ryan  v.  Martin,  91  N.  C.  464; 
Asheville  Division  v.  Aston,  92  N.  C. 
578.  See  Hoboken  Building  Associa- 
tion v.  Martin,  13  N.  J.  Eq.  427; 
Boisgerard  v.  New  York  Banking  Co., 
2  Sandf.  Ch.  23;  Mott  v.  Hicks,  1 
Cowen,  513;  Brockway  v.  Allen,  17 
Wend.  40.  When  a  deed  is  made  to 
a  corporation  under  a  name  varying 
from  its  true  one,  the  corporation 
may  sue  in  its  true  name,  averring 
that  the  defendant  made  the  deed  to 
it  under  the  name  mentioned  in  the 


PART  I.]   CONSTRUCTION  OF  CORPORATE  POWERS.    [§  161. 


Where  this  cannot  be  done,  parol  evidence  may  be  introduced 
under  proper  averments  in  the  pleadings. 


160.~The  powers  more- especially  incident  or  usual  with"«^ 
certain  important  classes  of  corporations  may  now  be  spoken  of.   /q^v, 
§  161.  To  banking  corporations2  the  powers  to  loan  money  (***~ 
and  take  security  therefor,3  to  deal  in  exchange,  pur-  ~Q^ 

chase,  discount4  and  collect5  notes  and  bills,  and  to   banking 
receive  deposits  are  incidental.6     An  ordinary  bank   tfons>.ra" 
has  incidentally  the  power  as  gratuitous  bailee  to  re- 
ceive a  special  deposit  for  safe-keeping  ;  and,  as  the  enumera- 
tion of  banking  powers  in  the  National  Banking  Act  is  not  an 
enumeration  of  incidental  powers,  and  places  no  special  restric- 
tion on  national  banks  in  this  respect,  a  national  bank  may 
receive  a  special  deposit,  and  will  be  liable  for  its  loss  occurring 
through   gross   negligence   attributable  to  the  bank.7    It  has 


deed.    Northwestern  Distilling  Co.  v. 
Brant,  69  111.  658. 

1  Medway  Cotton  M'f'g  Co.  v. 
Adams,  10  Mass.  360;  Melledge  v. 
Boston  Iron  Co.,  5  Cash.  158;  Berks, 
etc.',  Turnpike  Co.  v.  Myers,  6  S.  & 
R.  12;  Milford,  etc.,  Turnpike  Co.  v. 
Brush,  10  Ohio,  111. 

2  The  right  of  banking  is  a  common 
law  right  ;  but  in  New  York,  since 
the  restraining  act  of  1804,  it  has  be- 
come a  franchise  exercisable  only  by 
persons  authorized  by  the  legisla- 
ture. People  v.  Utica  Ins.  Co.,  15 
Johns.  358. 

8  A  national  bank  may  loan  on  ne- 
gotiable notes  secured  by  collateral. 
Shoemaker  v.  National  Mechanics' 
Bank,  1  Hughes,  101.  It  may  take  a 
chattel  mortgage  to  secure  a  pre- 
viously contracted  debt.  Spafford 
v.  First  Nat  Bank,  37  Iowa,  181.  It 
may  receive  stocks  and  bonds  as 
collateral  to  secure  present  as  well 
as  future  indebtedness  ;  and  will  be 
liable  when  such  collateral  is  stolen 
through  its  lack  of  reasonable  care; 
even  where  the  collateral  remains  in 
its  custody  after  the  debt  is  dis- 
charged.    Third   Nat.  Bk.    v.  Boyd, 


44  Md.  47.  As  to  the  liability  of  a 
bank  on  the  certifications  and  accom- 
modation indorsements  of  its  offi- 
cers, see  §§  242-245.  A  bank  has  im- 
plied power  to  borrow  money.  Don- 
nell  o.  Lewis  C'y  S.  Bk.,  80  Mo.  165. 
Cf.  West.  Nat.  Bk.  v.  Armstrong,  152 
U.  S.  346;  Aldrich  v.  Chemical  Nat.'l 
Bank,  176  U.  S.  618. 

4  Smith  v.  Exchange  Bank,  26 
Ohio  St.  141;  Atlantic  State  Bank  v. 
Savery,  18  Hun,  36. 

5  As  to  the  liability  of  banks  in 
making  collections  for  the  misfeas- 
ance of  notaries  and  correspondent 
banks,  see  Exchange  Nat.  Bk.  v. 
Third  Nat.  Bk.,  112  U.  S.  276  ;  Davy 
v.  Jones,  42  N.  J.  L.  28;  Ayrault  v. 
Pacific  Bank,  47  N.  Y.  570;  Bank  of 
New  Hanover  v.  Kenan,  76  N.  C.  340; 
Angell  and  Ames  on  Corp.,  §§  249  et 
seq.;  Morse  on  Banking,  third  ed., 
ch.  6. 

6  In  regard  to  the  relations  between 
a  bank  and  its  depositors,  see  §§  672, 
673. 

7  National  Bank  v.  Graham,  100  U. 
S.  699;  Wylie  U.Northampton  Bank, 
119  U.  S.  361;  Pattison  v.  Syracuse 
Nat.  Bank,  80  N.  Y.  82.     See  Preston 

125 


§  161.]        THE  LAW   OF   PRIVATE   CORPORATIONS.    [CHAP.  VII. 


further  been  held  within  the  powers  of  a  bank  to  receive  a  de- 
posit under  an  agreement  to  hold  it  as  collateral  security  for 
the  performance  of  a  contract  between  the  depositor  and  a  third 
person.1 

A  national  bank  may  lawfully  engage  in  the  business  of  ex- 
changing and  dealing  in  government  securities  ; 2  but  not  in  that 
of  dealing  in  stocks,3  or  selling  railroad  bonds  on  commission.4 
JNor  is  it  within  the  powers  of  a  state  bank  to  subscribe  for  the 
stock  of  a  railroad  corporation.5  Any  bank  may  assign  or 
convey  property  owned  by  it,  and  enter  into  the  common 
covenants  of  warranty.6  And  a  national  bank  in  selling  real 
estate  competently  acquired  by  it  may  take  back  a  purchase- 
money  mortgage.7 


v.  Prather,  137  U.  S.  614,  where 
bankers  were  held  liable,  tbe  bonds 
on  special  deposit  being  stolen  by 
their  cashier.  But  only  if  the  loss 
occur  through  gross  negligence. 
First  Nat.  Bank  v.  Rex,  89  Pa.  St. 
308;  Lloyd  v.  West  Branch  Bank,  15 
Pa.  St.  172.  In  Bank  v.  Gent,  39  O. 
St.  10."),  it  was  held  that  a  national 
bank  is  liable  for  the  loss  of  a  spe- 
cial deposit  "  occurring  through  the 
want  of  that  degree  of  care  which 
good  business  men  would  exercise  in 
keeping  property  of  such  value." 
That  the  safe  of  a  national  bank  is 
broken  and  bonds  stolen  by  burglars 
is  not  evidence  of  negligence.  Wylie 
v.  Northampton  Bank,  119  U.  S.  361; 
First  Nat.  Bank  v.  Graham,  79  Pa. 
St.  106.  But  see  Wylie  v.  First  Nat. 
Bank,  47  Vt.  546;  Whitney  v.  Same, 
50  Vt.  388;  S.  C,  55  Vt.  154;  First 
Nat.  Bank  v.  Ocean  Nat.  Bank,  60 
N.  Y.  278;  and  compare  Foster  v. 
Essex  Bank,  17  Mass.  479;  Comp  v. 
Carlisle  Deposit  Hank,  94  Pa.  St.  409. 
In  Greeley  v.  Nashua  Savings  Bank, 
63  N.  H.  145,  the  (savings)  bank  was 
held  not  to  be  liable  for  bonds  re- 
ceived by  its  clerk  on  its  behalf, 
there   being   no   further   proof   that 

126 


the   bonds    or   their  proceeds    had 
come  into  its  possession.     See,  also, 
§337. 

iBushnell  v.  Chautauqua  County 
Nat.  Bank,  74  N.  Y.  290. 

2  Van  Leuven  v.  First  Nat.  Bank, 
54  N.  Y.  671;  Yerkes  v.  Nat.  Bank, 
69  N.  Y.  382. 

3  First  Nat.  Bk.  v.  Nat.  Ex.  Bk.,  92 
U.  S.  122;  California  Bk.  v.  Kennedy, 
167  U.  S.  362. 

4  Weckler  v.  First  Nat.  Bank,  42 
Md.  581;  First  Nat.  Bank  v.  Hoch, 
89  Pa.  St.  324. 

5  Nassau  Bank  v.  Jones,  95  N.  Y. 
115;  see  §  130,  note. 

6  Talman  v.  Rochester  City  Bank, 
18  Barb.  123. 

7  New  Orleans  Nat.  Bank  v.  Ray- 
mond, 29  La.  Ann.  355.  Unauthor- 
ized conveyances  and  mortgages  to  a 
national  bank  are  valid  for  all  pur- 
poses until  questioned  by  the  United 
States.  National  Bank  v.  Matthews, 
98  U.  S.  621;  Mapes  v.  Scott,  94  111. 
379;  Winton  v.  Little,  94  Pa.  St.  64; 
Oldham  v.  First  Nat.  Bank,  85  N.  C. 
240;  see  §303. 


PART  I.]       CONSTRUCTION    OF   CORPORATE   POWERS.  [§  162. 


§  162.  In  regard  to  railroad  companies,  the  only  capacities 
requiring  mention  here  *  are  their  powers  to  locate 
and  construct  their  roads,  and  the  power  ordinarily   railroad0 
granted  to  them  to  take  property    by  compulsory   tions0™" 
process,  there  being  delegated  to  them  for  this  pur-   -Eminent 
pose  a  limited  special  right  of  eminent  domain. 

When,  within  certain  limits,  the  course  and  manner  of  con- 
structing a  railroad  are  entrusted  to  the  railroad  company,  or 
to  railroad  commissioners,  their  discretion  will  not  be  controlled 
or  revised  by  a  court  so  long  as  they  act  in  good  faith  and 
within  their  powers.2  A  court  of  equity  will  not  interfere  to 
control  the  location  of  a  railroad  where  the  corporation  has 
exercised  within  the  prescribed  termini  of  its  route  its  ac- 
corded discretion  ; 3  the  court  will  not  interfere,  for  instance,  on 
the  ground  that  another  site  would  better  subserve  public 
interests.4  But  a  railroad  company  is  not  justified  in  sacrificing 
the  public  interest  to  its  own  advantage,  and  must  regard  the 
interests  of  the  public  in  locating  its  route  and  stations.5  Fail- 
ing in  this,  it  cannot  be  regarded  as  acting  in  good  faith. 
Accordingly,  on  grounds  of  public  policy,  contracts  to  locate  a 
station  at  a  certain  spot,  coupled  with  an  agreement  to  estab- 
lish no  other  stations  in  the  same  vicinity,  are  void.0     Ordi- 


1  As  to  the  power  of  railroad  com- 
panies to  enter  into  traffic  arrange- 
ments, or  give  special  facilities  to 
certain  customers,  see  §§  308,  309. 
For  their  liability  as  carriers,  see  §§ 
347,  et  seq. 

In  the  ordinary  course  of  its  busi- 
ness a  railroad  company  may  take 
and  negotiate  a  promissory  note. 
Goodrich  v.  Reynolds,  31  111.  490. 

2  Fall  River  Iron  Works  Co.  v.  Old 
Colony,  etc.,  R.  R.  Co.,  5  Allen 
(Mass.),  221;  Mayor,  etc.,  of  Wor- 
cester v.  Railroad  Commissioners, 
113  Mass.  161,  171;  New  York  H.  & 
N.  R.  R.  Co.  v.  Boston  H.  &  E.  R.  R. 
Co.,  36  Conn.  196,  201. 

8  Southern  Minnesota  R.  R.  Co.  v. 
Stoddard,  6  Minn.  150;  Walker  u. 
Mad  River  &  L.  E.  R.  R.  Co.,  8  Ohio, 
38. 


4  Parker's  Appeal,  64  Pa.  St.  137  ; 
Anspach  c.  Mahanoy,  etc.,  R.  R.  Co., 
5  Phila.  (Penn.)  491. 

5  A  contract  which  causes  the  rail- 
road compauy  to  disregard  its  duty 
to  the  public,  as  by  unduly  lengthen- 
ing its  line  for  the  private  advantage 
of  its  officers  and  of  various  persons, 
is  illegal.  Woodstock  Iron  Co.  v. 
Extension  Co.,  129  U.  S.  643. 

6  Texas  &  St.  L.  R.  R.  Co.  v.  Ro- 
bards,  60  Tex.  545;  St.  Louis  J.  &  C. 
R.  R.  Co.  v.  Mathers,  104  111.  257;  S. 
C,  71  111.  592;  St.  Joseph  &  D.  R.  R. 
Co.  v.  Ryan,  11  Kan.  602;  Pacific 
R.  R.  Co.  v.  Seely,  45  Mo.  212;  Ful- 
ler v.  Dame,  18  Pick.  (Mass.)  472; 
Bestor  v.  Wathen,  60  111.  138;  Linder 
v.  Carpenter,  62  111.  309;  Marsh  v. 
Fairbury,  etc.,  R.  R.  Co.,  64  111.  414; 
People  v.  Chicago  &  A.  R.  R.  Co.,  130 

127 


§  162)!.]      THE   LAW   OF   PRIVATE   CORPORATIONS.    [CHAP.  VL1. 

narily,  however,  a  railroad  company  may  use  its  discretion  in 
locating  its  stations,  as  it  may  in  selecting  its  route,  and,  for 
instance,  is  not  bound  to  stop  at  the  junction  of  a  connecting 
road  and  there  interchange  business,  although  it  may  have 
established  joint  depot  accommodations  with  another  company 
elsewhere.1 

§  162<z.  After  a  railroad  company  has  once  located  and  built 
its  track,  it  has  no  power  to  change  the  location  materially,2 
unless  a  statute  give  it  special  authority.3  It  can  never  be  pre- 
sumed that  a  legislature  will  pass  a  law  to  the  detriment  of  the 
public  ;  but  it  does  not  follow  that  from  oversight  or  ignorance 
of  all  the  circumstances  a  law  may  not  have  been  passed  which 
might  be  improved  by  amendment.  Consequently  a  contract 
by  a  railroad  company,  conditioned  on  its  receiving  power 
from  the  legislature  to  change  the  location  of  its  road,  is  not  in- 
valid as  against  public  policy.4 

When  a  railroad  company  has  located  its  road  and  obtained 
title  to  the  land,  either  the  fee  or  the  requisite  easement,  the 
mode  of  occupation  and  degree  of  exclusiveness  necessary  and 
proper  for  the  convenient  use  of  its  functions  are  within  its  dis- 


u 

r 


111.  175;  Mobile  &  O.  R.  R.  Co.  v.  Peo- 
ple, 132  111.  559;  Florida  Central,  etc., 
R.  R.  Co.  o.  State,  31  Fla.  482;  Hol- 
laday  v.  Patterson,  5  Oreg.  177;  com- 
pare Harris  v.  Roberts,  12  Neb.  631 ; 
Wooters  v.  International  &  G.  N.  R. 
R.  Co.,  54  Tex.  294;  Cleveland  C.  C. 
&  I.  Ry.  Co.  v.  Coburn,  91  Ind.  557; 
Workman  v.  Campbell,  46  Mo.  305; 
Berrymau  v.  Cincinnati  Southern  R. 
R.  Co.,  14  Bush  (Ky.),  755.  But  see 
Cedar  Rapids,  etc.,  Ry.  Co.  v.  Spof- 
ford,  41  Iowa,  292;  First  Nat.  Bank 
v.  Hendrie,  49  Iowa,  402. 

i  Atchison  T.  &  S.  F.  R.  R.  Co. 
v.  Denver  &  N.  O.  R.  R.  Co.,  110  U. 
S.  6ti7.  See,  also,  Martindale  v.  Kan- 
sas City,  St.  Jo.  &  C.  B.  R.  R.  Co., 
60  Mo.  508;  Kinealy  v.  St.  Louis  K. 
('.  &  X.  Ry.  Co.,  69  Mo.  658. 

2  Little  Miami  R.  R.  Co.  v.  Naylor, 
2  0.  St.  235;  WIrth  v.  Philadelphia 
City  Pass'r  Ry.  Co.,  2  Weekly  Notes 
128 


of  Cases  (Penn. ),  650  ;  Brigham  v. 
Agricultural  Branch  R.  R.  Co.,  1 
Allen  (Mass),  316;  State  v.  New- 
Haven  &  N.  Co.,  45  Conn.  331  ;  Hart- 
ford Ry.  Co.  v.  Wagner,  73  Conn.  506  ; 
No.  Pac.  Ry.  Co.  v.  Doherty,  100 
Wis.  39.  But  compare  Mahaska 
County  R.  R.  Co.  v.  Des  Moines  Val- 
ley R.  R.  Co.,  28  Iowa,  437  ;  Gear  v. 
Dubuque  &  S.  C.  R.  R.  Co.,  20  Iowa, 
523  ;  Hestonville,  etc.,  R.  R.  Co.  v. 
Philadelphia,  89  Pa.  St.  210. 

3  Eric  R.  R.  Co.  v.  Steward,  170 
N.  Y.  172;  see  Toledo  &  U.  Ry.  Co.  v. 
Daniels,  16  O.  St.  390  ;  Atkinson  v. 
Marietta  &  C.  R.  R.  Co.,  15  O.  St.  21; 
Matter  of  New  York,  L.  &  W.  Ry. 
Co.,  88  N.  Y.  279. 

4  Supervisors  v.  Wisconsin  Central 
R.  R.  Co.,  121  Mass.  460  ;  New  Haven 
and  Northampton  Co.  v.  Heyden,  107 
Mass.  525  ;  see  §  305,  last  note. 


PART  I.]   CONSTRUCTION  OF  CORPORATE  POWERS. 


[§  163. 


cretion.1  Nevertheless,  when  it  takes  but  an  easement,  sufficient 
interest  remains  in  the  owner  of  the  fee  to  prevent  the  railroad 
company  from  extending  its  use  beyond  the  reasonable  terms  of 
its  easement,  since  that  would  be  an  encroachment  on  his  re- 
siduary rights.2 

An  unrestricted  grant  to  a  railroad  company  of  power  to  con- 
struct a  road  between  two  points,  carries  with  it  the  right 
to  cross  navigable  waters,  if  they  intervene  in  a  course  or  route 
which  is  otherwise  proper,  and  the  road  can  be  constructed 
over  them  without  destroying  the  public  easement  or  seriously 
impairing  it.3 

§  163.  The  legislature  cannot  authorize  the  taking  of  private 
property  for  private  use,  even  on  just  compensation.4  More- 
over, the  determination  by  the  legislature  that  a  purpose  for 
which  it  directs  private  property  to  be  taken  is  a  public  pur- 
pose is  not  conclusive,  but  open  for  determination  by  the  courts ; 
although  if  the  use  be  public,  legislative  decision  is  conclusive 
as  to  the  public  exigency  requiring  the  property  to  be  taken.5 


1  Brainard  v.  Clapp,  10  Cush. 
(Mass.)  6  ;  Hagen  v.  Boston  &  M.  R. 
R.  Co.,  2  Gray  (Mass.),  577,  580  ;  see 
Prather  v.  Western  Un.  Tel.  Co.,  89 
Ind.  501.  Compare  Hudson  River 
Tel.  Co.  v.  Watervliet  Turnpike,  etc., 
Co.,  135  N.  Y.  393.  Although  a  rail- 
road company  takes  but  an  ease- 
ment, it  may  maintain  ejectment. 
Rutland  R.  R.  Co.  v.  Chaffee,  71  Vt, 
84.     See  §  165. 

2  See  Proprietors  of  Locks  and  Ca- 
nals v.  Nashua  &  L.  R.  R.  Co.,  104 
Mass.  1  ;  Aldrich  v.  Drury,  8  R.  I. 
554  ;  Blake  v.  Rich,  34  N.  H.  282  ; 
Chapin  v.  Sullivan  R.  R.  Co.,  39  N. 
H.  564  ;  Jessup  v.  Loucks,  55  Pa.  St. 
350. 

8  Miller  v.  Prairie  du  Chien,  etc., 
Ry.  Co.,  34  Wis.  533  ;  Fall  River  Iron 
Works  Co.  v.  Old  Colony,  etc.,  R.  R. 
Co.,  5  Allen  (Mass. )  221  ;  Hamilton  v. 
Vicksburg  S.  &  P.  R.  R.  Co.,  34  La, 
Ann.  970.  See  §  163a  for  the  taking 
by  a  railroad    company    of  land  al- 

9 


ready  devoted  to  a  public  use,  as  a 
street  or  another  railroad. 

*  Matter  of  Eureka  Basin,  etc.,  Co., 
96  N.  Y.  42  ;  Lorenz  v.  Jacob,  63  Cal. 
73  ;  Scudder  v.  Trenton  Delaware 
Falls  Co.,  Saxton  (N.  J.),  695  ;  Con- 
tra Costa  Coal  Mines  R.  R.  Co.  v. 
Moss,  23  Cal.  323;  Consolidated 
Channel  Co.  v.  Central  Pacific  R.  R. 
Co.,  51  Cal.  269  ;  Sadler  v.  Langham, 
34  Ala.  311  ;  County  Court  v.  Gris- 
wold,  58  Mo.  175  ;  Palairet's  Appeal, 
67  Pa.  St.  479.  See  Bass  v.  Roanoke 
Nav.  Co.,  Ill  N.  C.  439  ;  Contra  Har- 
vey v.  Thomas,  10  Watts.,  (Pa.),  63. 
The  taking  by  a  state  of  private 
property,  without  the  owner's  con- 
sent, for  a  private  use  is  not  due 
process  of  law,  and  is  repugnant  to 
Amendment  XIV.  of  the  Federal 
Constitution.  Missouri,  Pac.  Ry. 
Co.  v.  Nebraska,  164  U.  S.  403. 

6  Niagara  Falls,  etc.,  R.  R.  Co.,  in 
re,  108  N.  Y.  375  ;  Talbot  v.  Hudson, 
16  Gray  (Mass.),  417  ;  Chicago,  R.  I. 

129 


§  163.]  THE   LAW   OF   PRIVATE   CORPORATIONS.   [CHAP.  VII. 

The  following  uses  have  been  held  public  purposes  for  which 
the  legislature  may  delegate  to  a  private  corporation  the  pow^r 
to  take  private  property  :  to  supply  a  village  with  wholesome 
water  ; 1  build  a  bridge  which  by  the  same  statute  is  declared  a 
public  highway;2  develop  the  mineral  resources  of  the  state;3 
irrigate  large  tracts  of  arid  land  ; 4  build  (public)  telegraph 
lines  ;5  build  and  operate  a  railroad  as  a  common  carrier.6  No 
matter  how  apparently  necessary  to  a  corporation  the  right  of 
eminent  domain  may  be  to  enable  it  to  fulfill  its  corporate  pur- 
poses, the  possession  of  this  right  can  never  be  implied  or  pre- 
sumed ;  and  express  authority  for  its  exercise  must  always  be 
shown.7    The  right  of  eminent  domain  of  a  railroad  company, 


&  P.  R.  R.  Co.  v.  Town  of  Lake,  71 
111.  333  ;  Sadler  v.  Langham,  34  Ala. 
311  ;  County  Court  v.  Griswold,  58 
Mo.  175  ;  Concord  R.  R.  v.  Greely,  17 
N.  H.  47  ;  Baltimore  &  O.  R.  R.  Co. 
v.  Pittsburg,  W.  &  K.  R.  R.  Co.,  17 
W.  Va.  812. 

See  Boston  Water  Power  Co.  v. 
Boston  &  W.  R.  R  Co.,  23  Pick. 
(Mass.)  360  ;  Riche  v.  Bar  Harbor 
Water  Co.,  75  Me.  91  ;  Tidewater 
Co.  v.  Coster,  18  N.  J.  Eq.  518  ; 
National  Docks  R.  R.  Co.  v.  Central 
R.  R.,  Co.,  32  N.  J.  Eq.  755.  Cf. 
N.  Y.,  N.  H.  &  H.  R.  Co.  v.  Long,  69 
Conn.  424. 

But  see  Pratber  v.  Jeffersonville 
M.  &  I.  R.  R.  Co.,  52  Ind.  16  ;  Mims  v. 
Macon  &  W.  R.  R.  Co.,  3  Ga.  333, 
338. 

1  Ricbe  v.  Bar  Harbor  Water  Co., 
75  Me.  91. 

2  Arnold  v.  Covington  Bridge  Co., 
1  Duv.  (Ky.)  372. 

8  Hand  Gold  M'g  Co.  v.  Parker, 
59  Ga.  419  (perbaps  extreme). 

4  Irrigation  Dist.  v.  Bradley,  164 
U.  S.  112. 

6  New  Orleans,  etc.,  R.  R.  Co.  v. 
Southern,  etc.,  Tel.  Co.,  53  Ala.  211. 

6  National  Docks  R.  R.  Co.  v.  Cen- 
tral R.  R.  Co.,  32  N.  J.  Eq.  755; 
Bloodgood  v.   Mobawk  &  H.   R.  R. 

130 


Co.,   18  Wend.   (N.  Y.)  9;   Beckman 
v.  Saratoga,  etc.,  R.  R.  Co.,  3  Paige 
(N.  Y.),  45;  Buffalo  &  N.  Y.   C.  R. 
R.  Co.  v.  Braiuard,  9  N.  Y.  100;  Ald- 
ridge  v.  Tuscumbia  R.  R.  Co.,  2  Stew 
&  Port.  (Ala.)  199;  Davis  v.  Tuscum 
bia  R.  R.  Co.,  4  Stew.  &  Port.  (Ala. 
421;  Sadler  v.  Langbam,  34  Ala.  311 
O'Hara  v.  Lexington  &  O.  R.  R.  Co. 
1  Dana  (Ky.)  232;  Concord  R.  R.  Co 
v.  Greely,  17  N.  H.  47;  San  Francisco 
etc.,  R.  R.  Co.  v.  Caldwell,  31   Cal 
367;  Raleigh  &  G.  R.  R.  Co.   v.  Da 
vis,  2  Dev.  &  Bat.    L.  (N.  C.)  451 
Walther  v.  Warner,  25  Mo.  277;  Swan 
v.  Williams,   2  Mich.  427.     Compare 
Niagara  Falls,  etc.,  R.  R.  Co.,  in  re, 
108  N.  Y.  375.     The   power  of  emi- 
nent   domain,    together  with   large 
discretion  as  to  route,  may  be  given 
railroad   corporations   by  a  general 
enabling  act.     Buffalo  &  N.  Y.  C.  R. 
R.  Co.  v.  Brainard,  9  N.  Y.  100;  Weir 
v.  St.  Paul,  etc.,  R.  R.  Co.,  18  Minn. 
155;  National    Docks    R.    R.    Co.    v. 
Central   R.  R.  Co.,  32  N.   J.  Eq.  755. 
See  Chicago   B.   &   Q.   R.  R.   Co.   v. 
Chamberlain,    84    111.    333;     Boston 
Water  Power  Co.  v.  Boston  &  W.  R. 
R.  Co.,  23  Pick.  (Mass.)  360. 

7  Thacher  v.  Dartmouth  Bridge 
Co.,  18  Pick.  501;  Phillips  v.  Dun- 
kirk, etc.,  R.  R.  Co.,  78  Pa.  St.  177. 


PART  I.J   CONSTRUCTION  OF  CORPORATE  POWERS.    [§  163. 

moreover,  extends  only  to  property  reasonably  necessary  to  en- 
able it  to  fulfill  the  purposes  of  its  incorporation.1 

When  the  legislature  has  not  declared  that  the  property  sought 
to  be  condemned  is  necessary  for  the  company,  such  necessity, 
if  contested  is  a  question  for  the  court ;  for  the  determination 
of  the  company  in  this  matter  is  not  conclusive  ;2  and  the  scope 
of  the  right  is  always  to  be  construed  strictly  against  the  cor- 
poration, so  as  carefully  to  protect  the  property  of  individuals 
from  its  exercise  except  for  a  public  use.3  Nevertheless,  stat- 
utes conferring  the  rights  of  eminent  domain  are  not  to  be  con- 
strued so  literally  as  to  frustrate  the  evident  intent  of  the  leg- 
islature.4 


See  Allen  v.  Jones,  47Ind.  438;  Rens- 
selaer, etc.,  R.  R.  Co.  v.  Davis,  43  N. 
Y.  137.  And  the  right  always  re- 
mains conditioned  on  the  legality  of 
the  corporate  organization.  See 
§  155. 

1  Tracy  v.  Elizabethtown,  etc.,  R. 
R.  Co.,  80  Ky.  259;  Chicago  and 
Western  Indiana  R.  R.  Co.  v.  Dun- 
bar, 100  111.  110.  Railroad  compan- 
ies cannot  thus  acquire  lands  for 
speculative  purposes.  Rensselaer, 
etc.,  R.  R.  Co.  b.  Davis,  43  N.  Y.  137. 
See  N.  Y.  and  Canada  R.  R.  Co.  v. 
Gunnison,  1  Hun,  496.  But  they 
may  take  more  than  is  necessary  for 
their  present  needs,  provided  it  be 
no  more  than  reasonably  anticipated 
future  business  will  require.  Lodge 
v.  Phila.,  Wilm.  and  Bait.  R.  R.  Co., 
8  Phila.  345.  Compare  Proprietors 
of  Locks  and  Canals  v.  Nashua  and 
Lowell  R.  R.  Co.,  104  Mass.  1. 

2 Matter  of  New  York  Central  R. 
R.  Co.,  66  N.  Y.  407;  S.  C,  77  N.  Y. 
248;  Rensselaer  and  S.  R.  Co.  v. 
Davis,  43  N.  Y.  137;  Tracy  v.  Eliza- 
bethtown, etc.,  R.  R.  Co.,  80  Ky. 
259.  St.  Mary's  Gas  Co.  v.  Elk,  191 
Pa.  St.  458;  See  In  re  Rhode  Isl.  Sub. 
Ry.  Co.,  22  R.  I.  457. 

3  Erie  R.  R.  Co.  v.  Steward,  170  N. 
Y.   172.     Alexandria  and  F.  Ry.  Co. 


v.  Alexandria  and  W.  R.  R.  Co.,  75 
Va.  780;  Doughty  v.  Somerville,  etc., 
R.  R.  Co.,  21  N.  J.  L.  442;  Moorhead 
v.  Little  Miami  R.  R.  Co.,  19  Ohio, 
340;  Merritt  v.  Portchester,  71  N.  Y. 
309;  Pueblo,  etc.,  R.  R.  Co.  v.  Rudd, 
5  Cal.  270;  Spofford  v.  Bucksport, 
etc.,  R.  R.  Co.  66  Me.  26;  East  and 
West  R.  R.  Co.  v.  East  Tennessee, 
etc.,  R.  R.  Co.,  75  Ala.  275;  Alabama 
Gt.  Southern  R.  R.  v.  Gilbert,  71  Ga. 
591.     See  §  122. 

4  In  re  New  York  and  Harlem  R. 
R.  Co.  v.  Kip,  46  N.  Y.  546.  When 
for  some  reason  a  railroad  company 
has  no  authority  to  condemn  a  cer- 
tain right  of  way,  it  may  cause  an- 
other company  to  be  formed  of  its 
own  shareholders,  and  to  be  so  or- 
ganized as  to  have  the  requisite 
power;  and  after  the  subsidiary  com- 
pany has  condemned  the  right  of 
way,  it  may  lease  the  same  to  the 
other  company.  Lower  v.  C.  B.  and 
Q.  R.  Co.,  59  Iowa,  563.  But  one 
railroad  company  cannot  condemn 
land  for  another.  Swinney  v.  Ft. 
Wayne,  etc.,  R.  R.  Co.,  59  Ind.  205. 
It  is  no  bar  to  the  exercise  of  the 
power  of  eminent  domain  that  a 
railroad  company  has  the  same  stock- 
holders as  a  private  business  cor- 
poration, and  is  alleged  to  be  subsid- 

131 


§  lG3a.]      THE   LAW    OF    PRIVATE   CORPORATIONS.   [CHAP.  VII. 


In  accordance  with  these  principles  it  is  held  that  a  railroad 
company  may  condemn  land  for  proper  places  to  keep  cars  and 
locomotives  when  not  in  use,  and  for  places  to  store  merchan- 
dise between  the  time  of  its  receipt  and  dispatch,  and  after  its 
arrival  till  called  for ;  '  and  generally  for  proper  terminal  facili- 
ties,2 for  necessary  depots  and  workshops.3 

§  163a.  An  individual,  by  devoting  property  to  a  public  use, 
acquires  no  higher  rights  in  that  property  than  he  had  before. 
On  the  contrary,  his  rights  as  private  owner  become  more  pal- 
pably subservient  to  the  rights  of  the  public  and  to  the  police 
power  of  the  state.4  Accordingly,  as  far  as  concerns  the  rights 
of  the  owners  of  property  devoted  to  a  public  use,  there  is  no 
reason  why  the  legislature  should  not  authorize  it  to  be  taken 
by  compulsory  process,  and  as  for  the  rights  of  the  people,  the 
compulsory  proceedings  are  authorized  by  themselves  acting 
through  their  plenary  political  agent,  the  legislature.5  Conse- 
quently, the  legislature  can  authorize  property  already  devoted 
to  a  public  use  to  be  taken  for  another  public  use  by  compul- 
sory proceedings ; 6  it  can,  for  instance,  authorize  one  railroad 


iary  to  it.  That  cannot  be  inquired 
into  upon  an  application  to  condemn 
land,  and  the  railroad  company  may 
be  compelled  to  perform  the  duties 
imposed  upon  it.  Kansas  &  Texas 
Coal  R'y  v.  Northwestern  Coal  & 
Mining  Co.,  161  Mo.  288. 

1  In  re  New  York  and  H.  R.  R.  R. 
Co.  v.  Kip,  46  N.  Y.  546. 

2  New  York  Central  and  H.  R.  R. 
R.  Co.  v.  Metropolitan  Gas  Light  Co., 
63  N.  Y.  326;  Matter  of  New  York 
Central  and  H.  R.  R.  R.  Co.,  77  N. 
Y.  248. 

8  Nashville  and  C.  R.  R.  Co.  v. 
Corvardin,  11  Humph.  (Tenn.)  348; 
Gilsy  v.  Cincinnati  U.  &  S.  R.  R.  Co., 
4  O.  St.  308;  Hamilton  v.  Annapolis 
and  E.  R.  R.  Co.,  1  Md.  560;  Han- 
nibal and  St.  Jo.  R.  R.  Co.  v.  Muder, 
49  Mo.  165;  Chicago,  B.  &  Q.  R.  R. 
Co.  v.  Wilson,  17  111.  123;  Southern 
Pacific  R.  R.  Co.  v.  Raymond,  53 
Cal.  223. 

4  See  §  475,  post. 

132 


5  See  Lake  Shore  and  M.  S.  Ry. 
Co.  v.  Chicago  and  W.  I.  R.  R.  Co., 
97  111.  506;  Northwestern  T.  E.  Co. 
b.  Chicago,  M.  &  St.  P.  Ry.  Co.,  76 
Minn.  334. 

6  Boston  Water  Power  Co.  v.  Bos- 
ton and  N.  R.  R.  Co.,  23  Pick.  (Mass.) 
360;  Chicago,  R.  I.  and  P.  R.  R.  Co. 
v.  Town  of  Lake,  71  111.  333;  Ala- 
bama and  F.  R.  R.  Co.  v.  Kenney, 
39  Ala.  307;  Lafayette  Plank  Road 
Co.  v.  New  Albany,  etc.,  R.  R.  Co., 
13  Ind.  90;  New  York  H.  and  N.  R. 
R.  Co.  v.  Boston  H.  and  E.  R.  R. 
Co.,  36  Conn.  196;  Northern  R.  R.  v. 
Concord  and  C.  R.  R.,  27  N.  H.  183; 
White  River  T.  Co.  v.  Vermont  Cen- 
tral R.  R.  Co.,  21  Vt.  590;  Thorpe 
v.  Rutland  and  B.  R.  R.  Co.,  27  Vt. 
140;  Wood  v.  Macon,  etc.,  R.  R.  Co., 
68  Ga.  539;  Matter  of  Prospect  Park 
and  C.  I.  R.  R.  Co.,  67  N.  Y.  371. 
See  Iron  R.  R.  Co.  v.  Irouton,  19  O. 
St.  299;  Commonwealth  v.  Essex  Co., 
13  Gray  (Mass.),  239,  247.     Compare 


PART  I.]      CONSTRUCTION    OF   CORPORATE    POWERS.        [§  163a. 


company  to  take  the  property  of  another,  although  the  same  be 
used  by  the  latter  for  railroad  purposes.1  But  the  power  to 
take  property  actually  devoted  to  a  public  use  is  not  implied 
by  a  simple  grant  to  a  railroad  company  of  the  power  of  emi- 
nent domain.3  Power  to  take  such  property  arises  only  by  a 
grant  in  express  terms  or  by  such  necessary  implication  as 


&f 


exists  where  the  powers  expressly  granted  cannot  otherwise  be  jy  t 
exercised ;  an  implication  which  must  have  been  unavoidable 
and  necessary  ah  origine  and  not  made  so  by  any  act  of  the  '  ^l 
corporation.3    All  grants  of  eminent  domain  are  to  be  con-  &J>, 
strued  strictly  against  the  grantee,  especially  when  it  is  at- 
tempted to  construe  the  grant  so  as  to  interfere  with  the  exer- 
cise of  a  previous  grant  of  the  same  kind.4 


Lake  Shore  and  M.  S.  Ry.  Co.  v.  Chi- 
cago and  N.  I.  R.  R.  Co.,  97  111.  506. 

1  Eastern  R.  R.  Co.  v.  Boston  and 
M.  R.  R.  Co.,  Ill  Mass.  125;  Lake 
Shore  and  M.  S.  Ry.  Co.  v.  Chicago 
and  W.  I.  R.  R.  Co.,  97  111.  506;  Ore- 
gon, Ry.  Co.  v.  Portland,  9  Ore- 
gon, 231;  Sixth  Avenue  R.  R.  Co.  v. 
Kerr,  72  N.  Y.  330;  Kinsman  Street 
R.  R.  Co.  v.  Broadway  R.  R.  Co.,  36 
O.  St.  239;  and  cases  in  preceding 
note.  So,  too,  a  telegraph  company 
can  condemn  a  portion  of  the  right 
of  way  of  a  railroad  company  not  in 
actual  use.  Mobile  &  O.  R.  R.  Co.  v. 
Postal  Tel.  C.  Co.,  120  Ala.  21. 

2  Rutland  Can.  R.  R.  Co.  v.  Cen- 
tral Vt.  Ry.  Co.,  72  Vt.  128;  Contra 
Costa  Coal  Mines  R.  R.  Co.  v.  Moss, 
23  Cal.  323;  State  v.  Montclaire  Ry. 
Co.,  35  N.  J.  L.  328. 

8  Pennsylvania  R.  R.  Co.'s  Appeal, 
93  Pa.  St.  150;  Groff's  Appeal,  128 
Pa.  St.  621;  Matter  of  Boston  and 
Albany  R.  R.  Co.,  53  N.  Y.  574;  Mat- 
ter of  City  of  Buffalo,  68  N.  Y.  167; 
Prospect  Park  and  C.  I.  R.  R.  Co.  v. 
Williamson,  91  N.  Y.  552;  Oregon 
Ry.  Co.  v.  Portland,  9  Oregon,  231; 
Inhabitants  of  Springfield  v.  Con- 
necticut River  R.  R.  Co.,  4  Cush. 
(Mass.)  63;  Housatonic  R.  R.  Co.  v. 


Lee,  etc.,  R.  R.  Co.,  118  Mass.  391; 
Boston  and  M.  R.  R.  Co.  v.  Lowell, 
etc.,  R.  R.  Co.,  124  Mass.  368.  See 
Suburban  Rapid  Transit  Co.  v.  Mayor, 
etc.,  of  New  York,  128  N.  Y.  510; 
Rutland  Can.  R.  R.  Co.  ?;.  Central  Vt. 
Ry.  Co.,  72  Vt.  128;  Scranton  G.  & 
W.  Co.  v.  Northern  C.  &  I.  Co.,  192 
Pa.  St.  80.  But  these  strict  rules  do 
not  apply  where  the  property  sought 
to  be  taken,  though  owned  by  a  rail- 
road company,  is  not  used  for  rail- 
road purposes.  Boston  Water  Power 
Co.  v.  Boston  and  N.  R.  R.  Co.,  23 
Pick.  (Mass.)  360;  North  Carolina, 
etc.,  R.  R.  Co.  v.  Carolina  Central 
Ry.  Co.,  83  N.  C.  489;  Peoria  P.  and 
I.  R.  R.  Co.  v.  Peoria  and  S.  R.  R. 
Co.,  66  111.  174;  Baltimore  and  O.  R. 
R.  Co.  v.  Pittsburg  W.  and  K.  R.  R. 
Co.,  17  W.  Va.  812.  Compare  Mar- 
ket Co.  v.  Railroad  Co.,  142  Pa.  St. 
580.  A  state  cannot  compel  a  rail- 
road company  to  surrender  part  of 
its  property  to  private  persons  to  be 
used  as  grain  elevators;  this  is  to 
take  private  property  for  a  private 
use,  and  therefore  is  not  due  process 
of  law.  Missouri  Pac.  Ry.  v.  Ne- 
braska, 164  U.  S.  403. 

4  Pennsylvania  R.  R.  Co.'s  Appeal, 
93  Pa.  St.  150.     See  §§  470-473. 

133 


§  164.]        THE  LAW   OF   PRIVATE  CORPORATIONS.    [CHAP.  VII. 


It  is  competent  for  a  state  to  compel  a  railroad  company  to 
^  7  allow  another  railroad  company  to  connect  with  it,1  or  to  cross 
<^£  its  track.2     And  if  a  company  is  chartered  to  build  a  railroad 
ff£>    between  two  termini  in  a  line  that  will  cross  the  tracks  of  prior 
railroads,  the  right  to  cross  those  tracks  will  arise  by  impli- 
cation.3   But  no  more  than  the  property  of  other  owners  can 
the  property  of  a  railroad  company  be  taken  or  injured  without 
just  compensation ;  nor  without  just  compensation  can  a  rail- 
road company  be  forced  to  allow  its  tracks  to  be  used  or  even 
crossed  by  another  railroad  company.     And  it  is  not  competent 
for  the  legislature  to  fix  the  compensation.4 

§  164.  As  to  whether  and  in  what  respect  a  single  exercise 
of  the  power  of  eminent  domain  by  a  railroad  corporation  ex- 
hausts its  rights,  there  is  a  conflict  of  authorities.  Undoubtedly 
a  railroad  company  chartered  with  power  to  build  its  road  on 
a  certain  route,  has  no  authority  to  lay  its  road  elsewhere ;  nor 
has  a  company  that  has  actually  selected  its  route  and  built  its 
road,  authority  to  change  its  route  subsequently.5     It  has  also 


iSee  Louisville  &  N.  R.  R.  Co.  v. 
State,  9  Baxt.  (Tenu.)  521.  Compare 
North  Branch  Passenger  R'y  Co.  v. 
City  Passenger  R'y  Co.,  38  Pa.  St. 
361;  Branson  v.  City  of  Philadelphia, 
47  Pa.  St.  329. 

2  Lake  Shore  &  M.  S.  R'y  Co.  v.  Cin- 
cinnati, S.  &  C.  R'y  Co.,  30  O.  St. 
604;  Pittsburgh  &  C.  R.  R.  Co.  v. 
Southwest  Pennsylvania  R.  R.  Co., 
77  Pa.  St.  173;  Baltimore,  etc.,  T. 
Co.  v.  Union  R'y  Co.,  35  Md.  224; 
Western  Pennsylvania  R.  R.  Co.'s 
Appeal,  99  Pa.  St.  155. 

3  Morris  &  E.  R.  R.  Co.  v.  Central 
R.  R.  Co.,  31  N.  J.  L.  205;  State  v. 
Eastern  &  A.  R.  R.  Co.,  36  N.  J.  L. 
181;  Contra  Costa  Coal  Mines  v.  Moss, 
23  Cal.  323. 

4  Pennsylvania  R.  R.  Co.  v.  Balti- 
more &  O.  R.  R.  Co.,  60  Md.  263; 
Southwestern  R.  R.  Co.  v.  Southern, 
etc.,  Tel.  Co.,  46  Ga.  43.  Compare 
with  last  case  New  Orleans,  etc.,  R. 
R.  Co.  v.  Southern,  etc.,  Tel.  Co.,  53 
Ala.   211;    Baltimore,  etc.,  T.  Co.  v. 

134 


Union  R'y  Co.,  35  Md.  224;  Northern 
Central  R'y  Co.  v.  Mayor,  etc.,  of 
Baltimore,  36  Md.  425;  Metropolitan 
R.  R.  Co.  v.  Highland  St.  R'y  Co., 
118  Mass.  290.  It  is  held  in  Massa- 
chusetts that  a  railroad  company  is 
entitled  to  compensation  for  a  public 
highway  laid  out  across  its  track. 
Old  Colony,  etc.,  R.  R.  Co.  v.  County 
of  Plymouth,  14  Gray,  155.  Contra 
Albany  Northern  R.  R.  Co.  v.  Brown- 
ell,  24  N.  Y.  345;  Boston  &  A.  R.  R. 
Co.  ».  Greenbush,  52  N.  Y.  510. 

6  Erie  R.  R.  Co.  v.  Steward,  170 
N.  Y.  172;  Mason  v.  Brooklyn  City, 
etc.,  R.  R.  Co.,  35  Barb.  373;  Brook- 
lyn Central  R.  R.  Co.  v.  Brooklyn 
City  R.  R.  Co.,  32  Barb.  358;  Hudson 
and  Del.  Canal  Co.  v.  New  York  and 
Erie  R.  R.  Co.,  9  Paige,  323;  Kenton 
County  Court  v.  Bank  Lick  Turnpike 
Co.,  10  Bush  (Ky.),  529;  Brigham  v. 
Agricultural  Branch  R.  R.  Co.,  1  Al- 
len, 316.  See  Moorhead  v.  Little 
Miami  R.  R.  Co.,  17  Ohio,  340.  But 
see  Mississippi  and  Tenn.  R.  R.  Co., 


<y 


tS 


2^ 


PART  I.]       CONSTRUCTION    OF   CORPORATE   POWERS.  [§  165. 


been  said  that  a  railroad  corporation  by  laying  out  to  its  satis- 
faction its  road  with  the  appendages,  entirely  exhausts  all  the 
powers  conferred  on  it  to  take  land.1  But,  it  is  submitted,  it  is 
the  right  of  the  railroad  company  to  re-locate  its  road  that  is 
wanting,2  and  not  its  right  of  eminent  domain  that  is  exhausted.3 
And  there  is  ample  authority  sustaining  the  rule  that,  notwith- 
standing a  railroad  corporation  has  already  exercised  its  right 
of  eminent  domain,  it  may  make  whatever  further  appropria- 
tions are  necessary  for  its  road  or  stations,  provided  the  mak- 
ing of  any  given  appropriation  is  not  in  itself  an  act  unauthor- 
ized by  the  constitution  of  the  corporation.4 

§  165.  In  the  exercise  of  its  right  of  eminent  domain  a  cor- 
poration may  take  the  fee  or  whatever  interest  in  the 
land  ma}7  be  necessary  to  accomplish  its  purpose.5  If 
it  takes  the  fee,  it  acquires  an  exclusive  right  to  the 
property.6  And  whatever  interest  it  may  take,  it 
may  have  rights,  privileges^or  immunities  in  regard 
thereto  not  ordinarily  possessed  by  individuals.  *  For 
instance,  real  estate  thus  acquired  by  a  railroad  company,  which 


Rights  of 
the  corpo- 
ration as  to 
land 

acquired  by 
eminent 
domain. 


v.  Devaney,  42  Miss.  555;  Ex  parte 
South  Carolina  R.  R.  Co.,  2  Rich.  L. 
(S.  C.)  434. 

1  Morris  and  Essex  R.  R.  Co.  v.  Cen- 
tral R.  R.  Co.,  31  N.  J.  L.  205,  210. 
Compare  Erie  R.  R.  Co.  v.  Steward, 
170  N.  Y.  172. 

2  See  §  162a. 

3  "  Strictly  speaking  there  is  no 
such  thing  as  an  extinction  of  the 
right  of  eminent  domain."  New 
York,  Housatonic,  etc.,  R.  R.  Co.  v. 
Boston,  Hartford  and  Erie  R.  R.  Co., 
36  Conn.  196,  198. 

4  Dietrichs  v.  Lincoln,  etc.,  R.  Co., 
13  Neb.  361;  Central  Branch  IT.  P. 
R.  R.  Co.  v.  Atchison  T.  and  S.  F. 
R.  R.  Co.,  26  Kans.  669;  Chicago,  B. 
and  Q.  R.  R.  Co.  r.  Wilson,  17  111. 
123;  Fisher  v.  Chicago  and  Spring- 
field R.  R.  Co.,  104  111.  323;  Miss, 
and  Tenn.  R.  R.  Co.  o.  Devaney,  42 
Miss.  555;  Virginia  and  Truckee  R. 
R.  Co.  v.   Lovejoy,  8   Nevada,   100; 


Prather  v.  Jeffersonville,  etc.,  R.  R. 
Co.,  52  Ind.  16;  Toledo  and  Wabash 
R'y  Co.  v.  Daniels,  16  Ohio  St.  390; 
Hamilton  v.  Annapolis,  etc.,  R.  R. 
Co.,  1  Md.  553;  Ex  parte  South  Caro- 
lina R.  R.  Co.,  2  Rich.  L.  (S.  C.)  433. 
See  Western  Pennsylvania  R.  R.  Co.'s 
Appeal,  99  Pa.  St.  155. 

5  Sixth  Ave.  R.  R.  Co.  v.  Kerr,  72 
N.  Y.  330.  Long  Isl.  R.  R.  Co.  v. 
Garyey,  159  N.  Y.  334,  see  also,  Gar- 
vey  v.  L.  I.  R.  R.  Co.,  159  N.  Y.  323. 
See  Cballiss  v.  Atchison,  etc.,  R.  R. 
Co.,  16  Kan.  117. 

6  See  Isabel  v.  Hannibal  and  St. 
Jo.  R.  R.  Co.,  60  Mo.  475;  Cauley  v. 
Pittsburgh,  etc.,  R.  R.  Co.,  95  Pa.  St. 
398;  Jersey  City  and  Bergen  R.  R. 
Co.  v.  Jersey  City  and  Hoboken  R. 
R.  Co.,  20  N.  J.  Eq.  61;  reversed  in 
part,  21  N.  J.  Eq.  550;  Camden 
Horse  R.  R.  Co.  v.  Citizens'  Coach 
Co.,  31  N.  J.  Eq.  525;  Rutland  R.  R. 
Co.  v.  Chaffee,  71  Vt.  84. 

135 


§  166.]         THE   LAW    OF    PRIVATE    CORPORATIONS.    [CHAP.  VII. 


is  necessary  for  uses  in  which  the  public  is  interested,  cannot 
be  sold  on  execution  apart  from  the  franchises  of  the  corpora- 
tion.1 

§  166.  The  right  of  eminent  domain  is  not  transferable.2 
After  the  time  has  expired  within  which  a  railroad  corpora- 
tion is  required  to  complete  its  road,  it  cannot  exercise  the 
right  of  eminent  domain ; 3  nor  can  it  do  so  after  the  expiration 
of  the  time  to  which  the  exercise  of  the  right  is  ex- 
demiainnot  pressly  limited.4  In  condemning  land  the  statute 
authorizing  the  proceedings  must  be  strictly  com- 
plied with,  and  this  compliance  must  appear  by  the 
record  of  the  proceedings.5 


transfer- 
able. 


1  Gooch  v.  McGee,  83  N.  C.  59;  Rut- 
land R.  R.  Co.  v.  Chaffee,  72  Vt.  404. 

2  Mahoney  v.  Spring  Valley  Water 
Co.,  52  Cal.  159.  A  lease  for  one 
hundred  years  of  a  railroad  does  not 
vest  in  the  lessee  the  right  of  eminent 
domain  of  the  lessor.  Mayor,  etc.,  of 
Worcester  v.  Norwich,  etc.,  R.  R.  Co., 
109  Mass.  103.  But  the  person  whose 
property  has  been  taken  cannot  ques- 
tion the  right  of  the  railroad  com- 
pany to  transfer  that.  Crolley  v. 
Minneapolis  &  St.  L.  Ry.  Co.,  30  Minn. 
541.  And  the  fact  that  a  railroad 
company  has  leased  its  road  for  the 
full  period  of  its  corporate  life  does 
not  affect  its  right  to  take  land  by 
eminent  domain:  and  that  the  lessee 
is  a  foreign  corporation  is  immate- 
rial. Matter  of  Petition  of  New  York, 
Lackawanna,  etc.,  R.  R.  Co.,  99  N.  Y. 
12. 

8  Peavy  v.  Calais  R.  R.  Co.,  30  Me. 

136 


498;  New  York,  Housatonic,  etc.,  R. 
R.  Co.  v.  Boston,  Hartford  and  Erie 
R.  R.  Co.,  36  Conn.  196;  Atlantic  & 
P.  R.  R.  Co.  v.  St.  Louis,  66  Mo.  228; 
see  §  155. 

*  Morris  and  Essex  R.  R.  Co.  v. 
Central  R.  R.  Co.,  31  N.  J.  L.  205. 
See  ante,  §  155. 

6  Nichols  v.  Bridgeport,  23  Conn. 
189;  Pueblo,  etc.,  R.  R.  Co.  v.  Rudd, 
5  Col.  270  ;  Mobly  v.  Breed,  48  Ga. 
44;  Ellis  v.  Pacific  R.  R.  Co.,  51  Mo. 
200;  Cunningham  v.  Pacific  R.  R. 
Co.,  61  Mo.  33;  Kansas  City,  St.  Jo., 
etc.,  R.  R.  Co.  v.  Campbell,  62  Mo. 
585;  Hyslop  v.  Finch,  99  111.  171; 
Southern  Pacific  R.  R.  Co.  v.  Wilson, 
49  Cal.  396;  Mitchell  v.  Illinois*  St. 
L.  R.  R.  Co.,  68  111.  286;  Oregonian 
Ry.  Co.  ».  Hill,  9  Oregon,  377;  Her- 
cules Iron  Works  v.  Elgin,  etc.,  Ry. 
Co.,  141  111.  491  ;  San  Francisco,  R. 
R.  Co.  v.  Gould,  122  Cal.  601. 


PART  II.]     ACTS   WITHIN    THE   CORPORATE  POWERS. 


PART  II.      «*.  •  "  "^   S  '#c 

ACTS  WITHIN  THE  CORPORATE  POWERS. 


When  a  corporation  is  not  liable  for 
loss  occurring  by  reason  of  its  acts, 
§167. 

Corporate  franchises  not  to  be  ques- 
tioned collaterally,  §  168. 

But  for  their  improper  use  the  corpo- 
ration liable  to  injured  individuals, 
§  169. 

Continuation  of  liability  after  a  dele- 
gation of  franchises,  §  170. 

Corporation  always  liable  when  its 
acts  amount  to  a  taking  of  private 
property,  §  171. 

Meanings  of  the  term  "property," 
§172. 

What  constitutes  a  taking,  §  173. 

When  the  person  injured  is  not  the 
full  owner,  §  174. 

Railroad  tracks  in  streets,  §§  175,  176. 

Distinction  between  private  and 
public  corporations,  §  177. 

Measure  of  compensation,  §  178. 

What  benefits  may  be  set  off,  §  179. 

Acts  of  the  body  corporate  ;  when 
binding,  §  180. 

Acts  of  the  body  corporate  ;  when 
held  invalid,  §§  181-183. 

Manner  in  which  the  body  corporate 
should  act,  §  184. 

Formalities  required  by  statute. 
Consent  of  shareholders,  §  185. 

Certification  of  the  performance  of 
formalities,  §  186. 

Individual  shareholders  cannot  act 
for  the  corporation,  §  187. 

Validity  of  the  acts  of  de  facto  offi- 
cers, §  188. 

Principles  on  which  rests  the  validity 
of  the  acts  of  de  facto  officers, 
§189. 


Limitations,  §  190. 

General  rules  regulating  the  respon- 
sibility of  corporations  for  the  acts 
of  their  agents,  §§  191,  192. 

Rules  of  the  law  of  agency  appli- 
cable. Acts  within  the  ordinary 
scope  of  the  agent's  authority 
valid,  §  193. 

Effective  limitations  on  the  author- 
ity of  corporate  agents,  §  194. 

Class  I.,  §  195. 

Effect  of  by-laws,  §§  196,  197. 

Class  II.,  §§  198,  199. 

Class  III.,  §§  200,  201. 

Authority  of  agent  depends  on  his 
actual  functions  rather  than  on  the 
name  of  his  office,  §  202. 

Validity  of  agent's  acts;  when  not 
affected  by  extrinsic  facts,  §  203. 

Presumptions  in  favor  of  the  validity 
of  the  acts  of  corporate  agents, 
§204. 

Negotiable  paper.  Money  borrowed 
in  excess  of  statutory  limit,  §  205. 

Assumption  of  unusual  facts  unwar- 
ranted, §  206. 

Certification  by  agent  of  facts  on 
which  his  authority  is  conditioned, 
§§  207,  208. 

Not  binding  on  the  corporation  when 
the  other  party  knows  its  falsity, 
§  209. 

Admissions  of  corporate  agents. 
Notice  to  them,  §  210. 

Ratification  of  unauthorized  acts, 
§211. 

Formal  ratification  not  necessary, 
§§212,  213. 

Ratification  through  accepting  ben- 
efit of  unauthorized  act.     Kuowl- 

137 


§  167.]  THE   LAW    OF    PRIVATE   CORPORATIONS.   [CHAP.  VII. 


edge  or  implied  notice  essential, 
§§  214-216. 

Lapse  of  time  no  ratification,  §217. 

Authority  of  special  classes  of  cor- 
porate agents,  §  218. 

Powers  of  the  board  of  directors, 
§219. 

Statement  of  general  rule,  §  220. 

Statement  of  first  general  limitation, 
§221. 

Statement  of  second  general  limita- 
tion, §  222. 

Scope  of  the  general  rule,  §§  223,  224. 

Power  of  directors  to  borrow,  §  225. 

First  general  limitation,  §§226-230. 

Second  general  limitation,  §  231. 

Qualification  to  it,  §232. 

Delegation  of  authority  by  directors, 
§  233. 

Delegation  of  powers  by  the  board 
to  a  committee,  §  234. 

Authority  of  agents  does  not  expire 
with  that  of  the  directors  who  ap- 
point them,  §  235. 

Authority  of  a  president,  §  236. 

Enlarged  by  custom,  §§  237,  238. 

Authority  of  a  cashier,  §§239,  240. 

Cashier's  powers  restricted  to  the 
transaction  of  ordinary  business, 
§241. 

Certification  of  checks,  §§242,  243. 

Certifications  by  teller.  Accommo- 
dation certifications,  §  244. 


Effect  of  a  certification.  "  Raised 
checks,"  §§  245,  246. 

Validity  of  the  acts  of  corporate 
agents  as  dependent  on  formali- 
ties, §  247. 

Use  of  corporate  seal,  §  248. 

Implied  contracts,  §  249. 

Non-observance  of  prescribed  form- 
alities, §  250. 

Formalities  imperative  or  directory, 
§251. 

Approval  by  other  officers,  §  252. 

When  contracting  party  has  notice 
of  the  formalities  required,  §§253, 
254. 

When  corporate  agent  and  contract- 
ing party  do  not  stand  on  equal 
terms,  §  255. 

Ratification,  §  256. 

Party  contracting  with  corporate 
agent  cannot  plead  non-observance 
of  formalities  by  the  latter.  Sure- 
ties on  official  bonds,  §  257. 

Formalities  to  be  observed  by  di- 
rectors. They  should  act  as  a 
board,  §  258. 

Exceptions,  §  259. 

Directors1  meetings.  Quorums,  §260. 

Presumptions,  §  261. 

Special  provisions,  §  262. 

Rules  of  evidence  applicable  to  cor- 
porations.    Corporate  books,  §  263. 


§  167. 

When  a 
corpora- 
tion is  not 
liable  for 
loss  occur- 
ring by 
reason  of 
its  acts. 


So  long  as  a  corporation  neglects  no  duty  which  it 
owes  the  public,  acts  within  the  scope  of  its  compe- 
tently conferred  powers,  and  in  so  acting  uses  due  care 
not  to  injure  others,  it  will  not  be  liable  for  the  in- 
convenience or  even  damage  which  its  actions  may 
cause,  provided  they  do  not  constitute  a  taking  of  pri- 
vate property.1    This  proposition  requires  elucidation.2 


1  Hudson  River  Tel.  Co.  v.  Water- 
vliet  Turnpike,  etc.,  Co.,  135  N.  Y. 


393.     This  case  held  that  a  railway 
company  which  adopted  the  trolley 


2  It  is  well  to  remember  that  grants  I  against  the  grantee,  and  in  favor  of 
of  special  franchises  and  privileges  i  the  public.  Turnpike  Co.  v.  Illinois, 
are  always  to  be  construed  strictly  I  96  U.  S.  63.     See  ante,  §  122. 

138 


PART    II.]   ACTS    WITHIN   THE   CORPORATE   POWERS.         [§  168. 

§  168.  The  manner  in  which  a  corporation  may  be  compelled 
to  discharge  the  duties  it  owes  the  public  is  discussed 
in  Chapter  VIII.1     If  a  corporation  is  chartered  to  fraSLs 
subserve  a  public  convenience,  and  receives  special  questioned 
privileges  and  powers  to  be  used  by  it  in  fulfilling  collaterally. 
the  purposes  of  its  incorporation,  it  would  seem  but  logical  that 
those  powers  and  privileges  should  cease  to  constitute  a  protec- 
tion to  the  corporation  as  soon  as  the  corporation  itself  ceases 
to  fulfill  its  purposes.     Such  would  undoubtedly  be  the  law, 
were  it  not  for  the  rule  that  the  franchises  of  a  corporation 
cannot  be  questioned  collaterally.2    Consequently,  franchises 


system,  and  by  such  use  of  electric- 
ity impeded  the  electrical  currents 
of  certain  telephone  lines,  was  not 
liable  to  the  telephone  company  for 
damages,  it  appearing  that  the  rail- 
way company  had  the  power  so  to 
use  electricity  and  did  use  it  properly 
in  the  exercise  of  its  franchise  for  the 
benefit  of  the  public.  See  Booth  v. 
Rome,  etc.,  R.  R.  Co.,  140  N.  Y.  267; 
Gilbert  o.  Savannah,  etc.,  R.  R.,  69 
Ga.  396.  "  Whenever  the  exercise 
of  a  right,  conferred  by  law  for  the 
benefit  of  the  public,  is  attended 
with  temporary  inconvenience  to 
private  parties,  in  common  with  the 
public  in  genei-al,  they  are  not  enti- 
tled to  any  damages  therefor."  Ham- 
ilton v.  Vicksburg,  etc.,  R.  R.  Co.,  119 
U.  S.  280,  285.  Opinion  of  the  court, 
per  Field,  J.  Compare  Cogswell  v. 
New  York,  N.  H.  &  H.  R.  R.  Co.,  103 
N.  Y.  10.  Thus  a  telegraph  company, 
which  has  the  right  to  place  its  line 
in  the  streets  of  a  city,  is  not  liable 
for  a  personal  injury  resulting  from 
the  breaking  of  atelegraph  pole,  save 
upon  proof  of  culpable  negligence  on 
its  part.  The  company  is  bound  to 
use  reasonable  care  in  the  construc- 
tion and  maintenance  of  its  line,  but 
is  not  bound  so  to  erect  and  manage 
its  line  as  to  guard  against  storms, 
which,  on  account  of  their  extraor- 


dinary severity,  could  not  reasonably 
have  been  anticipated.  The  company 
is  no  insurer  of  travelers  against  in- 
juries from  its  poles  lawfully  placed 
in  the  streets.  Ward  v.  Atlantic  and 
Pac.  Tel.  Co.,  71  N.  Y.  81.  See  Bor- 
chardt  v.  Wausau  Boom  Co.,  54  Wis. 
107:  Sumner  v.  Richardson  Lake  Dam 
Co.,  71  Me.  106;  City  of  Georgetown 
v.  Alexandria  Canal  Co.,  12  Pet.  91. 
Compare  Smith  v.  Corporation  of 
Washington,  20  How.  loo. 

By  making  a  negligent  or  improper 
use  of  its  franchises,  a  corporation 
may  become  a  public  nuisance.  Thus 
it  is  an  indictable  public  nuisance  for 
a  railroad  company  to  run  its  trains 
across  a  turnpike  at  the  rate  of  fif- 
teen or  twenty  miles  an  hour,  with- 
out giving  sufficient  warnings.  Lou., 
Cin.,  and  Lex.  R.  R.  Co.  v.  Common- 
monwealth,  80  Ky.  143.  Likewise  it 
constitutes  a  public  nuisance  for  a 
railroad  company  to  raise  its  tracks 
so  high  at  a  public  crossing  that  it 
is  dangerous  to  drive  over  them. 
Paducah,  etc.,  R.  R.  Co.  v.  Common- 
wealth, ib.  147.  A  corporation  may 
be  indicted  for  a  nuisance.  State  ». 
Western,  etc.,  R.  R.  Co.,  95  N.  C.  602. 

1  §§  454  et  seq. 

*  See  ante,  §§  145-157.  Compare 
Newell  v.  Minneapolis,  etc.,  Ry.  Co., 
35  Minn.  112. 

139 


§  170.]        THE   LAW    OF    PRIVATE   CORPORATIONS.    [CHAP.  VII. 


But  for 
their  im- 
proper use 
the  corpo- 
ration  lia- 
ble to  in- 
jured indi- 
viduals. 


ordinarily  subsist  as  valid,  and  afford  protection  until  they  are 
declared  forfeited  in  a  proceeding  instituted  for  that  purpose.1 
§  169.  On  the  other  hand,  the  fact  that  a  corporation  is  vio- 
lating a  duty  owed  by  it  primarily  to  the  public,  for 
a  violation  of  which  the  state  might  forfeit  its  fran- 
chises ;  or  the  fact  that  a  corporation  is  exceeding  its 
corporate  powers,  and  is  thereby  rendering  itself  lia- 
ble to  a  forfeiture  of  its  franchises,  does  not  prevent 
an  individual  who  has  suffered  special  damage 
through  its  wrongful  acts  or  omissions  from  maintaining  an 
action  against  it  on  his  own  behalf.2  Indeed,  a  corporation  will 
be  liable  in  damages  to  any  person  who  suffers  injury  peculiar 
to  himself  from  the  negligent  or  improper  use  of  its  franchises.3 
For  instance,  the  right  of  a  railroad  company  to  lay  its  tracks 
in  a  street  or  highway  imposes  on  it  the  obligation  to  lay  them 
properly  and  keep  them  in  repair,  and  if  an  injury  by  reason  of 
its  neglect  in  either  of  these  respects  is  occasioned  to  any  one, 
the  company  will  be  liable.4 

§  170.  Furthermore,  a  corporation  that  has  received  special 
franchises  ordinarily  continues  liable  for  injuries  occurring 
through  the  negligent  exercise  of  powers  originally  conferred 
on  it,  although  it  may  have  delegated  or  assigned  a  portion  or 
the  whole  of  its  powers  to  another  corporation  or  to 
an  individual.  Thus,  a  railroad  corporation  which 
has  granted  the  use  of  its  road  to  another  company 
will  be  liable  for  accidents  to  passengers  carried  by  it- 
self, caused  by  the  negligent  management  of  the  trains 


Continua- 
tion of  lia- 
bility after 
a  delega- 
tion  of 
franchises. 


1  Logan  v.  Vernon,  etc.,  R.  R.  Co., 
90  Ind.  552;  see  Atlantic  and  P.  R.  R. 
Co.  v.  St.  Louis,  66  Mo.  228;  New- 
York  Cable  Co.  v.  Mayor,  etc.,  of 
New  York,  104  N.  Y.  1,  43, 

2  Riddle  v.  Proprietors  of  Locks  and 
Canals,  7  Mass.  109.  See  Mayor  of 
Lynn  v.  Turner,  Cow  per,  86;  Mersey 
Docks  v.  Gibbs,  11  H.  L.  C.  686;  S. 
C,  L.  R.  1  H.  L.  93;  Winch  v.  Con- 
servators of  the  Thames,  L.  R.  7  C. 
P.  458;  Conrad  v.  Trustees  of  Ithaca, 
16  N.  Y.  158. 

3  A  railroad  company  is  liable  in 
damages  for  establishing  its  engine 

140 


houses  so  near  an  incorporated 
church  as  to  constitute  a  nuisance  by 
reason  of  the  noise  and  smoke.  Bal- 
timore and  P.  R.  Co.  v.  Fifth  Baptist 
Church,  108  U.  S.  317.  Compare 
Bohan  v.  Port  Jervis  Gas  Light  Co., 
125  N.  Y.  18;  Snell  v.  Buresh,  123 
111.  151;  Ridge  v.  Penna.  R.  R.  Co.,  58 
N.  J.  Eq.  172. 

4  Worcester  r.  Forty-second  Street 
R.  R.  Co.,  50  N.  Y.  203.  See,  also, 
Baltimore,  etc.,  Turnpike  Co.  v.  Cas- 
sell,  66  Md.  419.  No  notice  to  the 
company  of  a  patent  defect  is  neces- 
sary.     The    presumption  of    negli- 


PART  II.]    ACTS    WITHIN   THE   CORPORATE   POWERS.  [§  170. 


of  the  other  company.1  And  a  railroad  company  is  not  ex- 
empted from  liability  for  the  loss  of  goods  delivered  to  it  to  be 
carried  over  a  part  of  its  road  by  the  fact  that  it  had  previously 
leased  that  part  to  another  corporation ;  for,  as  the  court  said, 
to  have  allowed  this  exemption  "  would  be  to  authorize  them 
by  their  own  act  to  divest  themselves  of  the  duties  and  liabili- 
ties imposed  upon  them  by  law,  and  the  performance  of  which 
was  the  consideration  upon  which  their  charter  was  granted, 
and  which  thus  entered  into  their  contract  with  the  common- 
wealth." 2 

There  is  good  authority  for  the  proposition  that  by  leasing 
its  road  a  railroad  company  does  not  escape  liability  for  injury 
to  goods  transported  by  its  lessee,3  nor  for  injuries  to  the  les- 
see's passengers  occasioned  by  the  lessee's  negligence.4     On  the 


gence  is  complete  when  it  appears 
that  the  defect  existed  and  caused  an 
injury,  lb.  As  to  prima  facie  evi- 
dence of  negligence,  compare  Stokes 
v.  Saltonstall,  13  Pet.  181;  Railroad 
Co.  v.  Pollard,  22  Wall.  3-41. 

1  Railroad  Company  v.  Baron,  5 
Wall.  90;  Pinkerton  v.  Penu.  Trac- 
tion Co.,  193  Pa.  St.  229;  see  Abbott 
v.  Johnstown  Horse  R.  R.  Co.,  80  N.  Y. 
27;  Feital  v.  Middlesex  R.  R.  Co.,  10!) 
Mass.  398;  Lakin  v.  Railroad  Co.,  13 
Oreg.  436. 

2Langley  v.  Boston  and  Maine  R. 
R.  Co.,  10  Gray,  103;  see  McCluer  v. 
Manchester  and  Lawrence  R.  R.,  13 
Gray,  124;  Quested  v.  Newburyport 
Horse  Railroad,  127  Mass.  204;  Bower 
v.  B.  &  S.  W.  R.  Co.,  42  Iowa,  546. 
See  State  p.  Railroad  Commissioners, 
41  N.  J.  L.  235.  In  the  absence  of 
statutory  provisions,  a  railroad  com- 
pany after  leasing  its  road  remains 
liable  for  injuries  caused  by  defects 
in  its  tracks  at  a  highway  crossing. 
Freeman  v.  Minneapolis  and  St.  Louis 
R'y  Co.,  28  Minn.  443;  but  see  Ditch 
ettw.  Spuyten  Duyvil,  etc.,  R.  R.  Co., 
67  N.  Y.  425.  So,  where  the  railroad 
is  operated  by  persons  who  are  trus- 
tees for  the  corporation  as  well  as 


for  its  bondholders,  the  corporation 
may  be  sued.  Grand  Tower  M'f'g, 
etc.,  Co.  v.  TJllman,  89  111.  244;  Wis- 
consin Cent.  R.  R.  Co.  v.  Ross,  142 
111.  9.  Otherwise  if  the  road  is  in 
the  hands  of  a  receiver.  Turner  c. 
Hannibal  and  St.  Jo.  R.  R.  Co.,  74 
Mo.  602;  Heath  u.  Missouri,  etc., 
R'y  Co.,  83  Mo.  617;  Metz  v.  Buffalo, 
etc.,  R.  R.  Co.,  58  N.  Y.  61;  Hicks  v. 
International,  etc.,  R.  R.  Co.,  62  Tex. 
38.  But  see  Ohio  &  M.  R'y  Co.  v. 
Russell,  115  111.  52.  As  to  the  power 
of  a  railroad  corporation  to  lease  or 
otherwise  transfer  its  franchises,  see 
§§  125,  132,  304,  305. 

s  Ohio  &  M.  R.  R.  Co.  v.  Dunbar, 
20  111.  623:  Peoria  &  R.  I.  R.  R.  Co. 
p.  Lane,  83  111.  448. 

4  Braslin  v.  Railroad  Co.,  145  Mass. 
64;  Singleton  v.  Southwestern  R.  R., 
70  Ga.  464;  see  Nugent  v.  Railroad 
Co.,  80  Me.  62;  Little  Rock  &  F.  S. 
Ry.  Co.  v.  Daniels,  68  Ark.  171; 
Perry  v.  R.  R.  Co.,  128  N.  C.  471; 
Pierce  v.  R.  R.  Co.,  124  N.  C.  83.  To 
the  contrary,  Missouri  Pac.  R'y  Co. 
v.  Watts,  63  Tex.  549;  Carruthers  v. 
Kansas  City  etc.,  R.  R.  Co.,  59  Kas.  629 ; 
Driscoll  o.  Norwich,  etc.,  R.  Co.,  65 
Conn.  230;  and  Pinkerton  v.  Traction 
141 


§  170.]        THE   LAW    OF   PRIVATE   CORPORATIONS.    [CHAP.  VII. 


other  hand,  when  one  railroad  company  competently  takes  a 
lease  of  the  road  of  another,  its  liabilities  springing  from  the 
operation  of  the  leased  road  are  determined,  not  by  its  own 
charter,  but  by  the  charter  of  the  lessor  company.1 

As  a  corporation  cannot  escape  responsibility  for  the  per- 
formance of  its  duties  by  leasing  its  property  or  franchises,2  so 
it  cannot,  by  delegating  matters  to  a  contractor,  escape  from 
the  fulfillment  of  its  undertakings  or  from  responsibility  for 
the  observance  of  due  care  in  the  exercise  of  its  franchises.3 
Accordingly,  where  a  corporation  contracted  to  lay  water- 
pipes  in  a  city,  agreeing  to  "  protect  all  persons  against  dam- 
ages by  reason  of  excavations  made  by  them  in  laying  pipes, 
and  to  be  responsible  for  all  damages  which  might  occur  by 
reason  of  the  neglect  of  their  employes  on  the  premises,"  it 
was  held,  although  the  corporation  had  let  the  work  out  to  a 
contractor,  that  it  was  liable  for  injuries  incurred  by  a  person 
passing  over  the  street  caused  by  the  negligence  of  the  con- 
tractor's servants.4  So  a  railroad  company  may  be  responsible 
to  adjacent  land-owners  for  the  trespasses  of  its  contractors  in 
constructing  its  road,5  and  will  ordinarily  be  liable  for  the  acts 
of  its  contractors,  as  if  they  were  its  servants,  where  the  con- 
tractors in  their  work  are  under  the  direction  of  the  company,6 


Co.,  193  Pa.  St.  229,  hold,  that  after  an 
authorized  lease  of  its  road  the  les- 
sor is  not  liable  for  the  torts  of  the 
lessee.  See  §  305  and  note.  Since 
leases  of  railroads  are  so  usual,  it 
may  be  that  the  weight  of  authority 
does  not  uphold  the  proposition  in 
the  text.  Thus  Harper  v.  New  Port 
News,  etc.,  Co.,  90  Ky.  359,  holds, 
that  not  the  corporation  which  owns, 
but  the  one  which  has  exclusive  con- 
trol and  management  of  the  railroad 
is  liable  for  injuries  caused  to  a  per- 
son on  the  track  by  a  locomotive. 
See,  Banks  v.  Ga.  R.  R.,  etc.,  Co.,  112 
Ga.  655. 

1  McMillan  v.  Michigan  Southern, 
etc.,  R.  R.  Co.,  1(3  Mich.  79.  See 
Stone  v.  Illinois  Central  R.  R.  Co., 
116  U.  S.  347.  A  railroad  company 
cannot  dispute  its  liability  for  goods 

142 


carried  by  it  over  a  leased  road  on 
the  ground  that  the  lease  is  void. 
McCluer  v.  Manchester,  etc.,  R.  R., 
13  Gray  ( Mass. ),  124.     See  §  416. 

2  See  Chicago  &  N.  W.  Ry.  Co.  v. 
Crane,  113  U.  S.  424. 

:i  Lakiu  v.  Railroad  Co.,  13  Oreg. 
436.  See  McDonald  v.  Railroad,  93 
Tenu.  281. 

*  Water  Co.  v.  Ware,  16  Wall.  566. 

5  Rockford,  etc.,  R.  R.  Co.  v.  Wells, 
66  111.  321;  Chicago  &  R.  I.  R.  R. 
Co.  v.  Whipple,  22  111.  105.  But  see 
Hitte  v.  Republican  Valley  R.  R. 
Co.,  19  Neb.  620,  and  Atlanta,  etc., 
R.  R.  Co.  v.  Kimberly,  87  Ga.  161, 
which  hold  that  a  railroad  company 
is  not  liable  for  the  acts  of  an  inde- 
pendent contractor  in  building  its 
road. 

6  Railroad     Co.     v.     Hanning,    15 


PART  II.]    ACTS    WITHIN   THE   CORPORATE   POWERS.  [§  171. 

or  where  the  company  itself  is  the  real  cause  of  the  injuries 
occasioned  by  the  acts  or  omissions  of  the  contractor.1 

§  171.  If  the  acts  of  a  corporation  within  the  scope   Corpora- 

°  .  y        tion  always 

of  its  powers  amount  to  a  taking  of  private  property,   liable  when 
then  that  the  corporation  is  acting  within  its  powers   amount  to 
has  the  effect  of  preventing  its  action  from  amount-   p\.^atepro- 
ing  to  a  public  or  private  nuisance,2  but  does  not  ex-   Perty- 
empt  it  from  the  duty  to  compensate  the  owner  for 
his  property.3 

In  the  first  place,  regarding  the  force  of  the  word  private. 
If  a  railroad  company,  or  other  corporation  with  public  duties, 
is  authorized  to  use  or  take  property  belonging  to  the  public, 
that  is,  property  which  is  vested  in  some  political  body  or  de- 
partment, the  question  whether  compensation  is  to  be  made  de- 
pends on  the  terms  of  the  authority  ;  it  is  merely  a  question  of 
legislative  intention.4  It  is  always  competent  for  the  legislature 
to  change  property  from  one  public  use  to  another  without  com- 
pensating any  public  (e.  g.,  municipal)  body.5  It  has  even  been 
held  that  authority  from  the  state  to  a  corporation  or  an  indi- 
vidual to  build  roads  or  bridges  upon  public  property,  implies 
the  right  to  proceed  without  compensation,  since  the  function 
to  be  performed  is  that  of  the  sovereign,  though  delegated  to  a 


Wall.  649.  In  Chattanooga,  etc., 
R.  R.  Co.  v.  Liddell,  85  Ga.  4S2,  the 
railroad  company  was  held  liable  for 
injuries  sustained  on  its  road  while 
operated  by  tlie  construction  com- 
pany. But  see  St.  Louis,  etc.,  R.  R. 
Co.  v.  Willis,  38  Kan.  330. 

1  See  Philadelphia,  etc.,  R.  R.  Co., 
v.  Phila.,  etc.,  Towboat  Co.,  23  How. 
209. 

2  See  City  of  Georgetown  v.  Alex- 
andria Canal  Co.,  12  Pet.  91;  Grand 
Rapids,  etc.,  R.  R.  Co.  v.  Heisel,  38 
Mich.  62.  Compare  the  Clinton 
Bridge,  10  Wall.  454;  State  of  Penn- 
sylvania v.  Wheeling,  etc.,  Bridge  Co., 
18  How.  421;  Danville,  etc.,  R.  R. 
Co.  v.  Commonwealth,  73  Pa.  St.  29; 
Ingram  v.  C.  D.  &  M.  R.  R.  Co.,  38 


Iowa,  669.     Watson  v.  FairmountRy. 
Co. ,  49  W.  Va.  528. 

3  "  This  power  to  take  private  prop- 
erty reaches  back  of  all  constitutional 
provisions ;  and  it  seems  to  have  been 
considered  a  settled  principle  of  uni- 
versal law,  that  the  right  to  compen- 
sation is  an  incident  to  the  exercise 
of  that  power;  that  the  one  is  so  in- 
separably connected  with  the  other, 
that  they  may  be  said  to  exist,  not  as 
separate  aud  distinct  principles,  but 
as  parts  of  one  and  the  same  prin- 
ciple." Sinnickson  v.  Johnson,  17 
N.  J.  Law  (2  Harrison),  129,  145. 
See  §  473. 

4  Commonwealth  v.  Boston  &  M. 
Railroad,  3  Cush.  (Mass.)  25. 

5  People  v.  Kerr,  27  N.  Y.  188. 

143 


§  173.]         THE  LAW   OF   PRIVATE   CORPORATIONS.    [CHAP.  VII. 


Meanings 
of  the  term 
"  prop- 
erty. " 

control. 


citizen.1  If,  however,  private  rights  exist  in  property  held  by 
the  public,  compensation  for  them  must  be  provided  on  a  change 
of  its  use.  *  Thus,  when  land  is  conveyed  to  a  city  in  trust  for 
a  public  park,  the  legislature  cannot  authorize  a  railroad  com- 
pany to  build  its  road  across  it  without  providing  compensation 
for  the  right  of  the  original  proprietors  that  the  land  should 
continue  to  be  used  according  to  the  trust  on  which  they  con- 
veyed it.2 

§  172.  But  what  is  property  ?  and  what  constitutes  a  taking 
of  it?  "Property  "  means  a  thing  owned,  and,  also, 
something  entirely  different,  i.  e.,  the  rights  of  the 
owner  respecting  the  thing  owned,  or  the  rights  of  a 
person  respecting  a  thing  in  any  way  subject  to  his 
In  this  latter  sense  the  term  embraces  rights  in  action 
as  well  as  rights  in  possession.3 

§  173.  To  constitute  a  taking  of  property,  it  is  not  necessary 
that   anv  material   thing   be   actually   taken  ;  it   is 

What    con-  J  ,    .,        ?,,  *  , .  , , 

stitutesa  enough  if  any  right  or  the  owner  respecting  the 
thing  owned  be  impaired,  so  that  he  cannot  apply 
the  thing  to  all  the  uses  of  which  it  was  formerly  capable.4 
The  legislature  cannot  authorize  either  a  direct  or  a  conse- 
quential taking  or  injury  to  property  without  compensation ; 
and  if  a  corporation  voluntarily,  for  its  own  benefit,  so  con- 
structs a  work  as  necessarily  to  injure  the  property  (i.  e.,  the 
thing  owned)  of  an  individual,  or  deprive  him  of  any  right  he 
may  possess  regarding  a  thing  which  he  owns  or  has  rights  in, 
it  will  be  bound  to  compensate  him  for  his  damages,  even 
though  the  work  be  properly  and  lawfully  constructed.5 


1  Pennsylvania  R.  R.  Co.  v.  New 
York  &  L.  B.  R.  R.  Co.,  23  N.  J.  Eq. 
157.  But  see  County  of  Blue  Earth  v. 
St.  Paul,  etc.,  R.  R.  Co.,  28  Minn.  503. 

2  City  of  Jacksonville  v.  Jackson- 
ville Ry.  Co.,  67  111.  540. 

8  United  States  v.  Reynes,  9  How. 
127,  151.  A  common  law  right  of 
action  (not  based  on  a  penalty)  is 
property.  Dunlap  v.  Toledo,  A.  A., 
etc.,  R'y  Co.,  50  Mich.  470.  See  also 
Garvey  v.  Long  Island  Railroad,  159 
N.  Y.  323  ;  Long  Island  Railroad 
Company  v.  Garvey,  159  N.  Y.  334, 

144 


4  Pumpelly  v.  Green  Bay  Co.,  13 
Wall.  166;  which  held  the  backing 
of  water  so  as  to  overflow  the  lands 
of  individuals  to  be  such  a  taking. 
Ace.  Alton  Horse  R'y  Co.  v.  Deitz, 
50  111.  210;  Little  Rock,  etc.,  R'y  Co. 
v.  Chapman,  39  Ark.  463;  Grand 
Rapids  Booming  Co.  v.  Jarvis,  30 
Mich.  308.  Compare  O'Connor  v. 
Fon  du  Lac,  etc.,  R'y  Co.,  52  Wis. 
526. 

5  Evansville,  etc.,  R.  R.  Co.  v.  Dick, 
9  Ind.  433;  Terre  Haute  Gas  Co.  v. 
Teel,  20  Ind.  131;  Baltimore  &  Poto- 


PART  II.]   ACTS   WITHIN   THE   CORPORATE   POWERS.  [§  174. 

Thus  it  is  the  better  opinion  that  a  railroad  company  is  liable 
for  throwing  back  surface  water  by  the  erection  of  an  embank- 
ment on  its  land  ; x  and  also  is  liable  if  it  collects  surface  water 
in  one  channel,  and  in  this  manner  discharges  it  upon  plain- 
tiff's land,  although  the  total  volume  of  the  flow  is  not  thereby 
increased.2  Likewise  railroad  companies  are  liable  for  damages 
caused  by  obstructing  drains  and  closing  ditches,  whereby  the 
flow  of  water  is  impeded  and  crops  are  destroyed.3 

§  174.  If  the  person  claiming  compensation  is  not  the  full 
owner  of  the  property  appropriated,  it  is  sufficient   Wh      , 
to  entitle  him  to  compensation  that  he  have  some   person  al- 
right or  privilege  therein  secured  by  grant,  which   the  full 
right  or  privilege  is  injured  or  abridged  by  the  ap-   owner- 
propriation.4     But  that  he  should  have  some  legal  rights  in  the 
property  is  necessary  ; 5  and  it  has  accordingly  been  held  that 
unavoidably  obstructing  the  navigation  of  a  river  during  the 


mac  R.  R.  Co.  v.  Reany,  42  Md.  117; 
Ten  Eyck  v.  Del.  &  R.  Canal  Co.,  18 
N.  J.  L.  200;  Story  v.  New  York  El. 
R.  R.  Co.,  90  N.  Y.  122;  Telegraph 
Co.  v.  Electric  R'y  Co.,  93  Tenn.  492. 

1  Shane  v.  Kansas  City,  St.  Jo.  & 
C.  B.  R.  R.  Co.,  71  Mo.  237  ;  Car- 
riger  v.  East  Tennessee  V.  &  G.  R.  R. 
Co.,  7  Lea  (Tenn.),  388  ;  Indianapo- 
lis B.  &  W.  R.  R.  Co.  v.  Smith,  52 
Ind.  428  ;  Toledo  W.  &  W.  Ry.  Co. 
v.  Morrison,  71  111.  616  ;  Weaver  v. 
Mississippi,  etc.,  Boom  Co.,  28  Minn. 
534  ;  Balto.  &  S.  P.  Ry.  Co.  v.  Hac- 
kett,  87  Md.  224  ;  see  Rau  v.  Minne- 
sota Valley  R.  R.  Co.,  13  Minn.  442. 
Contra,  Morrison  v.  Buckport  &  B. 
R.  R.  Co.,  67  Me.  353  ;  Hamlin  ». 
Chicago  &  N.  W.  Ry.  Co.,  61  Wis. 
515.  See  Benson  v.  Chicago  &  Q.  R. 
R.  Co.,  78  Mo.  504  ;  and  compare 
Mover  v.  N.  Y.  C.  &  H.  R.  R.  R.  Co., 
88  N.  Y.  351. 

2  McCormick  v.  Kansas  City,  St. 
Jo.  &  C.  B.  R.  R.  Co.,  70  Mo.  360  ; 
S.  C,  57  Mo.  433  ;  G.  C.  &  S.  F.  Ry. 
Co.  v.  Donahoo,  59  Tex.  128.     Com- 

10 


pare  Eaton  ».  Boston,  C.  &  M.  R.  R., 
51  N.  H.  504. 

3  Bourdierc.  Morgan  L.  &  T.  R.  R. 
Co.,  35  La.  Ann.  947  ;  Waterman  v. 
Connecticut  &  P.  Rivers  R.  R.  Co., 
30  Vt.  610  ;  Mississippi  Central  R.  R. 
Co.  v.  Caruth,  51  Miss.  77.  Also, 
for  draining  wells  by  excavations 
along  its  line,  although  no  part  of 
plaintiff's  land  is  taken,  Sheldon  v. 
B.  &  A.  R.  R.  Co.,  172  Mass.  180. 

4  Story  v.  New  York  Elevated  R. 
R.  Co.,  90  N.  Y.  122,  168. 

When  a  water  company  is  charter- 
ed with  the  right  to  take  and  use  the 
waters  of  a  stream  on  making  com- 
pensation, the  owner  of  a  mill-race 
who  has  purchased  the  right  to  use 
the  water,  of  which  the  flow  is  di- 
minished by  the  action  of  the  water 
company,  has  an  incorporeal  right  for 
which  he  is  entitled  to  compensation. 
Lycoming  Gas  and  Water  Co.  v. 
Moyer,  99  Pa.  St.  615. 

6  See  St.  Louis  R.  R.  Co.  v.  North- 
western St.  Louis  Ry.  Co.,  69  Mo.  65. 

145 


§  175.]        THE   LAW    OF    PRIVATE    CORPORATIONS.    [CHAP.  VII. 


construction  of  a  railroad  bridge  is  damnum  absque  injuria  y  l 
and  riparian  owners  on  a  navigable  river  cannot  recover  dam- 
ages for  a  diversion  of  its  waters  by  a  corporation  acting  under 
authority  from  the  legislature.2  On  the  other  hand,  riparian 
owners  on  navigable  rivers  or  lakes  have  the  right  of  unob- 
structed access  to  the  navigable  channel,  and  this  right  cannot 
be  taken  from  them  without  compensation.3 

§  175.  One  of  the  most  important  classes  of  cases  where  per- 
sons have  claimed  compensation  for  the  taking  of 
property  over  which  they  have  not  unqualified  owner- 
ship, or  in  which  they  have  only  an  easement,  are 
cases  where  railroad  companies  have  been  authorized  to  lay 
tracks  in  public  streets  or  highways.  The  building  of  a  horse 
railroad  is  held  not  to  be  an  appropriation  of  the  street  to  a 
new  use,  for  which  adjoining  lot  owners  are  entitled  to  com- 
pensation, even  though  they  own  the  fee  of  the  street.4  The 
same  rule  is  held  to  apply  to  tracks  of  an  electric  street  railway 


Railroad 
tracks  in 
streets. 


1  Hamilton  v.  Vicksburg,  etc.,  R. 
R.  Co.,  119  U.  S.  280. 

2  Rundle  v.  Delaware  and  R.  Canal 
Co.,  14  How.  80  ;  Black  River  Im- 
provement Co.  v.  La  Crosse  Booming, 
etc.,  Co.,  54  Wis.  659  ;  Rogers  v. 
Kennebec  &  P.  R.  R.  Co.,  35  Me. 
319. 

See  Fitcbburg  R.  R.  Co.  v.  Boston  & 
M.  Railroad,  3Cusb.  (Mass.)  58  ;  and 
compare  Arnold  v.  Hudson  River  R. 
R.  Co.,  55  N.  Y.  661  ;  Kinealy  v.  St. 
Louis,  etc.,  Ry.  Co.,  69  Mo.  658 ; 
semble  contra,  Tinsman  v.  Belvidere 
Delaware  R.  R.  Co.,  26  1ST.  J.  L.  148. 

3  Yates  v.  Milwaukee,  10  Wall. 
497  ;  Delaplaine  v.  Chicago  &  N.  W. 
Ry.  Co.,  42  Wis.  214  ;  Chapman  v. 
Oshkosh  &  M.  R.  R.  Co.,  33  Wis. 
629  ;  Union  Depot,  etc.,  Co.  ».  Bruns- 
wick, 31  Minn.  297  ;  see  Drury  v. 
Midland  R.  R.  Co.,  127  Mass.  571  ; 
Alexandria  &  F.  Ry.  Co.  i\  Faunce, 
31  Grat.  (Va. )  761;  Brisbine  v.  St. 
Paul  &  S.  E.  R.  R.  Co.,  23  Minn.  114; 
and  compare  Tliayeru.  New  Bedford 
R.  R.  Co.,   125  Mass.   253  ;  and  Rail- 

146 


way  Co.  v  Renwick,  102  U.  S.  180. 
But,  semble  contra,  Stevens  v.  Pater- 
son  &  N.  R.  R.  Co.,  34  N.  J.  L.  532  ; 
Boston  &  W.  R.  R.  Co.  v.  Old  Colony 
R.  R.  Co.,  12  Cush.  (Mass.)  605. 

4  Attorney-General  v.  Metropolitan 
R.  R.  Co.,  125  Mass.  515;  Hobart  v. 
Milwaukee  City  R.  R.  Co.,  27  Wis. 
194;  Hodges  v.  Baltimore  Passenger 
Ry.  Co.,  58  Md.  603;  Mabady  v. 
Bushwick  R.  R.  Co.,  91  N.  Y.  148; 
Railway  Co.  v.  Lawrence,  38  O.  St. 
41;  Faust  v.  Passenger  Ry.  Co.,  3 
Phila.  (Pa.)  164;  Cincinnati  and  S. 
G.  Ave.  Ry.  Co.  v.  Cumminsville,  14 
O.  St.  523;  Hinchman  v.  Patterson 
Horse  R.  R.  Co.,  17  N.  J.  Eq.  75; 
Finch  v.  Riverside  Ry.  Co.,  87  Cal. 
597;  see  People  v.  Kerr,  27  N.  Y.  188; 
Killinger  v.  Forty-Second  St.  R.  R. 
Co.,  50  N.  Y.  206.  Compare  Carli  v. 
Stillwater  Street  Ry.  Co.,  28  Minn. 
373;  Carson  v.  Central  R.  R.  Co.,  35 
Cal.  325;  Roberts  v.  Easton,  19  O. 
St.  78. 


PART  TI.]     ACTS    WITHIN    THE   CORPORATE    POWERS.       [§  115a. 


in  a  city.1  This  seems  correct,  and  on  the  principles  stated  by- 
Chief  Justice  Shaw :  "  Where  under  the  authority  of  the  legis- 
lature, in  virtue  of  the  sovereign  power  of  eminent  domain, 
private  property  has  been  taken  for  a  public  use,  and  a  full  com- 
pensation for  a  perpetual  easement  in  land  has  been  paid  to  the 
owner  therefor,  and  afterwards  the  land  is  appropriated  to  a 
public  use  of  a  like  kind,  as  where  a  turnpike  has  by  law  been 
converted  into  a  common  highway,  no  new  claim  for  compen- 
sation can  be  sustained  by  the  owner  of  the  land  over  which  it 
passes." 2 

§  175«.  Obviously  an  ordinary  steam  railway  is  very  dif- 
ferent from  street  cars.  Such  a  steam  railway  placed  in  a  city 
street  without  due  authorization  is  a  nuisance.3  The  track  can- 
not be  used  by  wagons,  and  driving  by  the  side  of  it  is  danger- 
ous. Unquestionably  such  a  railway  obstructs  the  use  of  a 
street  as  a  street.  Many  of  the  cases  adjudicating  the  right 
of  abutting  owners  to  compensation  for  the  use  of  a  street  by  a 
steam  railroad  have  turned  on  the  ownership  of  the  fee  of  the 
street.     It  has  been  held  that  an  adjoining  owner  who  owns 


i  Taylor  v.  St.  Ry.  Co.,  91  Me.  193; 
Canastota  Knife  Co.  v.  Newington 
Tramway  Co.,  69  Conn.  146;  Pool  v. 
Falls  Road  Ry.  Co.,  88M'd  533;  La 
Crosse  City  Ry.  Co.  v.  Higbie,  107 
Wis.  389;  contra,  Pecku.  Schenectady 
Ry.  Co.,  170  N.  T.  298;  an  electric 
street  railroad  upon  a  country  road  is 
held  to  constitute  an  additional  ser- 
vitude. Zehren  v.  Mil.  E.  &  L.  Co., 
99  Wis.  83.  Cf.  Ehret  v.  Camden  & 
Trenton  Ry.  Co.,  60  X.  J.  Eq.  246. 

2  Chase  v.  Sutton  M'f'g  Co.,  4  Cush. 
(Mass.)  152,  157.  But  it  accords  with 
these  principles,  and  has  been  held, 
that  the  owner  is  entitled  to  compen- 
sation when  the  horse  railroad  com- 
pany changes  the  grade  of  the  street 
and  obstructs  its  use.  Cincinnati 
and  S.  C  Ave.  Ry.  Co.  v.  Cummins- 
ville,  14  O.  St.  523.  The  owner  of 
the  fee  of  a  highway  is  entitled  to 
compensation  for  laying  gas  pipes 
under  a  highway,  and  parallel  with 
it.     Sterling's  Appeal,  111  Pa.  St.  35. 


The  use  of  a  highway  by  a  telegraph 
company  as  authorized  by  law,  and 
subject  to  the  supervision  of  the 
local  municipal  authorities,  is  a  pub- 
lic use  similar  to  that  for  which  the 
highway  was  originally  taken,  or  to 
which  it  was  originally  devoted,  and 
the  owner  of  the  fee  is  entitled  to  no 
further  compensation.  Pierce  v. 
Drew,  136  Mass.  75;  two  judges  dis- 
senting. Contra,  Eels  v.  Telegraph 
Co.,  143  N.  Y.  133;  Board  of  Trade 
Telegraph  Co.  v.  Barnett,  107  111. 
507,  in  which  last  case  it  was  held 
that  trespass  would  lie  at  suit  of  the 
owner  of  the  fee.  The  Illinois  Con- 
stitution provides  that  "  private 
property  shall  not  be  taken  or  dam- 
aged without  just  compensation." 
See,  also,  Postal  Tel.  Co.  v.  Eaton, 
170  111.  513. 

3  Burlington  v.  Penn.  R.  R.  Co.,  56 
N.  J.  Eq.  259,  but  see,  Fobes  v. 
Rome,  etc.,  R.  R.  Co.,  121  N.  Y.  505. 

147 


§   175a.]     THE   LAW    OF   PRIVATE   CORPORATIONS.    [CHAP.  VII. 


the  fee  of  the  street  has  a  right  of  action  for  the  consequential 
injury  to  his  abutting  freehold,  resulting,  for  instance,  from  the 
decrease  of  its  selling  or  rental  value;  but  that  to  entitle  the 
adjoining  owner  who  does  not  own  the  fee  of  the  street  to 
compensation,  some  misconduct  on  the  part  of  the  railroad 
company  must  be  shown,  such,  for  instance,  as  leaving  cars 
for  an  unreasonable  time  in  front  of  his  premises,  or  run- 
ning locomotives  at  a  dangerous  rate  of  speed.1  Many  cases 
support  the  proposition  that  an  abutting  owner  owning  the  fee 
of  the  street  is  entitled  to  compensation  for  a  steam  railroad 
built  thereon,2  though  there  are  opposing  decisions.3  On  the 
other  hand,  cases  hold  that  when  a  railwa}7  is  built  properly  on 
a  street,  the  abutting  owner  who  does  not  own  the  fee  of  the 
street  is  not  entitled  to  compensation  for  the  injury  resulting 
to  his  property.4 


1  Grand  Rapids  and  I.  R.  R.  Co.  v. 
Heisel,  38  Mich.  02;  S.  C,  47  Mich. 
393. 

2  Williams  v.  New  York  Central  R. 
R.  Co.,  16  N.  Y.  97;  Wager  v.  Troy 
Union  R.  R.  Co.,  25  N.  Y.  526; 
Presbyterian  Society  v.  Auburn  and 
R.  R.  R.  Co.,  3  Hill  (N.  Y.),  567; 
Schurneier  v.  St.  Paul  and  P.  R.  R. 
Co.,  10  Minn.  82;  Harrington  v.  St. 
Paul  and  S.  C.  R.  R.  Co.,  17  Minn. 
215;  Hastings  and  G.  I.  R.  R.  Co.  v. 
Ingalls,  15  Neb.  123;  Kucheman  v.  C. 
C.  and  D.  Ry.  Co.,  46  Iowa,  366; 
Terre  Haute  and  S.  E.  R.  R.  Co.  v. 
Rodel,  89  Ind.  128;  Iralay  v.  Union 
Branch  R.  R.  Co.,  26  Conn.  249; 
Southern  Pacific  R.  K.  Co.  v.  Reed, 
41  Cal.  256;  Mumma  v.  Harrisburg, 
etc.,  R.  R.  Co.,  1  Pearson  (Pa.),  24; 
Mining  v.  New  York  C.  and  St.  L.  R. 
It.  Co.,  11  Weekly  Notes  Cases  (Pa.), 
297;  Phillips  v.  Dunkirk,  W.  &  P.  R. 
R.  Co.,  78  Pa.  St.  177;  Indianapolis 
B.  and  W.  R.  R.  Co.  v.  Hartley,  67 
111.  439;  Chicago  and  W.  I.  I.  R.  R. 
Co.  v.  Ayres,  106  111.  511;  Cox  v. 
Louisville  N.  A.  and  C.  R.  R.  Co.,  48 
Ind.  178;  Sherman  v.  Milwaukee  L. 
S.  and  W.  R.  R.  Co.,  40  Wis.  645;  see 

148 


Starr  v.  Camden  and  A.  R.  R.  Co.,  24 
N.  J.  L.  572. 

3  See  Brainard  v.  Missisquoi  R.  R. 
Co.,  48  Vt.  107;  Morris  and  E.  R.  R. 
Co.  v.  Newark,  10  N.  J.  Eq.  352;  and 
some  of  the  older  Penn.  cases,  e.  g., 
Snyder  v.  Pennsylvania  R.  R.  Co.,  55 
Pa.  St.  340. 

4  Fobes  o.  Rome,  etc.,  R.  R.  Co., 
121  N.  Y.  505;  Drake  v.  H.  R.  R. 
R.  Co.,  7  Barb.  (N.  Y.)  508;  Grand 
Rapids  and  I.  R.  R.  Co.  ».  Heisel,  38 
Midi.  62;  S.  C,  47  Mich.  393;  Davis 
v.  C.  and  N.  W.  R.  Co.,  46  Iowa, 
389;  Houston  and  T.  C.  R.  R.  Co.  v. 
Odwin,  53  Tex.  343;  Stetson  v.  Chi- 
cago and  E.  R.  R.  Co.,  75  111.  74; 
Moses  v.  Pittsburg,  Ft.  W.  and  C. 
R,  R.  Co.,  21  111.  516;  Milburn  v. 
City  of  Cedar  Bapids,  12  Iowa,  246; 
Atchison  and  N.  R.  R.  Co.  v.  Garside, 
10  Kan.  552;  Nottingham  v.  Balti- 
more and  P.  R.  R.  Co.,  3  MacArthur 
(Dist.  of  Col.),  517;  Koelmel  v.  New 
Orleans  M.  and  C.  R.  R.  Co.,  27  La. 
Ann.  442.  But  see  Central  Branch 
W.  P.  R.  R.  Co.  v.  Andrews,  30  Kan. 
590;  but  the  abutting  owner,  though 
not  owning  the  fee  of  the  street,  is 
entitled  to  damages  if  the  railroad 


PART   II.]    ACTS   WITHIN   THE   CORPORATE   POWERS.  [§  176. 

After  all,  this  question  of  the  ownership  of  the  fee  of  the 
street  is  barren.  Even  if  the  abutting  owner  owns  the  fee  of 
the  street,  the  use  of  the  street  by  the  public  absorbs  and  con- 
stitutes the  whole  value  of  it,  and  the  possibility  of  reverter  in 
case  of  the  cessation  of  such  use  is  remote.1  The  substantial 
rights  of  the  abutting  owner  are  no  greater  when  he  owns  the 
fee  of  the  street  than  when  he  does  not.  In  whomsoever  may 
be  vested  the  fee  of  the  street,  the  abutting  owner  is  damaged, 
if  at  all,  with  respect  to  his  abutting  premises.  Accordingly,  a 
number  of  recent  cases  ignore  the  question  of  ownership  of  the 
fee  of  the  street,  and  award  the  abutting  owner  whatever  special 
damages  he  has  suffered  by  reason  of  the  building  of  the  rail- 
road in  front  of  his  premises.2 

§  176.  The  rights  of  abutting  owners  regarding  the  use  of  a 
public  street  in  a  city  were  carefully  considered  in  Story  v.  New 
York  Elevated  R.  R.  Co.,3  where  the  New  York  Court  of  Ap- 
peals assumed  that  the  plaintiff  did  not  own  the  fee  of  the 


company  is  unlawfully  or  improperly 
constructed  or  operated.  Stange  v. 
Hill,  etc.,  Street  Ry.  Co.,  54  Iowa, 
669;  Burlington  and  M.  R.  R.  R.  Co. 
v.  Reimpackle,  15  Neb.  279;  Cain  v. 
C.  R.  I.  and  P.  R.  Co.,  54  Iowa,  255; 
Atchison  and  N.  R.  R.  Co.  v.  Carside, 
10  Kan.  552;  Cadle  v.  Muscatine  W. 
R.  R.  Co.,  44  Iowa,  11.  Compare 
Buchner  v.  Chicago  M.  and  N.  W. 
Ry.  Co.,  69  Wis.  264;  aff'g  S.  C,  '>C 
Wis.  403;  Bradley  v.  New  York  and 
N.  H.  R.  R.  Co.,  21  Conn.  294. 

1  See  People  v.  Kerr,  27  N.  Y.  188, 
211. 

2  Hot  Springs  R.  R.  Co.  v.  Wil- 
liamson, 136  U.  S.  121;  Railway  Co. 
v.  Lawrence,  38  O.  St.  41;  Railroad 
Co.  v.  Hambleton,  40  O.  St.  496;  G. 
C.  &  S.  P.  R.  R.  Co.  v.  Eddins,  60 
Tex.  656;  Gottschalk  v.  Chicago  B. 
&  Q.  R.  R.  Co.,  14  Neb.  550;  Jeffer- 
sonville  M.  &  I.  R.  R.  Co.  v.  Esterle, 
13  Bush  (Ky.),  667;  Elizabethtown, 
etc.,  R.  R.  Co.  v.  Combs,  10  Bush 
(Ky.),  382 

See,  also,  Roberts  v.  New  York  El. 


R.  R.  Co.,  155  N.  Y.  31;  Central 
Branch  W.  P.  R.  R.  Co.  v.  Twine,  23 
Kan.  585;  Indianapolis  B.  &  W.  R. 
R.  Co.  v.  Smith,  52  Ind.  428;  Cross 
v.  St.  Louis  K.  C.  &  N.  Ry.  Co.,  77 
Mo.  318;  compare  Porter  v.  Northern 
Missouri  R.  R.  Co.,  33  Mo.  128; 
Pittsburgh  &  L.  E.  R.  R.  Co.  v. 
Bruce,  102  Pa.  St.  23;  Hussner  v. 
Brooklyn  City  R.  R.  Co.,  114  N.  Y. 
433. 

3  90  N.  Y.  122;  S.  C,  11  Abb. 
N.  C.  236.  This  case  was  affirmed 
and  authoritatively  expounded  in 
Lahr  v.  Metropolitan  Elevated  Ry. 
Co.,  104  N.  Y.  268.  Abutting  owners 
were  held  entitled  to  damages  be- 
cause of  the  erection  of  the  elevated 
road,  whether  owners  of  the  fee  or 
not,  in  Abendroth  r.  Manhattan  Ry. 
Co.,  122  N.  Y.  1;  Kane  v.  N.  Y.  El. 
Co.,  125  N.  Y.  164.  See,  also,  Ker- 
nochan  v.  Manhattan  Ry.  Co.,  161 
X.  Y.  339;  Shepard  v.  Man.  Ry.  Co. 
169  N.  Y.  160;  Western  Union  Tel. 
Co.  v.  Shepard,  169  N.  Y.  170. 

149 


§  176. J        THE   LAW   OF   PRIVATE   CORPORATIONS.    [CHAP.  VII. 

street,  but  had  only  an  easement  based  on  a  covenant  made  by 
the  city  with  the  plaintiff's  grantor,  whose  deed  was  from  the 
city,  that  the  street  should  forever  "continue  and  be  for  the 
free  and  common  passage  of,  and  as  a  public  street  and  way  for, 
the  inhabitants  of  the  said  city,  and  all  others  passing  through 
or  by  the  same,  in  like  manner  as  other  streets  of  the  same  city 
now  are  or  lawfully  ought  to  be ; "  and,  on  this  assumption,  the 
court  held  that  the  building  of  an  elevated  railroad,  which 
obscured  to  some  extent  the  light  of  the  plaintiff's  abutting 
premises,  and  to  some  extent  impaired  their  general  usefulness 
and  depreciated  their  value,  deprived  the  plaintiff  of  rights  for 
which  he  was  entitled  to  compensation.  The  legislature  might 
regulate  the  uses  of  a  street  as  a  street,  but  had  no  power  to 
authorize  a  corporation  to  build  thereon,  without  compensating 
the  plaintiff,  a  structure  subversive  of  and  repugnant  to  the 
uses  of  the  street  as  an  open  public  street.  Their  decision 
would  have  been  the  same,  the  court  said,  if  the  fee  of  the 
street  had  been  conveyed  by  the  deed  from  the  city  to  the 
plaintiff's  grantor;  for  then  the  plaintiff  would  have  possessed 
a  private  easement  of  a  right  of  way  in  the  street,  with  an 
express  covenant  that  the  entire  street  should  be  forever  kept 
as  a  public  street;  though  under  such  construction  the  covenant 
referred  to  would  have  been  the  covenant,  not  of  the  city,  but 
of  the  city's  grantee.  No  matter  who  was  the  covenantor,  the 
plaintiff  could  not  without  compensation  be  deprived  of  his 
easement  derived  from  the  covenant.  And  even  if  the  city 
held  the  fee  to  the  street,  the  street  was,  nevertheless,  held  in 
trust  to  be  used  only  as  a  public  street.1 

§  177.  In  some  cases  a  distinction  is  drawn  between  the  lia- 
bility of  a  private  corporation,  organized  with  a  view  to  the 
gain  of  the  stockholders,  to  compensate  for  the  inconvenience 
and  damage  it  mav  cause  individuals  while  acting 

Distinction 

between  within  the  scope  of  its  powers ;  and  the  liability  of 
pubnlfcor-  a  public  corporation  or  officer  to  persons  damaged 
porations.  through  acts  done  bjr  him  or  it  in  the  performance 
of  a  purely  public  trust  or  office.2     This  distinction,  whether 

xSee  Railroad  Co.  v.  Schurmeir,  7  I  G.  Ave.  Ry.  Co.  v.  Cumniinsville,  14 
Wall.  272,  289;  Yates  v.  Milwaukee,    Ohio  St.  523,  546. 
10  Wall.  497,  504;    Cincinnati  &  S.  I     2Tinsmant>.  Belvidere  Delaware  R. 
150 


PART  II.]    ACTS    WITHIN    THE    CORPORATE   POWERS.  [§  178. 


proper  or  not,  renders  some  of  the  decisions  respecting  the  re- 
sponsibility of  municipal  corporations  for  damages  caused,  for 
instance,  in  paving  and  grading  streets,  inapplicable  to  private 
corporations.1 

§  178.  In  determining  the  value  of  property  taken  by  a  cor- 
poration, the  same  considerations  are  to  be  regarded   „ 

r  '  .  °  Measure  of 

as  in  the  sale  of  property  between  private  persons,  compensa- 
The  inquiry  should  be  what  is  the  property  worth  in 
the  market,  not  merely  with  reference  to  the  uses  to  which  it 
is  at  the  time  applied,  but  also  with  regard  to  those  to  which 
it  is  plainly  adapted.3  And  the  measure  of  compensation  should 
be  the  difference  between  the  market  value  of  the  property 
which  is  injured  or  taken,  before  and  after  the  injury  or  tak- 
ing.3 

When  a  portion  of  a  tract  of  land  belonging  to  one  owner  is 
taken,  the  just  compensation  should  equal  the  fair  market  value 
of  the  land  taken  and  the  damage  done  to  the  rest  of  the  tract 
by  taking  the  land  which  is  taken  and  operating  a  railroad 


R.  Co.,  26  N.  J.  L.  148;  Baltimore 
and  Potomac  R.  R.  Co.  i\  Reaney,  42 
Md.  117.  A  public  corporation  is  one 
created  for  apolitical  purpose.  Tins- 
man  v.  Belvidere  Delaware  R.  R.  Co., 
26  N.  J.  L.  148.  The  whole  interest 
in  it  must  belong  to  the  government. 
Rundle  v.  Delaware,  etc.,  Canal,  1 
Wall.  Jr.  275,  290.     See  §  335,  note. 

1  See  Baltimore  and  Potomac  R.  R. 
Co.  ».  Reaney,  supra  ;  Smith  v.  Cor- 
poration of  Washington,  20  How.  135; 
Transportation  Co.  v.  Chicago,  99  U. 
S.  635. 

2  Boom  Co.  v.  Patterson,  98  U.  S. 
403;  Hooper  v.  Savannah,  etc.,  R.  R. 
Co.,  69  Ala.  529;  Shenango  &  A.  R. 
R.  Co.  v.  Braham,  79  Pa.  St.  447; 
Mississippi  Bridge  Co.  v.  Ring,  58 
Mo.  491;  Henry  r.  Dubuque  &  P.  R. 
R.  Co.,  2  Iowa,  288.  See  Stinson  v. 
Chicago  St.  P.  &  M.  Ry.  Co.,  27 
Minn.  284;  Selma  R.  &  D.  R.  R.  Co. 
v.  Keith,  53  Ga.  178;  Gear  v.  C.  C.  & 
D.   R.   Co.,  39  Iowa,  23.     Compare 


Jacksonville  &  S.  E.  Ry.  Co.  v.  Walsh, 
106  111.  253. 

3  Pittsburgh,  etc.,  R.  R.  Co.  v.  Rob- 
inson, 95  Pa.  St.  426;  Pittsburgh, 
etc.,  R'y  Co.  v.  Bentley,  88  Pa.  St. 
178;  Hooper  v.  Savannah,  etc.,  R.  R. 
C,  69  Ala.  529.  See  Indianapolis, 
etc.,  R.  R.  Co.  v.  Pugh,  85  Ind.  279; 
compare  Everett  v.  Union  Pac.  R. 
Co.,  59  Iowa,  243;  Dreher  v.  I.  S.  W. 
R.  Co.,  ib.599;  Leber  v.  Minneapolis, 
etc.,  R'y  Co.,  29  Minn.  256;  Phillips 
v.  Phila.  &  R.  R.  R.  Co.,  182  Pa.  St.  537; 
Fiick  Coke  Co.  v.  Painter,  198  Pa.  St. 
468.  Where  property  taken  by  a  cor- 
poration, by  its  right  of  eminent 
domain,  is  already  deteriorated  in 
value  through  the  exercise  of  the 
right  of  eminent  domain  by  another 
corporation,  the  damages  must  be 
estimated  with  reference  to  the  exist- 
ing deterioration.  Lycoming  Gas  and 
Water  Co.  v.  Moyer,  99  Pa.  St.  615. 
See,  generally,  Mills  on  Eminent  Do- 
main, Chap.  XVI. 

151 


§  178.]         THE   LAW   OF    PRIVATE   CORPORATIONS.    [CHAP.  VII. 

thereon  in  a  proper  manner.1  And  the  measure  of  this  com- 
pensation is  the  difference  between  the  fair  market  value  of  the 
whole  tract  before  and  after  the  railroad  is  built  upon  the  strip 
taken.2  Thus,  when  the  construction  of  a  railroad  through  a 
farm  or  other  tract  of  land  renders  the  use  or  cultivation  of  the 
remaining  portions  more  inconvenient  and  expensive,  this  is  an 
element  of  damage.3 


1  Bangor  &  P.  R.  R.  Co.  v.  Mc- 
Comb,  60  Me.  290;  Hooper  v.  Savan- 
nah, etc.,  R.  R.  Co.,  69  Ala.  529; 
Robbins  v.  Milwaukee  &  H.  R.  R. 
Co.,  6  Wis.  636;  Cincinnati  &  S.  Ry. 
Co.  v.  Longworth,  30  O.  St.  108; 
Wyandotte  K.  C.  &  N.  W.  Ry.  Co. 
v.  Waldo,  70  Mo.  629;  Raleigh  &  A. 
Air  Line  R.  R.  Co.  p.  Wicker,  74  N. 
C.  220;  Virginia  &  T.  R.  R.  Co.  v. 
Henry,  8  Nev.  165;  White  Water 
Valley  R.  R.  Co.  v.  McClure,  29  Ind. 
536;  Baltimore  P.  &  C.  R.  R.  Co.  v. 
Lansing,   52  Ind.   229;  Hartshorn  v. 

B.  C.  R.  &  N.  R.  Co.,  52  Iowa,  613; 
St.  Louis,  etc.,  R.  R.  v.  Anderson,  39 
Ark.  167;  Texas  &  St.  L.  R.  R.  Co. 
v.  Matthews,  60  Tex.  215. 

2  Pittsburgh  &  L.  E.  R.  R.  Co.  v. 
Robinson,  95  Pa.  St.  426;  Pittsburgh 
V.  &  C.  Ry.  Co.  o.  Bentley,  88  Pa. 
St.  179;  Danville  H.  &  W.  R.  R.  Co. 
o.  Gearhart,  81*  Pa.  St.  260;  She- 
nango  &  A.  R.  R.  Co.  v.  Braham,  79 
Pa.  St.  447;  Hornstein  v.  Atlantic  & 
Gt.  W.  R.  R.  Co.,  51  Pa.  St.  87; 
Harvey  v.  Lackawanna  &  B.  R.  R. 
Co.,  47  Pa.  St.  428;  East  Pennsyl- 
vania R.  R.  Co.  v.  Hottenstein,  47 
Pa.    St.   28;  Watson  v.  Pittsburgh  & 

C.  R.  R.  Co.,  37  Pa.  St.  469;  Schuyl- 
kill Navigation  Co.  v.  Thoburn,  7  S. 
&  R.  (Pa.)  411;  Henry  v.  Dubuque 
&  P.  R.  R.  Co.,  2  Iowa,  288  ;  Sater 
v.  Burlington,  etc.,  Plank  Road  Co., 
1  Iowa,  386;  Brooks  v.  Davenport  & 
St.  P.  R.  R.  Co.,  37  Iowa,  99;  Page 
v.  Chicago  M.  &  St.  P.  Ry.  Co.,  70 
111.  324;  Bangor  &  P.    R.    R.    Co.  v. 

152 


McComb,  60  Me.  290;  Ham  v.  Wis- 
consin I.  &  N.  Ry.  Co.,  61  Iowa,  716; 
Black  River,  etc.,  R.  R.  Co.  v.  Bar- 
nard, 9  Hun  (N.  Y.),  104;  Fleming  v. 
Chicago  D.  &  M.  R.  R.  Co.,  34  Iowa, 
353;  Powers  v.  Hazelton,  etc.,  Ry. 
Co.,  33  O.  St.  429.  Compare  St. 
Louis  J.  &  S.  R.  R.  Co.  v.  Kirby,  104 
111.  345;  St.  Louis,  etc.,  R.  R.  Co.  v. 
Anderson,  39  Ark.  167;  Reisner  v. 
Atchison,  etc.,  R.  R.  Co,  27  Kan. 
382;  Henderson,  etc.,  R.  R.  Co.  v. 
Dickerson,  17  B.  Mon.  (Ky.)  173; 
Price  v.  Milwaukee  &  St.  Louis  Ry. 
Co.,  27  Wis.  98;  Cincinnati  &  S.  Ry. 
Co.  v.  Longworth,  30  O.  St.  108; 
Hatch  v.  Vermont  Central  R.  R.  Co., 
35  Vt.  49;  S.  C,  28  Vt.  142;  Par- 
ker v.  Boston  &  M.  R.  R.,  3  Cush. 
(Mass.)  107;  Proprietors  of  Locks 
and  Canals  v.  Nashua  &  L.  R.  R.  Co., 
10  Cush.  385. 

3  Tucker  v.  Massachusetts  Central 
R.  R.,  118  Mass.  546;  Presbrey  v. 
Old  Colony  &  N.  Ry.  Co.,  103  Mass. 
1;  McReynolds  v.  Burlington  &  O.  R. 
Ry.  Co.,  106  111.  152;  Robbins  v.  Mil- 
waukee &  H.  R.  R.  Co.,  6  Wis.  636; 
St.  Louis,  etc.,  R.  R.  v.  Anderson,  39 
Ark.  167;  Watson  v.  Pittsburgh  &  C. 
R.  R.  Co.,  37  Pa.  St.  469;  Sherwood 
v.  St.  Paul  &  C.  Ry.  Co.,  21  Minn. 
127;  White  Water  Valley  R.  R.  Co., 
v.  McClure,  29  Ind.  536;  Baltimore  P. 
&  C.  R.  R.  Co.  v.  Lansing,  52  Ind.  229; 
Missouri  Pacific  R'y  Co.  v.  Hays,  15 
Neb.  224;  Raleigh,  etc.,  R.  R.  Co.  v. 
Wicker,  74  N.  C.  220.  Compare 
Atchison  &   D.  Ry.  Co.  v.  Lyons,  24 


PART  II.]    ACTS    WITHIN    THE    CORPORATE   POWERS.  [§  179. 

§  179.  When  the  property  of  a  person  is  taken  or  injured, 
and  the  question  is  as  to  the  amount  of  compensa- 
tion, certain  species  of  benefits  which,  concurring   benefits! 
with  the  injury,  may  have  lessened  the  actual  de- 
preciation of  his  property,  are  to  be  taken  into  consideration. 
If  the  whole  of  an  owner's  property  in  the  vicinity  is  taken, 
manifestly  no  question  can  arise  as  to  set  off  of  benefits.     When 
a  portion  only  of  a  tract  or  piece  of  land  is  taken,  the  benefits 
accruing  to  the  rest  of  the  tract  may  be  set  off  as  against  the 
damage  done  to  it,  but  not  as  against  the  value  of  the  portion 
taken;1  and  the  benefits  which  may  be  set-off  are  those  only 
that  are  direct  and  peculiar  to  the  tract  of  which  a  part  is  taken, 
and  not  shared  by  that  tract  in  common  with  lands  in  the  vi- 


Kan.  745;  Curtis  v.  St.  Paul,  etc.,  R. 
R.  Co.,  20  Minn.  28;  Ham  v.  Wis- 
consin I.  &  N.  Ry.  Co.,  61  Iowa,  716; 
Bangor  &  P.  R.  R.  Co.  v.  McCorab, 
60  Me.  290;  Western  Pennsylvania 
R.  R.  Co.  v.  Hill,  56  Pa.  St.  460; 
Selma  R.  &  D.  R.  Co.  v.  Camp,  45 
Ga.  180;  Pfleger  v.  Hastings  &  D. 
Ry.  Co.,  28  Minn.  510. 

1  Robbins  v.  Milwaukee  &  H.  R. 
R.  Co.,  6  Wis.  636;  Chapman  v. 
Oshkosb  &  M.  R.  R.  R.  Co.,  33  Wis. 
629;  Neilson  v.  Chicago  M.  &  N.  Ry. 
Co.,  58  Wis.  516;  Fremont  E.  &  ;M. 
V.  R.  R.  Co.  v.  Whalen,  11  Neb. 
585;  Elizabethtowu  &  P.  R.  R.  Co. 
15.  Helm,  8  Bush  (Ky.),  681;  Hayes 
v.  Ottawa,  etc.,  R.  R.  Co.,  54  111. 
373;  Wilson  v.  Rockford,  etc.,  P..  R. 
Co.,  59  111.  273;  Todd  y.  Kankakee, 
etc.,  R.  R.  Co.,  78  111.  530;  Mayor, 
etc.,  of  Atlanta  v.  Central  Ry.  Co., 
53  Ga.  120;  Jones  v.  Wills  Valley  R. 
R.  Co.,  30  Ga.  43;  Shipley  v.  Balti- 
more, etc.,  R.  R.  Co.,  34  Md.  336; 
Woodfolk  v.  Nashville,  etc.,  R.  R. 
Co.,  2  Swan  (Tenn.),  422;  East  Ten- 
nessee &  V.  R.  R.  Co.  v.  Love,  3 
Head  (Tenn.),  63;  Mississippi  Ry. 
Co.  v.  McDonald,  12  Heisk.  (Tenn.) 
54;  Grafton  &  G.  R.  R.  Co.  v.  Fore- 
man, 24  W.  Va.  662;  San  Francisco, 


etc.,  R.  R.  Co.  v.  Caldwell,  31  Cal. 
367;  Henderson  &  N.  R.  R.  Co.  v. 
Dickerson,  17  B.  Mon.  (Ky.)  173; 
Alabama  &  F.  R.  R.  Co.  v.  Burkett, 
46  Ala.  569;  Philadelphia  &  E.  R.  R. 
Co.  v.  Cake,  95  Pa.  St.  139.  Cases 
which  do  not  sustain  this  rule  are 
Britton  v.  D.  M.  O.  &  S.  R.  Co.,  59 
Iowa,  540;  Brooks  v.  Davenport  & 
St.  P.  R.  R.  Co.,  37  Iowa,  99;  Giesy 
v.  Cincinnati,  etc.,  R.  R.,  4  O.  St. 
308;  Cincinnati  &  S.  Ry.  Co.  v.  Long- 
worth,  30  O.  St.  108;  St.  Louis,  etc., 
R.  R.  v.  Anderson,  39  Ark.  167; 
Isom  v.  Mississippi  Central  R.  R.  Co., 
36  Miss.  300 ;  New  Orleans  J.  &  G. 
N.  R.  R.  Co.  v.  Moye,  39  Miss.  374; 
Brown  v.  Beatty,  34  Miss.  227.  In 
these  cases  the  set-off  of  benefits  was 
held  excluded  by  language  of  the 
state  constitutions.  The  Massachu- 
setts cases,  on  the  other  hand,  per- 
mit set-off,  even  as  against  value  of 
the  portion  of  land  taken.  Meacham 
v.  Fitchburg  R.  R.  Co.,  4  Cush.  ( Mass. ) 
291;  Upton  v.  South  Branch  Reading 
R.  R.  Co.,  8  Cush.  (Mass.)  600; 
Whitman  v.  Boston  &  M.  R.  R.,  7 
Allen  (Mass.),  313;  Childs  v.  New 
Haven  &  N.  Co.,  133  Mass.  253;  also 
a  Minnesota  case,  Winona  &  St.  P.  R. 
R.  Co.  v.  Waldron,  11  Minn.  515. 
153 


§  180. J        THE   LAW    OF    PRIVATE   CORPORATIONS.    [CHAP.  VII. 


p<*t 


cinity  belonging  to  other  owners.1  The  general  rise  of  land 
in  the  neighborhood  caused  by  building  the  railroad  is  not  to 
be  regarded,  nor  the  benefits  accruing  to  the  owner  of  the  tract 
through  having  the  use  of  the  railroad,  when  no  greater  privi- 
lege is  given  him  than  the  railroad  as  a  common  carrier  would 
be  bound  to  furnish.2 

180.  An  act  within  the  scope  of  the  corporate  powers  done 
by  the  body  corporate  acting  as  such  in  the  manner 
U)(dvcorp<>  prescribed  by  the  constitution  of  the  corporation  is 
rate;  when  binding  on  all  persons  in  any  way  interested  in  the 
corporate  enterprise ;  for  the  bod}7  corporate,  express- 
ing its  will  through  a  vote  of  a  majority  (in  interest)  of  its  mem- 
bers, or  of  a  two-thirds  or  three-fourths  majority  if  that  major- 
ity is  necessary  in  respect  of  any  class  of  acts,  possesses  the 
ultimate  power  and  discretion  which  the  corporators  as  indi- 
viduals, through  incorporation,  vested  in  themselves  as  a  body 
corporate.  This  broad  statement,  however,  which  seems  and 
is  logical  enough,  is  practically  of  less  general  application  than 


1  Childs  v.  New  Haven,  etc.,  Co., 
132  Mass.  253;  Meacham  v.  Fitch- 
burg  R.  R.  Co.,  4  Cusb.  (Mass.)  291; 
Upton  v.  South  Branch  Reading  R. 
R.  Co.,  8  Cush.  (Mass.)  600;  Shipley 
v.  Baltimore,  etc.,  R.  R.  Co.,  34  Md. 
336;  Lake  Roland  R.  Co.  v.  Flick, 
86  Md.  259;  Fremont,  E.  &  M.  V.  R. 
R.  Co.  v.  Whalen,  11  Neb.  585; 
Woodfolk  v.  Nashville  &  C.  R.  R. 
Co.,  2  Swan  (Tenn.),  422;  East  Ten- 
nessee &  V.  R.  R.  Co.  v.  Love,  3 
Head  (Tenn.),  63;  Winona  &  St.  P. 
R.  R.  Co.  v.  Waldron,  11  Minn.  515; 
Hornstein  ».  Atlantic  &  Gt.  W.  R.  R. 
Co.,  51  Pa.  St.  87;  Freedle  v.  North 
Carolina  R.  R.  Co.,  4  Jones,  L. 
(N.  C.)  89;  Raleigh  &  A.  Air  Line 
R.  R.  Co.  v.  Wicker,  74  N.  C.  220; 
Hosher  v.  Kansas  City,  St.  Jo.,  etc., 
R.  R.  Co.,  60  Mo.  303;  Pacific  R.  R. 
Co.  v.  Crystal,  25  Mo.  544;  St.  Louis 
&  St.  Jo.  R.  R.  Co.  v.  Richardson,  45 
Mo.  466;  Alden  v.  White  Mountains 
R.  R.,  55  N.  II.  413;  Nicholson  r. 
New.  York  &   N.   H.   R.  R.   Co.,  22 

154 


Conn.  74,  88;  St.  Louis,  etc.,  R.  R. 
Co.  ».  Morris,  35  Ark.  622;  Missis- 
sippi Ry.  Co.  o.  McDonald,  12  Heisk. 
(Tenn. )  54;  St.  Louis,  etc.,  R.  R.  Co., 
v.  Kirby,  104  111.  345;  Upham  v. 
Worcester,  113  Mass.  97;  Peoria  P. 
&  J.  R.  R.  Co.  v.  Black,  58  111.  33; 
Todd  v.  Kankakee,  etc.,  R.  R.  Co., 
78  111.  530.  Contra  Henderson,  etc., 
R.  R.  Co.  v.  Dickerson,  17  B.  Mon. 
(Ky. )  173;  see  California  Pacific  R. 
R.  Co.  v.  Armstrong,  46  Cal.  85. 

2  Drury  v.  Midland  R.  R.  Co.,  127 
Mass.  571.  Compare  Pittsburgh  &  L. 
E.  R.  R.  Co.  v.  Robinson,  95  Pa.  St. 
420. 

If  the  state  constitution  provides 
that  when  eminent  domain  is  exer- 
cised by  a  railroad  company  com- 
pensation must  first  be  made  the 
owner,  the  entry  of  a  railroad  com- 
pany without  the  owner's  permis- 
sion is  a  trespass;  except  when  the 
entry  is  made  for  a  preliminary  sur- 
vey. New  Orleans,  etc.,  R.  R.  Co.  v. 
Jones,  68  Ala.  48. 


PART  II.]    ACTS    WITHIN    THE   CORPORATE   POWERS.  [§  182. 


what  may  be  regarded  as  exceptions  or  qualifications  to  it.  For 
the  management  of  the  affairs  of  a  corporation  is  ordinarily 
vested  by  the  corporate  constitution  in  the  board  of  directors ; 
and  this  constitution  embodying  the  original  contract  among 
the  corporators  is  the  final  determinant  of  all  rights  and  liabil- 
ities subsisting  in  respect  of  the  corporate  enterprise.  Accord- 
ingly, if  all  the  corporators  or  shareholders  originally  agreed 
that  the  management  of  the  corporate  enterprise  should  rest 
with  the  directors,  it  is  incompetent  for  a  majority  of  the  share- 
holders to  divest  the  directors  of  the  management ;  at  least  as 
long  as  a  single  shareholder  objects ;  for  in  such  case  to  change 
the  management  of  the  corporate  enterprise  would  violate  the 
rights  of  the  shareholders  under  the  original  agreement.  And 
there  is  much  reason  in  this,  for  manifestly  the  body  of  share- 
holders are  incapable  of  managing  the  corporate  business  with 
efficiency.  It  is  also  to  be  remembered  here,  that  as  all  persons 
dealing  with  a  corporation  are  affected  with  knowledge  of  its 
constitution, x  every  one  has  notice  of  whatever  incapacity  the 
constitution  has  imposed  on  the  body  of  shareholders. 

§  181.  Accordingly,  in  one  case  where  the  enabling  act  con- 
tained the  following  provision  :  "  the  powers  of  the 
corporation  shall  be  exercised  by  a  board  of  trustees," 
a  conveyance  of  real  estate  belonging  to  the  corpo- 
ration was  held  invalid  because  authorized  by  a 
shareholders'  meeting;2  and  in  another  case,  a  lease  of  cor- 
porate property,  authorized  in  the  same  manner,  was  set  aside 
on  the  ground  that  the  management  having  been  vested  in  the 
board  of  directors,  a  shareholders'  meeting  was  incompetent  to 
authorize  the  lease.3 

§  182.  It  is  submitted,  however,  that  any  general  rule  which, 
from  these  cases,  might  be  deduced  as  to  the  incapacity  of 
shareholders  to  act  in  a  corporate  meeting,  when  the  manage- 


Acts  of  the 
body  corpo- 
rate; when 
held  in- 
valid. 


1  See  §  195. 

2  Gashwiler  v.  Willis,  33  Cal.  12. 

8  Conro  v.  Port  Henry  Iron  Co.,  12 
Barb.  27.  But  in  this  case  the  lease 
had  been  made  to  the  principal  share- 
holder for  a  nominal  consideration, 
and  was  set  aside  at  the  suit  of  cred- 
itors on  whom  it  was  a  fraud.  It 
should  have  been  set  aside  had  its 


execution  been  perfectly  regular. 
See,  also,  Union  Gold  Mining  Co.  v. 
Rocky  Mn.  Nat.  Bk.,  2  Col.  565;  Mc- 
Cullough  v.  Moss,  5  Den.  567,  575; 
Union  Mut.  Ins.  Co.  v.  Keyser,  32 
N.  H.  313,  315 ;  Dana  v.  Bank  of  U.  S., 
5  W.  &  S.  223,  245-247;  Dayton,  etc., 
R.  R.  Co.  v.  Hatch,  1  Disney  (Cin- 
cinnati Sup'r  Ct.),  84. 

155 


§  184.]         THR   LAW    OF    PRIVATE   CORPORATIONS.    [CHAP.  VII. 

ment  is  vested  in  a  board  of  directors,  is  to  be  applied  most 
cautiously.1  A  shareholders'  meeting  would  rarely  act  except 
in  regard  to  matters  of  vital  importance  to  corporate  interests; 
and  there  are  certainly  acts  which  the  corporate  constitution 
may  authorize,  that  are  beyond  the  authority  of  the  board  of 
directors,  although  the  management  is  vested  in  the  board.2 
Such  acts — even  if  a  shareholders'  meeting  would  not  by  itself 
have  been  sufficient  authority  for  them — if  done  by  the  direct- 
ors, at  least  require  for  their  validity  the  shareholders'  ratifi- 
cation.3 And  certainly  the  final  authority  of  all  in  a  corpora- 
tion, to  say  whether  the  business  shall  be  carried  on  or  wound 
up,  rests  with  the  shareholders  and  not  with  the  directors.4 

§  183.  Unquestionably  all  the  shareholders,  or  all  the  share- 
holders and  creditors,  acting  unanimously,  have  more  exten- 
sive powers  than  the  body  corporate  acting  by  a  majority,  and 
may  validly  do  acts  which  would  have  been  invalid  had  they 
been  done  by  the  body  corporate  through  an  ordinary  vote. 
Such  acts,  however,  are  rarely  acts  within  the  scope  of  the  cor- 
porate powers ;  and  it  is  only  wTith  doubtful  propriety  that  they 
may  be  called  acts  of  the  corporation  ;  for  they  are  rather  acts 
whereby  the  individuals  interested  in  the  corporate  enterprise 
authorize  or  ratify  what  it  was  legally  incompetent  for  the  cor- 
poration as  such  to  do.5 

§  184.  To  be  valid  in  themselves,  acts  done  by  the  body  cor- 
porate must  be  done  in  a  corporate  meeting  duly 

Manner  in       '  x  ~  J 

which  the     assembled;6  though  any  irregularity  may  be  cured 

rate  should   by  the  acquiescence  of  those  who  would  have  had 

the  right  to  complain  of  it.7     In  considering  the  re- 


1  Although  the  management  be 
vested  in  the  directors,  a  sharehold- 
ers' meeting  may  appoint  a  commit- 
tee to  investigate  the  affairs  of  the 
corporation  and  incur  the  necessary 
expenses;  for  which  the  corpora- 
tion will  be  liable.  Star  Line  v.  Van 
Vliet,  43  Mich.  364. 

2  E.  g.,  directors  have  no  power  to 
increase  the  capital  stock,  or  lease 


the  entire   property  of  the  corpora- 
tion; see  §§  226-229. 

3  See  Hancock  v.  Holbrook,  3  Fed. 
Rep.  353. 

4  See  §§  229,  230. 

5  Compare  Railroad  Co.  v.  Howard, 
7  Wall.  392.  A  conveyance  of  the 
land  of  a  corporation  as  a  donation 
to  a  public  improvement,  if  assented 
to  by  all  the   stockholders  is  valid, 


6  As  to  the  manner  of  holding  cor- 
porate  meetings  and   elections,  see 
§§  573-576. 
156 


Nelson  v.  Hubbard,  96  Ala.  238. 


PART  II.]       ACTS   WITHIN   THE   CORPORATE   POWER.  [§  185. 


lations  between  the  corporation  and  outsiders  dealing  with  it 
in  good  faith,  this  general  rule  requires  modification.  Great 
hardship  would  be  worked  if  an  outsider  were  compelled  to  see 
to  it  at  his  peril  that  all  the  formalities  which  the  corporate 
body  before  action  or  in  acting  should  observe  were  in  fact 
observed.  Accordingly,  the  non-observance  of  antecedent  for- 
malities in  regard  to  notifying  the  meeting  will  not  affect  the 
rights  of  outsiders  acting  in  good  faith  on  the  assumption  that 
the  corporate  action  was  regular.1  On  the  other  hand,  it  may 
be  said,  since  ordinarily  only  acts  of  great  importance  are  done 
by  the  body  corporate,  outsiders  knowing  the  manner  in  which 
corporations  usually  act,  ought  carefully  to  examine  the  pro- 
ceedings of  the  body  corporate  when  their  rights  are  to  be 
based  directly  on  its  action. 

§  185.  Further,  if  there  are  in  the  constitution  of  a  corpora- 
tion provisions  of  an  imperative  nature  relating  to 
the  action  of  shareholders,  every  one  will  be  affected 
with  notice  of  them,  and  bound  at  his  peril  to  see  to 
it  that  they  are  observed.  Thus,  when  a  statute  re- 
quires the  assent  of  two-thirds  of  the  shareholders 
present  in  a  shareholders'  meeting  as  a  condition  to  a  lease  of  a 


Formalities 
required  by 
statute. 
Cousent 
of  share- 
holders. 


although  not  authorized  by  any  cor- 
porate action,  and  will  estop  the 
stockholders  from  claiming  the  land 
on  the  dissolution  of  the  corporation. 
Aransas  P.  H.  Co.  v.  Alarming,  94 
Tex.  558.  Such  acts  are  ultra  vires  ; 
and  their  legal  effect  is  the  subject 
of  Part  III.  of  the  present  chapter. 

i  See  §§  204,  259,  for  like  principles 
applying  to  acts  of  directors  and 
other  corporate  officers. 

If  the  corporate  records  show  that 
a  meeting  was  duly  called  on  proper 
notice,  and  that  business  was  trans- 
acted at  the  meeting,  it  is  to  be  pre 
sumed,  in  the  absence  of  direct  con- 
trary evidence,  that  a  quorum  was 
present.  Citizens'  Ins.  Co.  v.  Short- 
well,  8  Allen,  217.  See  Sargent  v. 
Webster,  13  Mete.  497;  Chouteau 
Ins.  Co.  v.  Holmes,  68  Mo.  601.     At 


a  meeting  duly  convened,  a  majority 
of  those  present  have  power  to  trans- 
act business,  though  they  are  a  mi- 
nority of  the  whole  number.  Granger 
v.  Grubb,  7  Phila.  350. 

Still,  it  has  been  held  that  a  vote 
purporting  to  authorize  an  agent  of 
the  corporation  to  convey  its  real  es- 
tate, passed  at  a  meeting  which  had 
not  been  notified  to  the  holders  of 
about  one-third  of  the  stock,  was 
void;  and  gave  no  validity  to  a  deed 
executed  pursuant  to  it;  but  the  case 
was  actually  decided  on  another 
point.  Stowe  v.  Wise,  7  Conn.  214. 
Failure  to  enter  at  the  time  on  the 
records  of  the  corporation  a  resolu- 
tion increasing  the  capital  stock 
does  not  invalidate  it.  Handley  v. 
Stutz,  139  U.  S.  417. 

157 


§  185.]         THE   LAW   OF   PRIVATE   CORPORATIONS.  [CHAP.  VII. 

railroad,  a  lease  executed  without  such  assent  is  invalid.1  In 
like  manner,  where  under  its  enabling  act  a  corporation  is  au- 
thorized to  mortgage  its  property,  having  first  obtained  the 
written  consent  of  the  owners  of  two-thirds  of  the  capital 
stock,  this  written  consent  is  a  condition  precedent  to  the  valid- 
ity of  a  mortgage  executed  by  the  corporation  ;  and  the  cor- 
poration itself  cannot  give  consent  on  behalf  of  stock  held  by 
itself,  nor  can  the  assenting  shareholders  be  deemed  to  rep- 
resent a  proportionate  amount  of  the  stock  held  by  the  corpo- 
ration.2 Still,  in  another  case,3  it  was  held  by  the  same  court 
construing  the  same  statute,  that  where  there  is  no  fraud  the 
defects  in  the  execution  of  the  consent  must,  to  invalidate  it, 
be  so  radical  that  an  intention  to  consent  cannot  be  inferred. 
In  this  case  the  objection  was  interposed  by  the  holder  of  a 
subsequent  mortgage,  and  the  court  said  :  "  Without  consider- 
ing the  question  whether  any  but  stockholders  may  interpose 
the  objection  to  the  authority  exercised  in  this  case,  the  infer- 
ence that  the  general  purpose  and  design  of  the  act  was  in  the 
interest  of  stockholders  only  has  some  bearing  on  the  question 
presented  as  to  the  proper  rule  of  construction  to  be  adopted 
of  the  paper  produced  as  the  assent  of  the  stockholders." 4    The 


1  Peters  v.  Lincoln  and  N.  W.  R. 
R.  Co.,  2  MeCrary,  275. 

2  Vail  v.  Hamilton,  85  N.  Y.  453. 
Such  a  mortgage  may  be  set  aside  at 
the  suit  of  a  receiver,  the  corporation 
being  insolvent. 

The  last  two  points  stated  in  the 
text  were  not  necessary  to  the  deci- 
sion of  this  case;  for  even  if  the  cor- 
poration could  validly  have  consented 
on  behalf  of  the  shares  held  by  it,  or 
if  those  shares  had  been  deducted 
from  the  total  amount  of  its  stock, 
still  there  would  not  have  been  a 
representation  of  two-thirds  of  the 
stock;  for  some  of  the  shares  on 
which  the  corporation  purported  to 
consent,  and  which  were  needed  to 
make  up  the  two-thirds,  it  had  re- 
issued to  an  individual  by  a  transfer 
absolute  in  form,  though  made  as 
collateral  security.     Compare  Green- 

158 


point  Sugar  Co.  v.  Whitin,  69  N.  Y. 
328,  339,  infra.  Still,  it  is  settled  that 
a  corporation  cannot  vote  on  shares 
held  by  it.  §  136.  lb.  Where  for  the 
validity  of  a  mortgage  the  charter 
required  the  consent  of  the  holders 
of  more  than  seventy  per  cent  of  the 
common  and  preferred  stock,  it  was 
held  that  this  provision  was  for  the 
protection  of  the  stockholders,  and 
that  a  mortgage  executed  without 
such  consent  could  not  be  set  aside 
by  the  creditors  through  the  assignee 
in  insolvency.  Bishop  v.  Kent  & 
Stanley  Co.,  20  R.  I.  681. 

3  Greenpoint  Sugar  Co.  v.  Whitin, 
69  N.  Y.  328.  See  Paulding  v. 
Chrome  Steel  Co.,  94  N.  Y.  334; 
Welch  v.  Importers',  etc.,  Bank,  122 
X.  Y.  177.  Compare  Lewis  v.  Jeff- 
ries, 86  Pa.  St.  340. 

*69    N.     Y.    333.      See    Boyce  v. 


PART    H.]    ACTS    WITHIN   THE    CORPORATE   POWERS.         [§  187. 


consent,  of  which  the  validity  was  before  the  court,  had  been 
signed  by  the  owners  of  two-thirds  of  all  the  stock  that  had 
ever  been  issued  ;  and,  although  they  were  not  the  holders  of 
two-thirds  of  the  amount  of  stock  specified  in  the  articles  of 
incorporation,  they  represented,  as  the  court  said,  "  two-thirds 
of  the  pecuniary  interest  and  property  of  the  corporation." 1 
And  the  consent  was  held  sufficient,  notwithstanding  other  al- 
leged defects,  all  of  which  the  court  considered  immaterial  un- 
der the  circumstances  of  the  case.2 

§  186.  Further  principles  of  law  are  to  be  taken  into  con- 
sideration when  it  is  the  function  of  certain  officers    „    .„ 

.  .       ,  .  »  r  Certifica- 

te certif}"  the  existence  of  an  assent  of  shareholders   tion  of  the 

to  a  measure.  Then  it  would  seem,  although  the  ance^ffor- 
assent  might  be  defective  or  perhaps  entirely  want-  mallties- 
ing,  that  the  certification  of  the  proper  officer  would  estop  the 
corporation  from  setting  up  either  of  these  facts  to  the  detri- 
ment of  an  outsider  who  had  acted  in  good  faith  relying  on  the 
certification.3 

§  187.    Shareholders    separately    and    individually   have  no 
power  to  act  for  the  corporation :  and  acts  done  by    T  ,.  .,    , 

1  L  *      Individual 

them  in  such  a  manner  will  have  no  validity  as  cor-  sharehoid- 

porate  acts;4  unless,  to  be  sure,  a  shareholder  acts  act  for  the 

under  some  special  authority,  in  which  case  he  does  ^^orar 
not  act  as  a  shareholder.     This  statement,  however, 


Montauk  Gas  Co.,  37  W.  Va.  73,  and 

§  813.  This  same  statute  provides 
that  the  assent  "  shall  first  be  filed  in 
the  office  of  the  clerk  of  the  county 
where  the  mortgaged  property  is 
situated."  Under  this,  as  against  a 
subsequent  mortgagee  with  notice  of 
the  prior  mortgage,  an  assent  given 
after  the  execution  of  the  prior  mort- 
gage validates  it,  although  not  filed 
in  the  office  of  the  proper  county 
clerk,  such  assent  being  prior  in 
time  to  the  subsequent  mortgage. 
Rochester  Savings  Bank  v.  Averell, 
96  N.  Y.  467.  See,  also,  Martin  v. 
Niagara  Paper  Co.,  122  N.  Y.  165. 


1  69  N.  Y.  339.  Ace.  Castner  v. 
Twitchell  Champlin  Co.,  91  Me.  524. 

2  Where,  for  the  validity  of  a  mort- 
gage, a  statute  requires  the  concur- 
rence of  two-thirds  of  the  sharehold- 
ers present  at  a  meeting,  it  is  suffi- 
cient if  all  the  directors  assent  at  a 
directors'  meeting,  they  being  in  fact 
all  the  shareholder's  but  one.  Thomas 
v.  Citizens'  Horse  Ry.  Co.,  104  111. 
462.  The  court  said  that  all  the 
shareholders  had  assented;  and  the 
corporation  had  had  the  proceeds  of 
the  mortgage.  Compare  Miller  v. 
Rutland,  etc.,  R.  R.  Co.,  36  Vt.  452. 

3  See  §§207  and  208  for  analogous 


4  For  note  4  see  p.  160. 


159 


§  187.]        THE   LAW    OF   PRIVATE   CORPORATIONS.     [CHAP.  VII. 


requires  modification  in  this  respect :  shareholders  by  their 
separate  and  individual  action  or  acquiescence  may  estop  them- 
selves from  questioning  the  validity  of  an  act  done  on  behalf 
of  a  corporation.1  Conversely,  a  person  owning  all  the  capital 
stock  of  a  corporation  is  not  the  legal  owner  of  its  property, 
and,  for  example,  cannot  maintain  replevin  for  it  in  his  own 
name.- 


principles  which  estop  a  corporation 
from  denying  the  existence  of  a  fact 
certified  to  by  an  agent,  on  the  ex- 
istence of  which  the  authority  of  the 
agent  to  act  depends;  also,  §§  329- 
332. 

4  Humphreys  v.  McKissock,  140 
U.  S.  304,  312;  Duke  v.  Markham, 
105  N.  C.  181;  Shay  v.  Tuolumne 
County  Water  Co.,  6  Cal.  73;  Ruby 
v.  Abyssinian  Society,  15  Me.  306; 
Bartlett  v.  Kinsley,  15  Conn.  327; 
Hartford  Bank  v.  Hart,  3  Day 
(Conn.),  491;  Hayden  v.  Middlesex 
Turnpike  Co.,  10  Mass.  397,  403; 
Harris  v.  Muskingum  Mfg.  Co.,  4 
Blackf .  ( Iud. )  267.  See  Canal  Bridge 
v.  Gordon,  1  Pick.  296,  303;  Bidwell 
v.  Pittsburgh,  etc.,  Ry.  Co.,  114  Pa. 
St.  535;  Rough  v.  Breitung,  117 
Mich.  48;  Sellers  v.  Greer,  172  111. 
549.  All  the  shareholders  act- 
ing individually  cannot  convey  the 
corporate  property.  Wheelock  v. 
Moultou,  15  Vt.  519;  Isham  v.  Ben- 
nington Iron  Co.,  19  Vt.  230,  249; 
Baldwin  v.  Canheld,  26  Minn.  43; 
Parker  v.  Hotel  Co.,  96  Tenn.  252. 
Compare  Gordon  v.  Swan,  43  Cal. 
504;  Castleberry  v.  State,  62  Ga.  442. 
So  a  person  who  is  president,  treas- 
urer, and  general  manager  of  a  cor- 
poration, and  owns  all  but  two  shares 
of  itsstock,  cannot  i^ive  a  mortgage 
of  the  property~oTthe  corporation  to 
secure  a  pre-existing  debt;  England 
D.  Dearborn,  141  Mass.  590.  Semble 
contra,  Swift  v.  .Smith,  65  Md.  428. 
S^asjdg  of  fi(p-pnvn.tft  property  made 
in  good_faU^i_Jry_the^  assignee  of  an 

100 


insolvent  corporation  cannot  be,  set 
aside  on  account  of  any  fraud  com- 
mitted by  a  shareholder  with  which 


the  assignee  was  in  no  way  connected. 
Trevitt  v.  Converse,  31  Ohio  St.  60. 
Notice  to  individuaJLshareholdgrs  is 
not  notice  to  the^corjiQration.  Davis 
Improved  Wrought  Iron  Wagon 
Wheel  Co.  u.  Davis,  etc.,  Co.,  22 
Blatchf.  221;  Nat.  Bank  v.  Anderson, 
28  S.  C.  143;  Blood  v.  La  Serena  L. 
&  W.  Co.,  134  Cal.  361;  Nor  is  notice 
to  corporators.  Mercantile  Nat.  Bk. 
v.  Parsons,  54  Minn.  56. 

But  if  the  shareholders  covenant 
that  the  corporation  shall  do  certain 
acts,  they  will  be  individually  liable, 
at  least  in  damages,  if  it  do  not  per- 
form.  Tileston  v.  Newell,  13  Mass. 
406;  see  Wheelock  v.  Moulton,  15  Vt. 
519,  524. 

1  Sheldon  Hat  Blocking  Co.  v. 
Eickemeyer  Hat  Blocking  Machine 
Co.,  90  N.  Y.  607;  Hull  v.  Glover,  126 
111.  122;  Manhattan  Hardw.  Co.  v. 
Plialen,  128  Pa.  St.  110;  Same  v.  Ro- 
land, ib.  119;  McCaleb  v.  Goodwin 
et  al.,  114  Ala.  615;  Nicrosi  v.  Calera 
Land  Co.,  115  Ala.  429.  See  §§  213- 
217. 

2  Button  v.  Hoffman,  61  Wis.  20; 
First  Nat'l  B'k  of  Gadsden  v.  Win- 
chester, 119  Ala.  168.  See,  also, 
Compton  v.  The  Chelsea,  128  N.  Y. 
537;  Richter  ».  Henningsan,  110  Cal. 
530;  Exchange  Bank  v.  Macon  Cons. 
Co.,  97  Ga.  1;  Bridge  Co.  v.  Traction 
Co.,  19(5  Pa.  St.  25;  Sparks  v.  Dun- 
bar, 102  Ga.  129;  Harrington  v.  Con- 
nor, 51  Neb.  214;  Durlacher  v.  Frazer, 


PART  II.]       ACTS    WITHIN    THE    CORPORATE    POWERS.       [§  188. 

§  188.  Before  entering  on  the  discussion  of  what  acts  of  the 
various  classes  of  corporate  officers  are  binding  on 
the  corporation  it  will  be  convenient  to  notice  how   the  actTof* 
the  validity  of  an  act  is  affected  by  the  circumstance   ^act0 
that  the  person  acting  on  behalf  of  the  corporation 
as  a  corporate  agent  or  officer  is  not  in  point  of  strict  law  the 
officer  he  purports  to  be — is  an  officer  de  facto,  and  not  an  offi- 
cer de  jure.1 

"An  officer  de  facto"  says  Lord  Ellenborough,  "  is  one  who 
has  the  reputation  of  being  the  officer  he  assumes  to  be,  and  yet 
is  not  a  good  officer  in  point  of  law."  2  It  is  consistent  with 
this  definition,  and  has  been  so  held,  that  by  color  of  election 
a  person,  though  clearly  ineligible,  may  be  such  an  officer.3 
Moreover,  "  persons  acting  publicly  as  officers  of  the  corporation 
are  presumed  to  be  rightly  in  office.  ...  If  officers  of  the 
corporation  openly  exercise  a  power  which  presupposes  a  dele- 
gated authority  for  the  purpose,  and  other  corporate  acts  show 
that  the  corporation  must  have  contemplated  the  legal  existence 
of  such  authority,  the  acts  of  such  officers  will  be  deemed  right- 
ful, and  the  delegated  authority  will  be  presumed.  If  a  person 
acts  notoriously  as  cashier  of  a  bank,  and  is  recognized  by  the 
directors  or  by  the  corporation  as  an  existing  officer,  a  regular 
appointment  will  be  presumed  ;  and  his  acts,  as  cashier,  will 


8  Wyo.  58.  One  corporation  is  not 
liable  for  the  debts  of  another  cor- 
poration merely  because  the  same 
persons  hold  the  stock  in  both  cor- 
porations. Waycross  R.  Co.  v.  Offer- 
man  R.  Co.,  109  Ga.  827. 

A  promise  by  a  stockholder  to  pay 
the  debt  of  the  corporation  is  a  prom- 
ise to  pay  the  debt  of  another,  and 
so  within  the  Statute  of  Frauds. 
Home  Nat.  Bank  v.  Waterman,  134 
111.  4G1.  Shareholders,  though  they 
own  all  tlie  stock,  cannot  set  off  their 
individual  claims  against  a  creditor 
of  the  corporation,  in  an  action 
brought  by  him  against  the  corpo- 
ration. Gallagher  v.  Brewing  Co., 
53  Minn.  214.  But  a  shareholder  has 
an  insurable  interest  in  the  property 
11 


of  the  corporation,  and  may  protect 
it  by  an  insurance  of  specific  prop- 
erty of  the  corporation.  Riggs  v. 
Commercial  Mutual  Insurance  Co., 
125  N.  Y.  7. 

1  In  regard  to  setting  aside  the  ap- 
pointment or  election  of  de  facto  offi- 
cers, see  §§  577-581. 

2  King  ».  Bedford  Level,  6  East, 
356,  368  ;  see  Parker  v.  Kett,  1  Lord 
Raymond,  658,  660.  This  definition 
is  followed  in  Mechanics'  Nat.  Bank 
v.  Burnett  Mfg.  Co.,  32  N.  J.  Eq.  236. 
Compare  Norton  v.  Shelby  County, 
118  U.  S.  425. 

3  Kuight  v.  Corporation  de  Wells 
Lutw.,  508,  519.  See,  also,  O' Brian 
v.  Knivan,  Cro.  Jac.  552. 

161 


§  189.]       THE  LAW   OF   PRIVATE   CORPORATIONS.    [CHAP.  VII. 


Principles 
on  which 
rests  the 
validity  of 
the  acts  of 
de  facto 
officers. 


bind  the  corporation,  although  no  written  proof  is  or  can  be 
adduced  for  his  appointment." ! 

Mere  general  reputation,  however,  is  not  evidence  as  against 
the  corporation,  to  prove  that  certain  persons  were  its  officers 
(directors),  the  ordinary  rules  of  evidence  being  applicable.2 
§  189.  The  general  rule  regarding  the  legal  effect  of  the  acts 
of  de  facto  officers  is  stated  in  Angell  and  Ames  on 
Corporations,  as  follows :  "  The  act  of  an  officer  de 
facto  is  good,  wherever  it  concerns  a  third  person, 
who  had  a  previous  right  to  the  act,  or  has  paid  a 
valuable  consideration  for  it." 3 
It  is  submitted  that  this  statement  of  the  rule  does  not  give 
sufficient  prominence  to  the  principle  of  estoppel  on  which  the 
rule  depends ;  a  principle  which,  in  its  application  to  the  re- 
sponsibility of  corporations  for  the  acts  of  de  facto  officers,  may 
be  stated  thus :  If  a  body  of  men  acting  as  a  corporation  permit 
certain  persons  to  act  openly  as  corporate  officers — or  if  it  is 
permitted  by  the  directors,  assuming  them  to  have  had  the 
power  to  appoint  the  officer  in  question — the  corporation  will 
not,  to  the  detriment  of  persons  who  in  good  faith  have  acted 
on  the  assumption  that  the  persons  acting  as  officers  were  the 
officers  they  assumed  to  be,  be  permitted  to  impeach  the  validity 
of  their  acts  and  contracts  on  the  ground  that  such  persons  were 
not  legally  corporate  officers ; 4  and,  on  the  other  hand,  persons 


1  Story,  J.,  in  Bank  of  U.  S.  v. 
Dandridge,  12  Wheat.  64,  70.  In  ac- 
cord with  his  remarks  are  Hall  v. 
Carey,  5  6a.  239  ;  Despatch  Line  v. 
Bellany  Jlfg.  Co.,  12  N.  H.  205. 

2  Litchfield  Iron  Co.  u.  Bennett,  7 
Cow.  234. 

3  §287.  See  Riddle  v.  Bedford 
County,  7  S.  &  R.  386,  392;  Zear- 
foss  v.  Farmers'  Institute,  154  Pa.  St. 
449;  Greene  v.  Sprague  M'f'g  Co., 
52  Conn.  330.  Of  course,  an  out- 
sider, having  no  standing  in  court  to 
do  so,  cannot  impeach  the  validity  of 
the  acts  of  a  de  facto  officer.  See 
Simpson  v.  Garland,  76  Me.  203. 

*Kuser  v.  Wright,  52  N.  J.  Eq.  825; 
Baird  v.  Bk.  of  Washington,  11  S.  &  R. 
162 


411;  Heath  v.  Silverthorn  L.  M.  Co., 
39  Wis.  147;  Mec.  Nat.  Bk.  v.  Burnet 
Mfg.  Co.,  32  N.  J.  Eq.  236;  Hacken- 
sack  Water  Co.  v.  De  Kay,  36  N.  J.  Eq. 
548;  Sau  Jose  Savings  Bank  v.  Sierra 
Lumher  Co.,  63  Cal.  179.  In  re 
County  Life  Assurance  Co.,  L.  R.  5 
Ch.  288;  see  Stratton  v.  Lyons,  53 
Vt.  130;  Newton  M'f'g  Co.  v.  White, 
42  Ga.  148;  Barrell  v.  Lake  View 
Land  Co.,  122  Cal.  129;  Heinze  v. 
South  Green  Bay,  L.  &  D.  Co.,  109 
Wis.  99. 

A  familiar  application  of  this  ride 
is  to  the  case  where  legally  elected 
officers  hold  over  after  the  expira- 
tion of  their  terms  of  office.  The  acts 
of  such  officers  bind  the  corporation 


PART    II.]  ACTS    WITHIN    THE    CORPORATE    POWERS.         [§  190. 


Limita- 
tions. 


who  contract  with  de  facto  officers  as  officers  of  the  corporation 
will  not,  when  sued  by  the  corporation  on  the  contract,  be 
allowed  to  defend  on  the  ground  that  such  officers  were  not 
legall}7"  the  representatives  of  the  corporation. 1 

§  190.  Both  branches  of  the  foregoing  proposition  rest  on 
principles  of  estoppel;  and  with  the  limits  of  the 
estoppel  the  scope  of  their  application  is  determined. 
Consequently,  to  an  action  for  calls,  a  shareholder 
may  plead  that  the  directors  making  the  calls  were  not  legally 
elected  ;2  and  a  forfeiture  of  shares  declared  by  illegally  chosen 
directors  may  be  set  aside.3  It  is  also  held  that  the  principle 
on  which  the  validity  of  the  acts  of  de  facto  officers  is  sustained 
against  the  corporation  does  not  apply  where  all  the  persons 
affected  have  notice  that  the  officers  assuming  to  act  were  not 
legally  chosen.4 


as  to  outsiders  acting  in  good  faith. 
Thorington  v.  Gould,  59  Ala.  461;  St. 
Louis  Domicile  Ass'n  v.  Augustin,  2 
Mo.  App.  123;  Milliken  v.  Steiner,  56 
Ga.  251.  So  persons  dealing  with  an 
insurance  agent  may  assume  the  con- 
tinuance of  his  authority  until  in 
some  way  informed  of  its  revocation. 
Insurance  Co.  v.  McCain,  96  U.  S.  84. 
See,  also,  cases  cited  in  the  preceding 
and  following  notes. 

1  Delaware,  etc.,  Canal  Co.  v.  Penn- 
sylvania Coal  Co.,  21  Pa.  St.  131; 
Cooper  v.  Curtis,  30  Me.  488;  Inibo- 
den  y.  Etowah,  etc.,  M'g  Co.,  70  Ga. 
86.  See  Simpson  v.  Garland,  76  Me. 
203;  Abbott  v.  Chase,  75  Me.  83. 

2  People's  Mutual  Ins.  Co.  v.  West- 
cott,  14  Gray,  440;  Howbeach  Coal 
Co.  u.  Teague,  5  H.  &.  N.  151.  Qu?ere, 
supposing  the  only  shareholders  dis- 
puting the  call  had  taken  part  with- 
out objection  in  the  election  of  the 
directors,  and  voted  for  them. 

It  has  been  held,  where  directors 
were  elected  at  a  meeting  of  share- 
holders not  called  by  the  persons 
named  in  the  certificate  of  incorpo- 
ration, that  a  subscriber  when  sued 
on    his    subscription    cannot    plead 


that  the  directors  were  not  legal  offi- 
cers. The  statute  in  this  respect 
being  but  directory,  the  validity  of 
the  directors1  acts  could  not  thus  be 
questioned  collaterally.  Chamber- 
lain v.  Painesville,  etc.,  R.  R.  Co.,  15 
Ohio  St.  225.     See  §  540. 

3  Garden  Gully  Mining  Co.  v.  Mc- 
Lister,  L.  R.  1  App.  Cas.  39. 

4  State  v.  Curtis,  9  Nev.  325;  Orr 
Water  Ditch  Co.  v.  Reno  Water  Co., 
17  Nev.  166. 

It  has  also  been  held  that,  though 
the  acts  of  a  president  de  facto  would 
be  valid  "for  ordinary  purposes," 
yet  when  a  suit  by  which  he  was 
eventually  ousted  was  pending  to  try 
his  title  to  the  office,  he  could  not 
make  a  valid  assignment  of  securi- 
ties belonging  to  the  corporation, 
with  a  view  to  making  preferences 
between  creditors.  Walker  y.  Flem- 
ming,  70  N.  C.  483. 

But  would  such  an  assignment  have 
been  in  the  power  of  a  president  de 
jure  ?  See  §§  236  et  seq.  De  facto 
officers  cannot  avail  themselves  of 
their  acts  in  their  own  favor.  Shel- 
lenberger  v.  Patterson,  168  Pa.  St.  30. 

163 


§  193.]        THE  LAW   OF   PRIVATE   CORPORATIONS.    [CHAP.  VII. 

§  191.  There  are  certain  rules  of  general  application  regard- 
ing the  responsibility  of  corporations  for  the  acts  of  their  agents, 
which  it  will  be  well  to  consider  before  discussing  in  detail 
General        tne  authority  of  the  different  classes  of  corporate 

rules  regu-      agents. 

lating  the  ,. 

respousi-  §  192.  lhe  acts  of  directors  and  other  corporate 

corpora-  agents  are  valid  as  to  the  corporation  and  all  persons 
thTacteof  interested  in  the  corporate  enterprise,  when  the  direct- 
their  ors  or  other  agents  act  in  pursuance  of  powers  origi- 

nally conferred  on  them  by  the  charter,  or  enabling 
statute  and  articles  of  association ;  or  conferred  on  them 
through  an  exercise  of  power  vested  in  the  body  corporate  or 
— in  the  case  of  agents  other  than  the  board  of  directors — in 
the  board  of  directors.  And  where  competent  authority  is  ex- 
pressly conferred  on  an  agent  for  a  certain  purpose,  he  will 
have  incidental  authority  to  do  whatever  acts  are  necessary 
and  proper  to  carry  out  the  purpose  of  his  appointment.1 

§  193.  If  directors  or  other  corporate  agents  do  an  act  which 
is  not  beyond  the  scope  of  the  corporate  powers,  the 
ttaiaw'of     question  whether  the  act  is  binding  on  the  corpora- 
agency  ap-     ^jon  an(:l  all  persons  interested  in  the  corporate  en- 

phcable.  l  J 

Acts  within  terprise  may  be  usually  solved  by  the  ordinary  rules 
nary  scope  of  agency.2  If  the  act  was  within  the  ordinary 
agent's  au-  scope  of  the  agent's  authority,  and  the  other  party 
valid*7  acted  in  good  faith,  having  no  notice  that  the  agent 
had  in  fact  no  authority  to  do  the  act  in  question, 
the  corporation  will  be  bound  by  the  act,  unless  the  powers  of 
the  agent  are  contained  in  some  instrument  (e.  g.,  the  charter), 
with  knowledge  of  the  contents  of  which  the  other  party  was 
affected ;  for  a  person  dealing  with  a  corporate  agent  is  justified 
in  assuming  that  the  agent  has  authority  to  do  any  act  or  make 
any  contract  within  the  scope  of  his  employment  and  incidental 
thereto.3     As  Justice  Story  said,  giving  the  opinion  of  the  court 


1  A  general  power  conferred  on  the 
president  of  a  railroad  company  to 
borrow  money  for  it,  and  purchase 
rails,  locomotives,  etc.,  and,  in  or- 
der to  do  so,  to  make  and  deliver 
obligations,  bills  of  exchange,  and 
contracts  of  the  company,   includes 


leuder  or  a  vendor.  Hatch  v.  Cod- 
dington,  95  U.  S.  48.  See  Rathbun 
v.  Snow,  12:1  X.  Y.  343. 

2  New  York,  P.,  etc.,  R.  R.  Co.  v. 
Dixon,  114  N.  Y.  80. 

8  See,  e.  g.,  Fletcher  v.  New  York 
Life    Ins.    Co.,    14    Fed.     Rep.    846; 


authority    to    give    securities    to   a  |  Adams   Exp.    Co.  v.   Schlesinger,  75 

161 


PART  II.]    ACTS    WITHIN    THE   CORPORATE    POWERS. 


[§  193. 


in  Minor  v.  Mechanics'  Bank,1  "  The  officers  of  the  bank  are 
held  out  to  the  public  as  having  authority  to  act,  according  to 
the  general  usage,  practice,  and  course  of  their  business ;  and 
their  acts  within  the  scope  of  such  usage,  practice,  and  course 
of  business  would,  in  general,  bind  the  bank  in  favor  of  third 
persons  possessing  no  other  knowledge."2 

Further,  from  the  circumstance  that  a  corporate  agent  or 


Pa.  St.  246;  Great  Western  Ry.  Co. 
v.  Miller,  19  Mich.  305;  Term.  River 
Trans.  Co.  v.  Kavanaugh  Bros.,  93 
Ala.  324;  S.  C,  101  Ala.  1;  Fulton 
B.  <fc  L.  Ass'n  v.  Greenlea,  103  Ga. 
376;  Pollock  v.  Carolina  Interstate 
B.  &  L.  Ass'n,  51  S.  C.  420.  Station 
agents  are  presumed  to  have  author- 
ity to  contract  for  the  transporta- 
tion of  freight;  and  shippers  are  not 
affected  with  notice  of  limitations 
on  their  powers   unless  the   limita- 


458;  Pacific  R.  R.  Co.  v.  Thomas,  19 
Kan.  250.  Compare  Louisville  E.  & 
St.  L.  Ry.  Co.  0.  McVay,  98  Iud.  391; 
Union  Pacific  Ky.  Co.  v.  Beatty,  35 
Kan.  265.  But  a  station  agent  or 
conductor  has  no  such  authority; 
§  201.  See,  also,  Insurance  Co.  v. 
McCain,  96  U.  S.  84,  and  cases  in  the 
following  notes. 

1  1  Pet.  46,  70. 

2  Thus,  where  a  person  pays  a  debt 
over  the  bank-counter  to  an  officer 


tions  are  conveyed  to  the  public  in  a    who  was  paying  and  receiving  teller 
manner    authorizing    the    inference  '  of  the  bank,  without  knowledge  that 


that  shippers  are  apprised  of  them. 
Pruitt  v.  Hannibal  and  St.  Jo.  R.  R. 
Co.,  62  Mo.  527;  Harrison  v.  Mis- 
souri Pacific  Ry.  Co.,  74  Mo.  364; 
Watson  v.  Memphis,  etc.,  R.  R.  Co., 
9Heisk.(Tenn.  )255;  Michigan  South- 
ern &  N.  I.  R.  R.  Co.  ».  Day,  20  111. 
375.  But  compare  Wood  o.  C.  M.  & 
St.  P.  Ry.  Co.,  59  Iowa,  196;  Bur- 
roughs o.  Norwich,  etc.,  R.  R.  Co., 
100  Mass.  26;  Missouri  Pac.  Ry.  Co. 
v.  Stults,  31  Kan.  752;  Wood  v.  C.  M. 
&  St.  P.  Ry.  Co.,  59  Iowa,  196.  Pas- 
sengers may  assume  that  baggage- 
masters  have  authority  to  make  all 
ordinary  contracts  and  arrangements 
connected  with  the  transportation 
of  baggage.  Isaacson  v.  N.  Y.  C.  & 
H.  R.  R.  R.  Co.,  94  N.  Y.  278.  So 
general  or  division  superintendents, 
or  general  agents  of  a  railroad  com- 
pany, may  be  presumed  to  have  au- 
thority to  employ  a  physician  to  at- 
tend an  employe  injured  in  the  ser- 
vice of  the  company.  Atlantic  and 
Pac.  R.  R.  Co.  u.  Reisner,  18  Kan. 


he  is  not  authorized  to  receive 
money,  the  bank  is  bound  by  the 
payment.  East  River  National  Bank 
13.  Gove,  57  N.  Y.  597.  See  Hotch- 
kiss  v.  Artisans1  Bank,  2  Keyes,  564. 
So  an  agent  for  an  insurance  com- 
pany, authorized  to  take  and  approve 
risks  and  to  insure,  is  authorized  by 
general  usage  to  allow  credit  for  the 
premium.  Its  allowance  does  not 
impair  the  validity  of  the  prelimi- 
nary contract  to  insure.  Insurance 
Co.  v.  Colt,  20  Wall.  560.  And  a  cor- 
poration may  be  held  on  promissory 
notes  issued  by  its  treasurer  in  ac- 
cordance with  usage.  In  re  Great 
Western  Telegraph  Co.,  5  Biss.  363. 
Compare,  as  to  treasurer's  authority, 
Atkinson  v.  St.  Croix  MTg  Co.,  24 
Me.  171;  Stark  Bank  ».  U.  S.  Pot- 
tery Co.,  34  Vt.  144;  Davis  v.  Rock- 
ingham Investment  Co.,  89  Va.  290. 
A  treasurer  cannot  biud  his  corpora- 
tion for  money  borrowed  by  him  and 
embezzled,  when  no  usage  or  author- 
ity in  him  is  shown.  Craft  ».  South 
165 


195.]         THE   LAW   OP   PRIVATE   CORPORATIONS.  [CHAP.  VII. 


officer  for  a  space  of  time  has  performed  certain  acts  on  behalf 
of  the  corporation,  with  its  acquiescence  or  with  the  acqui- 
escence of  his  superior  officers,  who  themselves  have  authority 
to  do  the  acts  in  question,  persons  dealing  with  him  will  be 
protected  in  acting  on  the  honest  assumption  that  those  acts 
and  acts  of  a  like  nature  done  for  a  similar  purpose  are  within 
the  scope  of  his  authority.1 

§  194.  It  is  of  importance  to  determine  what  limitations  on 
the  authority  of  corporate  agents  will  protect  a  cor- 
poration from  responsibility  for  their  unauthorized 
acts.  Limitations  having  this  effect  may  be  divided 
into  three  classes  :  first,  those  with  knowledge  of 
which  persons  transacting  business  with  corporate 
agents  are  affected  as  a  matter  of  law ;  secondly,  those  actually 
brought  to  the  knowledge  of  such  persons;  and,  thirdly,  those 
a  reasonable  man  would  infer  from  the  character  of  the  agent's 
employment. 

§  195.  It  is  undisputed  that  persons  dealing  with  a  corpora- 


Effective 

limitations 
on  the  au- 
thority of 
corporate 
agents. 


Class  I. 


tion  are  charged  with  notice  of  the  limitations  on  the 


authority  of  its  agents  contained  in  its  charter  or 
enabling  act  and  articles  of  association.2    And  a  person  dealing 


Boston  R.  R.  Co.,  150  Mass.  207. 
(There  was,  also,  a  by-law  forbid- 
ding it.) 

1  Mining  Co.  v.  Anglo-Californian 
Bank,  104  U.  S.  192  ;  Creswell  v. 
Lanalian,  101  U.  S.  347  ;  Merchants1 
Bank  v.  State  Bank,  10  Wall.  G04  ; 
Beers  v.  Phoenix  Glass  Co.,  14  Barb. 
358;  Phillips  v.  Campbell,  43  N.  Y. 
271  ;  Talladega  Insurance  Co.  v.  Pea- 
cock, 67  Ala.  253  ;  Lester  v.  Webb,  1 
Allen,  34  ;  McDonald  v.  Cbisbolm, 
131  111.  273  ;  see  Allen  v.  Citizens1 
Steam  Navigation  Company,  22  Cal. 
28;  Lee  v.  Pittsburgh  Coal,  etc.,  Co., 
56  How.  Pr.  (N.  Y. )  373;  S.  C, 
affd  75  N.  Y.  601;  Woman's  Chris- 
tian Temperance  Union  v.  Taylor,  8 
Col.  75;  and,  generally,  the  princi- 
ples of  estoppel  apply  to  corpora- 
tions. Bank  r.  Flour  Co.,  41  O.  St. 
552  ;  New  York  &  N.  E.  R.  R.  Co.  v. 
166 


New  York,  etc.,  R.  R.  Co.,  52  Conn. 
274,  282  ;  Heine  v.  Pollak,  118  Ala. 
017;  Magowan  v.  Groveung,  14  S. 
Dak.  543. 

Compare  Elliott  Bank  v.  Western, 
etc.,  R.  R.,  2  Lea  (Tenn.),  676. 

2  Pearce  v.  Madison,  etc.,  R.  R.  Co., 
21  How.  441,  443  ;  Davis  v.  Old 
Colony  R.  R.  Co.,  131  Mass.  258; 
Beatty  v.  Marine  Ins.  Co.,  2  Johns. 
(N.  Y.)  109;  Dabney  v.  Stevens,  2 
Sweeney,  415,  affd  46  N.  Y.  681; 
Adriance  v.  Roome,  52  Barb.  399; 
Silliman  v.  Fredericksburg,  etc.,  R. 
Co.,  27  Gratt.  (Va.)  119  ;  Merritt  v. 
Lambert,  1  Hoffman's  Ch.  (N.  Y.) 
165  ;  Root  v.  Wallace,  4  McLean,  8; 
Salem  Bank  ».  Gloucester  Bank,  17 
Mass.  1,  29  ;  Fitzhngh  ».  Land  Co., 
81  Tex.  306  ;  see  Zabriskie  v.  Cleve- 
land, etc.,  R.  R.  Co.,  23  How.  381, 
398. 


PART    II.]  ACTS    WITHIN   THE   CORPORATE   POWERS.  [§  196. 

with  a  domestic  corporation  is  also  charged  with  knowledge  of 
the  general  law  regulating  corporations,  statutory  as  well  as 
unwritten.1  Further,  where  a  certain  class  of  corporations,  for 
instance  banks,  have  established,  recognized,  and  well-known 
usages,  all  persons  dealing  with  their  agents  will  be  affected 
with  notice  of  these  usages,  and  the  contracts  of  such  corpora- 
tions will  be  construed  with  reference  to  them.2 

§  196.  In  regard  to  by-laws,  it  is  impossible  to  state  any  rule 
of  universal  or  even  general  applicability ;  for  whether 
a  person  dealing  with  a  corporation  is  affected  with   j^faws.1 
notice  of  its  by-laws  depends  greatly  on  the  position 
they  fill  in  the  scheme  of  organization  and  incorporation  of  the 
company  prescribed  by  its  enabling  act.     It  has  perhaps  been 
held  that  all  persons  dealing  with  corporate  agents  are  charged 
with  notice  of  the  limitations  on  their  authority  contained  in 
the  by-laws.3     But  this  proposition,  thus  broadly  stated,  is  not 
generally  accepted  as  law.     Indeed,  the  weight  of  authority  is 


The  English  law  is  similar  in  this 
respect.  In  re  County  Life  Assurance 
Co.,  L.  R.  5  Ch.  288,  293;  Royal 
British  Bank  v.  Turquand,  6  El.  & 
Bl.  327  ;  Ernest  v.  Nicholls,  6  H.  L. 
C.  401,  419  ;  Fountains  v.  Carmar- 
then Ry.  Co.,  L.  R.  5  Eq.  316,  322. 

1  A  party  dealing  with  the  agents 
of  a  foreign  corporation  must  take 
notice  of  every  limitation  in  its 
charter  ;  but  is  not  affected  with 
notice  of  statutes  of  a  general  nature 
enacted  by  the  foreign  state,  though 
they  tend  to  abridge  the  corporate 
powers.  Hoyt  v.  Thompson's  Exr. 
19  N.  Y.  207  ;  see  Bank  of  Chillicothe 
v.  Doge,  8  Barb.  233.  But  see  City 
Fire  Ins.  Co.  v.  Carrugi,  41  Ga.  660. 

A  person  dealing  with  the  direct- 
ors of  a  foreign  (English)  corpora- 
tion is  affected  with  notice  of  the 
limitations  on  their  authority  con- 
tained in  the  articles  of  association. 
Davis  v.  Flagstaff  Silver  Mining  Co., 
2  Utah,  74  ;  compare  Flagstaff  Silver 
Mining  Co.  v.  Patrick,  ib.  304. 

2  Renner  v.  Bank  of  Columbia,  9 


Wheat.  581  ;  Lincoln,  etc.,  Bank  v. 
Page,  9  Mass.  155  ;  Smith  v.  Whiting, 
12  Mass.  6.  See  Blanchard  v.  Hilliard, 
11  Mass.  85  ;  Weld  v.  Gorham,  10 
Mass.  366;  Jones  v.  Fales,  4  Mass. 
245  ;  Whitwell  v.  Johnson,  17  Mass. 
452  ;  City  Bank  v.  Cutter,  3  Pick. 
414;  Haddock  v.  Citizens'  Nat.  Bank, 
53  Iowa,  542.  Compare  Jackson  Ins. 
Co.  v.  Cross,  9  Heisk.  (Tenn.)  283. 

3  Adriance  v.  Roome,  52  Bai'b.  399, 
411;  Dabney  v.  Stevens,  2  Sweeny 
(N.  Y.),  415;  De  Bost  v.  Albeit 
Palmer  Co.,  1  How.  Pr.  N.  S.  (N.  Y.) 
501;  Bocock  v.  Coal  Co.,  82  Va.  913. 
See,  Fowler  v.  Gt.  So.  T.  &  T.  Co., 
104  La.  751.  In  these  cases,  how- 
ever, the  decision  seems  to  have 
turned  rather  on  the  fact  that  the 
act  in  question  was  beyond  the  scope 
of  the  authority  of  the  officers  doing 
it,  coupled  with  the  absence  of  cir- 
cumstances from  which  authority 
might  reasonably  have  been  inferred. 
Compare  Wayne  Title  Co.  v.  Ry.  Co., 
191  Pa.  St.  90;  Worthiugton  v.  Ry. 
Co.,  195  Pa.  St.  211. 

167 


§  197.]  THE   LAW    OP   PRIVATE   CORPORATIONS.  [CHAP.  Vll. 

in  favor  of  the  general  rule  that  outsiders  are  not  charged  with 
knowledge  of  the  by-laws  of  a  corporation.1  An  examination 
of  the  ratio  decidendi  of  a  few  cases  may  point  to  some  rule  on 
this  important  point.  Smith  v.  Smith2  holds  that  outsiders  are 
not  affected  by  the  bylaws  of  a  corporation,  because  "  these 
are  private,  and  only  accessible  to  the  officers  of  the  company." 
So  in  Samuel  v.  Holladay3  it  was  held  that  a  by-law  made  by  a 
board  of  directors  for  their  own  government,  providing  how 
special  meetings  of  the  board  should  be  called,  could  not  affect 
contracts  made  with  third  persons  having  no  actual  notice  of 
the  by-law ;  Justice  Miller  saying  that  the  effect  of  such  a  by- 
law on  outsiders  differed  from  the  effect  of  "  by-laws  made  by 
the  stockholders  at  the  annual  or  stated  meeting,  under  author- 
ity and  direction  of  a  provision  of  the  charter." 4 

§  197.  The  principle  underlying  these  decisions  seems  to  be 
that  a  stranger  should  not  be  charged  with  knowledge  of  by- 
laws because  of  the  difficulty  he  would  have  in  acquainting 
himself  with  them,  and  because  the  authority  of  the  corpora- 
tion to  make  by-laws  was  not  intended  to  affect  the  rights  of 
outsiders.5  But  if  the  statutes  regulating  the  organization  of 
the  company  should  require  by-laws  to  be  passed  at  the  first 
meeting  of  the  subscribers  or  shareholders,  and  be  filed  with 
the  articles  of  association  in  some  public  office,  it  would  seem 
reasonable  that  persons  dealing  with  the  corporation  should  be 
charged  with  notice  of  such  by-laws  filed  in  pursuance  of  statute 
in  a  public  place  for  public  inspection. 

Finally,  whether  outsiders  are  charged  with  notice  of  the 
by-laws  or  not,  if  a  course  of  action  is  unauthorized  by  reason 
of  some  by-law,  but  is  acquiesced  in  by  the  corporation,  the 


1  Fay  v.  Noble,  12  Cush.  1;  Ten 
Broeck  v.  Boiler  Compound  Co.,  20 
Mo.  App.  19;  and  cases  in  the  fol- 
lowing notes.  See,  also,  Kingsly  v. 
New  England  Ins.  Co.,  8  Cush.  393, 
403;  Mechanics'  etc.,  Bank  o.  Smith, 
19  Johns.  11.");  In  re  Asiatic  Bank- 
ing Corp.,  Royal  Bank  of  India's 
Case,  L.  R.  4  Ch.  252;  Anglo-Cali- 
fornia Bank  v.  Grangers'  Bank,  63 
Cal.  359;  Barnes  Bros.   v.  Coal  Co., 

168 


101  Tenn.  354;  Gordon  v.  Muchler, 
34  La.  Ann.  604.  Last  case  holding 
depositor  in  hank  not  bound  by  by- 
law. 

2  62  111.  493,  497. 

3  1   Woolw.   400,   408;   S.  C.  Mac- 
Cahon,  214. 

4  See    Cummings    v.   Webster,    43 
Me.  192. 

5  See    Mechanics'     etc.,    Bank    v. 
Smith,  19  Johns.  115,  124. 


PART    II.]  ACTS    WITHIN    THE   CORPORATE   POWERS.  [§  199. 


by-law  will  not  affect  the  rights  of  an  outsider  acting  in  good 
faith.1 

§  198.  The  next  class  of  resj^ctions_on  the  authority- j*Lcor- 
porate  agents  which  are  effectual  in  protecting  the 
corporation  from  the  consequences  of  an  agent's  ex- 
ceeding his  authority,  are_those  which  are  brought,  to  the  actual 
kuowledgeofjheparty  dealing  with  the  corporate  agent  before 
the  act  is  done  wherein  it  is  alleged  that  the  agent  exceeded  his 
authority.  An  express  limitation  on  the  authoritv^of_a_coi'po- 
mte^a^iijt^ojjght^othe  actual  notice  of  any  person  dealing 
with  him  will,  in  respect  of  the  matter  to  which  the  limitation 
refers,  protect  the  corporation  from  any  liability  arising  ex  con- 
tractu from  its  agent's  unauthorjzeiLacts^-  The  efficacy  for  the 
protection  of  the  corporation  of  this  class  of  limitations  depends 
on  the  actual  knowledge  of  the  person  contracting  with  the 
corporate  agent  ;3  and  the  burden  is  on  the  corporation  to  prove 
knowledge  on  the  part  of  such  person,  unless  the  circumstances 
are  such  that  his  knowledge  may  reasonably  be  presumed.4 
Any  special  or  private  instructions  to  the  corporate  agent,  un- 
communicated  to  the  person  dealing  with  him,  will  not  affect 
the  rights  of  such  person  against  the  corporation.5 

§  199.  It  may  be  added  here,  that  when  reasonable  regula- 
tions  have  been  competently  made  by  the  proper  corporate 
authority  with  special  reference  to  the  dealings  of  outsiders 
faith  the  corporation  through  its  agents,  all  persons  having 
knowledge  of  the  regulations  will  be  bound  by  them  in  con- 
tracting and  dealing  with  the  corporation.  Thus  where,  in 
making  a  deposit  in  a  savings  bank,  the  depositor  receives  a 
pass-book  containing  a  printed  rule  that  no  depositor  shall  be 
paid  without  producing  the  pass-book,  and  that  payments  made 


1  Phillips  v.  Campbell,  43  X.  Y. 
271 ;  Emery  v.  Boston  Marine  Ins. 
Co.,  138  Mass.  398;  Donovan  v.  Hal- 
sey  Fire  Engine  Co.,  58  Mich.  38; 
Gray  v.  Nat.  Benefit  Ass'n,  111  Ind. 
531;  compare  Knight  v.  Lang,  4  E. 
D.  Smith  (N.  Y.),  381;  Jackson  v. 
Campbell,  3  Wend.  572  ;  Martin  v. 
Niagara  Paper  Co.,  122  N.  Y.  105; 
Underbill    v.    Santa    Barbara    Land 


Co.,  93  Cal.  300;  Produce  Excbange 
Co.  v.  Bieberbach,  176  Mass.  577. 

2  Marvin  v.  Universal  Life  Ins.  Co., 
85  N.  Y.  278. 

3  Insurance  Co.  o.  McCain,  96  U.  S. 
84. 

4  See  §  193,  and  compare  §§  358, 
359. 

5  Insurance  Co.  v.  McCain,  supra; 
Fay  v.  Noble,  12  Cusb.  1 :  Brown  v. 
Insurance  Co.,  165  Mass.  565. 

169 


§  201.]         THE    LAW    OF    PRIVATE   CORPORATIONS.   [CHAP.  VII. 


to  the  bearer  of  the  pass-book  shall  be  deemed  good  and  valid 
payments  to  the  depositor,  a  payment  made  in  accordance  with 
the  rule  binds  the  depositor,  although  his  signature  to  a  draft 
or  order  may  have  been  forged  ;  providing  the  officers  of  the 
bank  are  guilty  of  no  negligence.1  But  if  an}T  circumstance 
is  brought  to  the  notice  of  the  officers  to  put  them  on  inquiry 
or  arouse  the  suspicion  of  an  ordinarily  careful  person,  their 
failure  to  make  inquiry  raises  a  question  of  negligence  for  the 
jury.2 

§  200.  The  third  class  of  effective  restrictions  arise  from  the 
nature  of  the  agent's  emplovment  as  indicating  the 

Class  III.  or.  e> 

scope  of  his  authority.  If  an  act  is  beyond  the  ordi- 
nary scope  of  the  agent's  emplovment  and  authority,  and  was 
not  in  fact  authorized  by  the  corporation,  nor  by  superior 
officers  who  themselves  have  authority  to  do  or  authorize  it, 
the  corporation  will  not  be  bound  ;  for  the  power  to  bind  the 
corporation  may  be  presumed  to  exist  in  its  agents  and  officers 
only  in  regard  to  acts  within  the  scope  of  its  ordinary  business 
and  their  ordinary  duties.3  And  when  a  corporate  agent,  with- 
out actual  authority,  exceeds  the  powers  which  an  outsider 
from  the  agent's  employment  may  reasonably  suppose  him  to 
possess,  the  corporation  is  not  estopped  from  repudiating  the 
unauthorized  act.4 

§  201.  The  following  are  instances  of  the  last  class  of  re- 
strictions :  A  general  insurance  agent  will  not  bind  his  com- 
pany by  accepting  articles  of  personal  property  in  satisfaction 
of  a  premium  payable  in  money.5     Station  agents  and  conduct- 


1  Schoenwald  v.  Metropolitan  Sav- 
ings Bk.,  26  N.  Y.  418;  Appleby  v. 
Erie  County  Savings  Bk.,  02  N.  Y. 
15;  Sullivan  v.  Lewiston  Institution 
of  Savings,  56  Me.  507.  Compare 
Manhattan  Co.  v.  Lydig,  4  Johns. 
377;  Kimball  v.  Norton,  59  N.  H.  1. 

Likewise  the  depositors  may  rely 
on  the  by-laws  in  such  case;  and 
when  a  savings  bank  pays  money  to 
the  wrong  person,  and,  in  so  doing, 
acts  in  contravention  of  its  by-laws, 
it  will  be  liable.  People's  Savings 
Bk.  v.  Cupps,  91  Pa.  St.  315.  In  this 
case  the  forged,  order  was  not  wit- 

170 


nessed  as  required  by  the  by-laws. 
Compare  State  v.  Atherton,  40  Mo. 
209  ;  Morris  Canal,  etc.,  Co.  v.  Van 
Voist,  21  N.  J.  L.  100. 

2  Gearns  v.  Bowei'y  S'v'gs  B'k,  135 
N.  Y.  557. 

3  First  Nat.  Bk.  v.  Ocean  Nat. 
Bk.,  60  N.  Y.  278;  West  Nat.  Bk.  v. 
Armstrong,  152  U.  S.  346. 

4  Fawcett  v.  New  Haven  Organ  Co., 
47  Conn.  224. 

8  Hoffman  v.  Hancock  Mut.  Life 
Ins.  Co.,  92  U.  S.  161.  Compare 
Hackney  ».  Allegheny  County  Mut. 
Ins.  Co.,  4  Pa.  St.  185. 


-etv     :  AK 


/ 


PART    n.]  ACTS    WITHIN    THE    CORPORATE    POWERS.         [§  201. 

ors  of  a  railroad  company  have  no  authority,  by  virtue  of  their 
positions,  to  employ  a  physician  at  the  expense  of  the  company 
for  a  brakeman  injured  by  its  cars.1  Nor  has  a  ticket  agent  at 
a  way  station  authority  to    modify  the  terms  of  a  through  _ 


ticket.2    Nor_  is  a  railroad  company  liable  for  advances  made  x/fc*^ 
by  a_commission  merchant  on  the  faith  of  a  bill  of  lading ^rt&S  »■ 
fraudulently  signed  by  one  of  its  station  agents,  when  the  goods, 
described  in  the  bill  had  not  been  received  at  the  station  for  tfty  ' 
transportation ;  for  every  one  must  be  held  to  know  that  a  g> 
station  agent  has  no  power  to  give  bills  of  lading  for  goods  not  ~je>/- 
received  bv  him,  and  must  ascertain  whether  the  goods  have  in  A,  *  ^ 
fact  been  shipped.3     Proof  that  a  person  was  the  general  agent        .^ 
of  a  corporation  in  charge  of  its  business  at  a  certain  place, 
shows  no  authority  in  him  to  execute  a  bill  or  note  on  behalf  \  $  x^ ' 
of  the  corporation.4    A  "general  agent "  has  no  implied  au-     '  ^  Si 
thority  to  transfer  the  real  estate°of  the  corporation  ;5  nor  has 
a  general  superintendent  and  manager.6     A  secretary  of  a  min- 
ing company  has  no  authority,  ex  officio,  to  assign  a  note  be- 
longing to  the  company;7  nor  the  secretary  of  an  insurance 
company  to  sign  a  draft  on  its  behalf.8     And  officers  of  a  bank 


1  Tucker  v.  St.  Louis,  K.  C.  aud  N. 
Ry.  Co.,  54  Mo.  177.  But  see  Terre 
Haute  &  I.  R.  R.  Co.  v.  McMurray, 
93  Ind.  358.  But  a  division  superin- 
tendent has.     Ante,  §  193,  note. 

2  McClure  v.  Philadelphia,  etc.,  R. 
R.  Co.,  34  Md.  532. 

3  Friedlander  v.  Texas,  etc.,  Ry. 
Co.,  130  U.  S.  416  ;  Balto.  and  Ohio 
R.  R.  Co.  ».  Wilkens,  44  Md.  11. 
Compare  §  193,  note. 

4  Atkinson  v.  St.  Croix  M'f'g  Co., 
24  Me.  171;  New  York  Iron  Mine  v. 
First  Nat.  Bank,  39  Mich.  644;  see 
Benedict  v.  Lansing,  5  Denio,  283. 

5  Stow  v.  Wyse,  7  Conn.  214.  In 
Thayer  v.  Nehalem  Mill  Co.,  31  Or. 
437,  it  was  held  that  a  "  general 
agent  "  might  execute  a  mortgage  of 
the  corporate  property,  when  he  is 
given  general  power  to  manage  the 
business   and  is  far  from   the   place 


where  the   directors   are,   and  com- 
munication is  difficult. 

6  Standifer  u.  Swann,  78  Ala.  88. 

7  Blood    b.    Marcuse,   38    Cal.  590. 
See  Read  v.  Buffum,  79  Cal.  77.     Au-V 
thority  in  a  secretary  to  renew  notes 
does  not  impliedly  authorize  hi 
renewing  a  note  made  by  two  pe 
to  release  one  of  them.     Moshannon        ^   « 
Land  Co.  v.  Sloan,  109  Pa.  St.  532.        ^i  J    1 

8  First  Nat.  Bk.  v.  Hogan,  47  Mo.  t\>  *  J 
472.  Nor  has  a  secretary  authority  *  ^fi  1 
to  sign  a  due-bill.  Gregory  v.  Lamb,V.  T^Q^ 
16  Neb.  205.  Compare,  generally,  * 
Fay  v.  Noble 
Enquirer  Co 

(Va.)584.     The  secretary  of   a   life  \  $  .    j 
insurance    company    has    power  to  ^  \   yO 
waive  prompt  payment  of  premiums.  '     J    *   «' 
Hastings  v.   Brooklyn   Life  Ins.  Co., 
138  N.  Y.  473.     As   to  a  treasurer's 
authority,  see  §  193,  note. 

171 


k" 


i,  12  Cush.  1;  RiehmoncL  K\K 
.   v.  Robinson,   24  Graft.  }^  K  ^ 


§  202.]        THE   LAW    OF   PRIVATE   CORPORATIONS.    [CHAP.  VII. 

have  no  authority  to  waive  service  of  a  petition  tiled  by  the  at- 
torney-general to  forfeit  its  franchises.1 

§  202.  It  is  important  to  bear  in  mind  that  the  authority 
Authority  °f  an  officer,  as  indicated  by  his  office,  does  not  de- 
depfnds  on   Pen(^  so  much  on  his  title  or  the  theoretical  nature  of 

his  actual  hjs  office,  as  on  the  duties  he  is  in  the  habit  of  per- 
functions,  .        ■  •  ,«. 

ratiierthau   forming/    Accordingly,  the  general  managing  oin- 

name  of  his  cer  of  a  corporation,  be  he  styled  "  president,"  "  su- 
offlce.  perintendent,"  or  "agent,"  from   the   circumstance 

that  he  has  general  charge  of  the  business,  will  possess  exten- 
sive powers  that  might  not  be  possessed  b}r  an  officer  of  another 
company  holding  the  same  title.3  Thus,  where  compromises 
of  debts  are  matters  of  common  occurrence  with  a  certain 
bank,  a  court  will  presume,  in  the  absence  of  affirmative 
proof  to  the  contrary,  that  the  cashier  and  the  president, 
who  are  its  active  managers,~have  power  together  to  compro- 
mise a  claim.1  So  the  officers  managing  the  affairs  of  a  corpo- 
ration have  authority,  without  a  formal  vote  of  the  board  of 
directors,  to  employ  counsel.5  And  it  has  been  held  that  a 
general  managing  agent,  in  whose  charge  were  placed  the 
affairs  of  a  corporation,  might,  without  authority  from  the 
directors,  assign  choses  in  action  belonging  to  the  corporation 
in  payment  of  its  debt.6  A  mining  superintendent,  however, 
is  held  to  have  no  implied  authority  to  borrow  money;7  nor 


1  State  v.  Citizens1  Savings  Bk.,  31 
La.  Ann.  83G. 

2  Stokes  v.  New  Jersey  Pottery  Co., 
46  N.  J.  L.  237;  Chicago,  T.  &  T.  Co. 
v.  Bank,  176  Wis.  224.  The  trustees 
of  a  newspaper  corporation  are  pre- 
sumed to  know  the  extent  of  the 
power  usually  exercised  by  its  man- 
aging editor.  Sun  Pr.  &  Pub.  Assn. 
».  Moore,  183  U.  S.  G42.  See  Nich- 
olson v.  Randall  Banking  Co.,  130 
Cal.  533. 

3  See  Spangler  v.  Butterfield,  6 
Col.  356,  363. 

4  Chemical  Nat.  Bk.  v.  Kohner,  85 
N.  Y.  189. 

6  Western  Bank  v.  Gilstrap,  45  Mo. 
419;  Southgate  v.  Atlantic  and  Pac. 

172 


R.  R.  Co.,  61  Mo.  89;  Frost  v.  Do- 
mestic Sewing  Machine  Co.,  133 
Mass.  563.  See  Holmes  v.  Board  of 
Trade,  81  Mo.  137.  But  subordinate 
officers  and  agents  have  not  implied 
authority  to  employ  counsel.  Mau- 
pin  v.  Virginia  Lead  MTg  Co.,  78 
Mo.  24. 

G  McKiernan  v.   Lenzen,  56  Cal.  61. 

7  Union  Gold  Mining  Co.  v.  Rocky 
Mt.  Nat.  Bk.,  2  Col.  565  ;  compare 
Same  r.  Same,  1  Col.  531;  Consoli- 
dated Gregory  Co.  v.  Raber,  1  Col. 
511.  A  railroad  superintendent  has 
power  to  conduct  ordinary  business 
transactions,  e.  g.,  accept  cord-wood, 
Sacalaris  v.  Eureka,  etc.,  R.  R.  Co., 
18  Nev.  155,  or  offer  a  reward  for  the 


Validity  of 
agent's  act 
when  not 
affected  by- 
extrinsic 
facts. 


PART    II.]  ACTS    WITHIN   THE   CORPORATE   POWERS.  [§  203. 

has  the  treasurer  of  a  savings  bank  ; x  though  it  has  been  de- 
cided to  be  within  the  powers  of  a  president  of  a  mill  company, 
who  was  also  its  superintendent  and  general  agent,  to  execute 
for  the  company  its  promissory  notes,  for  money  paid  by  one 
of  its  directors  to  satisfy  a  debt  due  from  the  corporation  to  a 
creditor  who  was  threatening  suit.2 

§  203.  A  corporate  agent  sometimes  makes  a  contract  which 
is  apparently  within  his  authority,  yet  which,  taken 
in  connection  either  with  the  existence  or  non-exist- 
ence of  some  fact  extrinsic  to  the  contract,  or  with 
the  intention  of  the  agent,  is  beyond  his  authority, 
and  perhaps  ultra  vires  the  corporation.  If  the  im- 
propriety of  the  contract  consists  in  the  unexpressed  intention 
of  the  corporate  representative,  and  the  other  contracting  party 
acts  in  good  faith,  having  no  cause  to  suspect  any  such  improper 
intention,  the  contract  will  be  binding  on  the  corporation.3  As 
far  as  concerns  the  other  contracting  party,  the  contract  is 
within  the  agent's  authority ;  and  if  the  agent  intends  some- 
thing further  and  unauthorized,  that  intention,  if  carried  out, 
is  a  violation  of  duty  towards  a  principal  with  which  the  other 
contracting  party  is  not  connected,  for  a  person  dealing  in  good 
faith  with  an  agent,  who  is  apparently  acting  within  the  scope 
of  his  authority,  is  not  responsible  for  any  breach  of  trust  the 
agent  may  intend  or  perpetrate  in  regard  to  his  own  principal. 
As  between  the  other  contracting  party  and  the  corporation, 


conviction  of  persons  injuring  prop- 
erty of  the  railroad.  Central  R.  R. 
etc.,  Co.  ».  Cheatham,  85  Ala.  292. 

1  Fifth  Ward  Savings  Bank  i\  First 
Nat,  Bank,  48  N.  J.  L.  513. 

2  Seely  v.  San  Jose  Mill  Co.,  59 
Cal.  22.  As  in  this  case,  the  act  of 
the  president  was  ratified  both  by 
the  directors  and  at  a  shareholders1 
meeting,  the  court  need  not  have  de- 
cided it  to  have  been  within  the 
power  of  the  president.  The  powers 
of  directors,  presidents,  and  cashiers 
are  particularly  discussed  below. 

3  Even  though  the  contract  viewed 
in  connection  with  the  purposes  of 
the  agent  was  ultra  vires  the  corpo- 


ration; thus,  if  a  contract  to  guar- 
anty the  bonds  of  another  railroad 
company  is  on  its  face  such  as  a  cer- 
tain railroad  company  has  power  to  " 
make,  the  fact  that  the  guaranty 
was  made  for  an  unauthorized  pur- 
pose, e.  g.,  the  accommodation  of 
the  other  road,  will  not  affect  the 
right  of  a  bona  fide  holder  of  the 
bonds  without  notice,  to  recover  on 
the  guaranty.  Madison  and  Indian- 
apolis R.  R.  Co.  v.  Norwich  SVgs 
Society,  24  Ind.  457.  See,  also, 
Farmers  and  Mechanics1  Bk.  r.  * 
Butchers  and  Drovers1  Bk.,  16  N.  Y. 
125.     See  §§  284-286. 

173 


*1 


&p     .y/v/f-w-'^-'^' 


§  204.]         THE   LAW    OF   PRIVATE   CORPORATIONS.   [CHAP.  VII. 


« 


the  rule  applies  that  where  one  of  two  innocent  parties  must 
suffer  from  the  unauthorized  act  of  an  agent,  the  loss  should 
^    fall  on  him  who  selected  the  agent,  and  whom  the  agent  repre- 
sents.    It  is  certainly  not  the  business  of  persons  dealing  with 
^^gents  to  be  on  the  watch  lest  the  agents  wrong  their  principals. 
.  V-Thus,  in  a  case  where  the  plaintiff  delivered  certain  moneys  to 
>\   Mthe  president,  who  was  the  general  manager  of  the  defendant 
^corporation  and  had  often  borrowed  money  for  it  before,  the 
\s      ^  court  held  that,  in  the  absence  of  anything  to  show  bad  faith 
K  i  on  the  part  of  the  plaintiff,  the  corporation  could  not  defend  by 
^  showing  that  the  moneys  had  not  been  used  in  the  corporate 
business.1 


S! 


1 


§  204.  The  maxim  0 rnnia  prcesumuntur  rite  esse  acta  applies 
sVresump-  t°  acts  done  on  behalf  of  corporations ;  and  it  can 
never  be  presumed  that  a  corporate  agent  is  acting 
wrongfully  ; 2  or  that  an  act  which  might  have  been 
a  proper  act  to  do  on  behalf  of  the  corporation,  was 
done   under   circumstances   rendering  it  improper. 


1 

0*  "i    'tions  in 

X    ■>  ^ favor  of  the 

r>  J  >  validity  of 
'  *  Hjthe  acts  of 
. corporate 
«0  agents. 

\  -  ^    :  Kraft  o.  Freeman  Printing  Ass'n, 
^5  s|^7  N.  Y.  628;  Ace.  Thompson  v.  Lam- 
bert, 44  Iowa,  239. 

2  "  When  the  common  seal  of  a  cor- 
poration appears  to  be  affixed  to  an 
^instrument,  and  the  signatures  of  the 
.  v.      ^  proper  officers  are  proved,  the  courts 
»    <$  -jture  t°  presume  that  the  officers  did 
t-  not  exceed  their  authority,  and  the 
*  seal  itself  is  prima  facie  evidence  that 
^S  it  was  affixed  by  proper  authority." 
^Angell   and    Ames  on   Corp.,  §224; 
Trustees  of  Canaudaigua  Academy  v. 
McKechnie,  90  N.  Y.  618;  Solomon's 
Lodge   v.    Montmollin,    58   Ga.   547; 
Can.  v.  Ga.  L.  &  T.  Co.,  108  Ga.  757; 
.   Wood  b.  Whelen,  93  111.  153;  Ander- 
Vfc^son  Transfer  Co.    o.   Fuller,   174  111. 
T   ^221;  Ellison  i\  Branstrater,  153  Ind. 
146;  Lovett  v.  Steam  Saw  Mill  Assn., 
^    Paige's   Ch.    54;  Flint   v.    Clinton 
Company,  12  N.  H.  430;  In  re  West 
*>  Jersey  Traction  Co.,  59  N.  J.  Eq.  63; 
^    \  Evans   v.    Lee,    11    Nev.    194;  Chou- 
quette  v.  Barada,  28  Mo.  491;  Mickey 
Sawyer,  475;  Bliss   v. 


Kaweali  Co.,  65  Cal.  502;  Mills  v. 
Boyle  Mining  Co.,  132  Cal.  95;  Wharf, 
etc.,  Co.  v.  Simpson,  77  Cal.  286; 
Parker  v.  Washoe  Mfg.  Co.,  49  N.  J. 
L.  465;  see  New  England  Iron  Co.  v. 
Gilbert,  etc.,  R.  R.  Co.,  91  N.  Y.  153; 
Turnpike  Co.  v.  Pass.  Ry.  Co.,  194 
Pa.  St.  144.  Compare  Osborne  v. 
Tunis,  25  N.  J.  L.  633;  Bank  of  the 
United  States  v.  Dandridge,  12  Wheat. 
64,  70;  Hilliard  v.  Gould,  34  N.  H. 
230,  239;  Mass.  r.  Missouri,  K.  and  T. 
Ry.  Co.,  83  N.  Y.  223;  C.  B.  &  Q.  R. 
Co.  ».  Lewis,  53  Iowa,  101;  Atlantic 
and  P.  R.  R.  Co.  o.  St.  Louis,  66  Mo. 
228;  Goodnow  v.  Oakley,  68  Iowa, 
25 :  Morse  v.  Beale,  68  Iowa,  463;  Hall 
v.  Bank,  145  Mo.  418;  contra,  Morri- 
son v.  Wilder  Gas  Co.,  91  Me.  492. 

3  Chatauque  County  Bank  v.  Ris- 
ley,  19  N.  Y.  369,  381;  Yates  v.  Van 
De  Bogert,  56  N.  Y.  526;  Olcott  v. 
Tioga  R.  R.  Co.,  27  N.  Y.  546;  De 
Groff  v.  American  Linen  Thread  Co., 
21  N.  Y.  124;  Farmers'  Loan  and 
Trust  Co.  v.  Perry,  3  Sandf.  Ch.  339; 


I 


r 


x 


alJh^!n>^<* 


PART    II.]  ACTS    WITHIN    THE    CORPORATE   POWERS.         [§  205. 


Accordingly,  if,  under  circumstances  which  a  party  dealing 
with  a  corporate  agent  has  no  reason  to  suppose  not  to  exist, 
the  corporate  agent  has  authority  to  make  the  contract  or  do 
the  act  in  question,  the  party  dealing  with  him  is  justified  in 
assuming  the  existence  of  the  circumstances,  and,  acting  in 
good  faith  on  such  assumption,  will  be  protected.1  As  Justice 
Swayne  said,  giving  the  opinion  of  the  Federal  Supreme  Court 
in  Merchants'  Bank  v.  State  Bank:2  "Where  a  party  deals 
with  a  corporation  in  good  faith — the  transaction  is  not  ultra 
vires — and  he  is  unaware  of  any  defect  of  authority  or  other 
irregularity  on  the  part  of  those  acting  for  the  corporation,  and 
there  is  nothing  to  excite  suspicion  of  such  defect  or  irregu- 
larity, the  corporation  is  bound  by  the  contract,  although  such 
defect  or  irregularity  in  fact  exists.  If  the  contract  can  be 
valid  under  any  circumstances,  an  innocent  party  in  such  a  case 
has  a  right  to  presume  their  existence  and  the  corporation  is 
estopped  to  deny  them." 3 

§  205.  Accordinglv^when  the  agent  of  a  corporation  has  power 
yr.to  make  negotiable  paper  on  its  behall,  a  party  re- 
ceiving such  paper  in  good  faith  may  assume  that  it   p^epe°rtiat)le 
was  issued  by  the  agent  for  an  authorized  purpose  in   Money  bor- 

<»ii-  i  rowed  in 

the  ordinary  course  01  the  business  of  the  corpora-  excess  of 
tion.4  So,  if  an  agent  has  authority  to  borrow  for  his  limit.0"7 
corporation  moneys  not  exceeding  a  certain  amount, 


Same  v.  Clowes,  3  N.  Y.  470;  Same 
v.  Curtis,  7  N.  Y.  466;  New  York 
Firemen  Ins.  Co.,  v.  Sturges,  2  Cow. 
664;  Ex  parte  Peru  Iron  Co.,  7  Cow. 
540;  Blake  v.  Holley,  14  Ind.  383; 
Dockery  v.  Miller,  9  Humph.  (Tenn.) 
731;  Mitchell  v.  Rome  R.  R.  Co.,  17 
Ga.  574;  Morris  and  Essex  R.  R.  Co. 
v.  Sussex  R.  R.  Co.,  20  N.  J.  Eq. 
542;  Oxford  Iron  Co.  v.  Spradley,  46 
Ala.  98;  Hart  v.  Missouri  State  Ins. 
Co.,  21  Mo.  91. 

1  Bank  of  Batavia  v.  N.  Y.,  etc., 
R.  R.  Co.,  106  N.  Y.  195;  Steamboat 
Co.  v.  McCutcheon,  13  Pa.  St.  13; 
Royal  British  Bk.  v.  Turquand,  6  El. 
&  Bl.  327;  Eastern  Counties  Ry.  y. 
Hawkes,  5  H.  L.  C.  331;  McDonald 
o.  Chisholm,  131  111.  273.     See  Moss 


y.  Rossie  Lead  Mg.  Co.,  5  Hill,  137, 
and  cases  in  following  notes. 

2  10  Wall.  604,  644. 

3  See,  also,  Gano  v.  Chicago,  etc., 
Ry.  Co.,  60  Wis.  12;  Schallard  v.  Eel 
River  N.  Co.,  70Cal.  144;  Louisville, 
N.  A.  &  C.  Ry.  Co.  v.  Louisville  Tr. 
Co.,  174  U.  S.  552. 

4  Monument  Nat.  Bank  v.  Globe 
Works,  101  Mass.  57;  Commercial 
Bank  v.  St.  Croix  Mfg.  Co.,  23  Me. 
280;  Lafayette  Bank  v.  St.  Louis 
Stoneware  Co.,  2  Mo.  App.  299; 
Madison  and  Indianapolis  R.  R.  Co.  v. 
Norwich  Saving  Society,  24  Ind.  457; 
Ridgeway  v.  Farmers'  Bank,  12  S.  & 
R.  256;  Philadelphia,  etc.,  R.  R.  Co. 
v.  Lewis,  33  Pa.  St.  33;  Mclntire  v. 
Preston,  10  111.  48;  Stoney  v.  Ameri- 

175 


§  207.]        THE   LAW   OF   PRIVATE   CORPORATIONS.    [CHAP.  VII. 


Assump- 
tion of  un- 
usual facts 

unwar- 
ranted. 


the  corporation  will  be  liable  to  a  person  lending  money  to  the 
agent  in  ignorance  that  the  amount  limited  had  already  been 
borrowed.1 

§  206.  The  circumstances,  however,  the  existence  of  which 
an  outsider  is  protected  in  assuming,  must  be  such  as 
he  has  no  ground  to  suppose  not  to  exist ;  they  must 
not  be  extraordinary  and  unusual.  Thus,  an  outsider 
is  not  justified  in  assuming  that  the  cashier  of  a  bank 
has  authority  to  bind  it  as  an  accommodation  indorser  on  his 
own  individual  note.2  Nor  is  an  outsider  justified  in  assuming 
authority  in  corporate  officers  to  issue  negotiable  paper  in  the 
name  of  the  corporation,  when  the  issuance  of  such  a  paper  is 
altogether  foreign  to  the  purposes  for  which  the  corporation 
was  organized.3 

§  207.  If  from  the  mere  doing  of  the  act  by  the  corporate 
agent  on  behalf  of  the  corporation,  the  person  deal- 
ing with  him  is  entitled  to  infer  the  existence  of  cir- 
curastances  on  which  the  agent's  authority  depends, 
then  the  case  becomes  stronger  in  favor  of  such  per- 
son when  the  agent  expressly  affirms  the  existence  of 
the  circumstances  in  question.  Here  the  person  deal- 
ing with  him  has  an  express  assertion  to  rely  on,  and  not  merely 
the  implication  arising  from  the  presumption  that  the  agent  is 
not  acting  wrongfully.     Accordingly,  if  it  is  within  the  power 


Certifica- 
tion by 
agent  of 
facts  on 
which  his 
authority 
is  condi- 
tioned. 


can  Ins.  Co..  11  Paige,  635;  Mechanics' 
Banking  Ass'n  v.  White  Lead  Co.,  35 
X.  Y.  505  ;  Ex  parte  Estabrook,  2 
Lowell.  547;  National  Bank  v.  Young, 
41  N.  J.  Eq.  531;  Credit  Co.  v.  Home 
Machine  Co.,  54  Conn.  357.  Com- 
pare McCullough  v.  Moss,  5  Denio, 
507.     See  §§  204,  284-28G,  329-332. 

1  Ossipee  M'f'g  Co.  v.  Canney,  54 
N.  H.  295;  see  Gordon  v.  Sea  Fire 
Life  Assurance  Soc'y,  1  H.  &  N.  599. 
In  Garret  v.  Burlington  Plow  Co.,  70 
Iowa,  097,  it  was  held  that  money 
loaned  by  directors  to  a  corporation 
in  excess  of  the  statutory  limit  on 
the  capacity  of  the  corporation  to 
borrow  could  be  recovered,  although 
the  directors  knew  that  the  limit  was 
exceeded. 

176 


2  West  St.  Louis  Savings  Bank  ». 
Shawnee  Bank,  95  U.  S.  557.  Cf. 
Cheever  v.  Railroad  Co.,  150  N.  Y.  59. 
See  §  241.  It  cannot  be  presumed 
that  directors  have  authority  to  sell 
property  of  a  corporation  essential  to 
its  business.  Rollins  v.  Clay,  33  Me. 
132. 

3  Bacon  v.  Mississippi  Ins.  Co.,  31 
Miss.  116.  See  §  329.  An  officer  of 
a  corporation  has  no  authority  to  give 
its  notes  to  take  up  the  outstanding 
obligations  of  shareholders;  and  such 
notes  will  not  bind  the  corporation  in 
the  hands  of  a  person  having  knowl- 
edge of  the  facts.  McLellan  v.  Detroit 
File  Works,  56  Mich.  579. 


PART    H.]  ACTS    WITHIN   THE   CORPORATE   POWERS.  [§  209. 

of  the  corporate  agent  to  certify  to  the  existence  of  any  fact, 
e.  g.,  the  circumstances  on  which  his  authority  to  act  depends, 
and  he  does  certify  to  its  existence,  his  certification  will  bind 
the  corporation  as  towards  persons  who  have  acted  thereon  in 
good  faith ;  and  the  corporation  cannot  plead  the  fraud  of  its 
own  agent  acting  within  the  scope  of  his  authority.1 

§  208.  Further,  the  general  proposition  is  submitted,  that  it 
is  within  the  authority  of  a  corporate  agent  to  certify  to  the 
existence  of  any  fact  not  unusual  or  extraordinary  in  itself,  nor 
rendered  improbable  from  special  circumstances  known  to  the 
person  dealing  with  him,  which  is  peculiarly  within  his  knowl- 
edge and  on  which  his  authority  to  act  in  that  particular  case 
depends  ;  provided  to  act  in  such  cases  be  within  the  ordinary 
scope  of  the  agent's  powers.  As  Judge  Davis  said,  giving  the 
opinion  of  the  New  York  Court  of  Appeals  in  New  York  and 
New  Haven  R.  R.  Co.  v.  Schuyler,2  "  Where  the  principal  has 
clothed  his  agent  with  power  to  do  an  act  upon  the  existence 
of  some  extrinsic  fact  necessarily  and  peculiarly  within  the 
knowledge  of  the  agent,  and  of  the  existence  of  which  the  act 
of  executing  the  power  is  itself  a  representation,  a  third  person 
dealing  with  such  agent  in  entire  good  faith  pursuant  to  the 
apparent  power  may  rely  on  the  representation,  and  the  prin- 
cipal is  estopped  from  denying  its  truth  to  his  prejudice."  And 
again,  as  stated  by  Judge  Selden  in  Griswold  v.  Haven,3  and 
approvingly  cited  by  Judge  Davis  in  the  opinion  last  referred 
to : 4  "  When  the  authority  of  an  agent  depends  upon  some  fact 
outside  the  terms  of  his  power,  and  which,  from  its  nature,  rests 
particularly  within  his  knowledge,  the  principal  is  bound  by 
the  representation  of  the  agent,  although  false,  as  to  the  exist- 
ence of  such  fact." 5 

§  209.  If,  however,  the  person  contracting  with  the  corpo- 
rate agent  has  notice  of  any  intended  violation  of   Not  bind- 
his  duty  on  the  part  of  the  agent,  or  of  the  existence   j."£  ^tion 
of  circumstances  negativing  his  authority  to  act,  the   when  the 
corporation  will  not  be  bound  ;  for  such  a  person,  far   knows  its 
from  acting  in  good  faith,  has  been  privy  to  a  breach     a  Slty' 


i  Whiting  i\  Wellington,  10  Fed. 
Rep.  810. 

2  34  N.  Y.  30,  73.  Ace.  Willis  v. 
Fry,  13  Phila.  33. 

12  177 


3  25  N.  Y.  595,  602. 

4  34  N.  Y.  pp.  68  and  73. 

5  See,  also,  Farmers  and  Mechan- 


§  210.] 


THE   LAW    OF    PRIVATE    CORPORATIONS.   [CHAP.  VII. 


of  trust.  And  evidently  no  estoppel  can  exist  in  his  favor,  be- 
cause he  cannot  have  relied  on  representations,  express  or  im- 
plied, known  to  him  to  be  untrue.  Thus,  a  corporation  is  not 
liable  for  money  borrowed  by  its  directors  in  its  name,  when 
the  corporation  has  not  received  the  consideration,  and  the 
lender  knew  that  the  money  was  to  be  applied  to  the  individual 
purposes  of  the  officers.1  And  since  the  officers  of  a  corpora- 
tion have  no  power  to  execute  its  note  to  secure  a  debt  bearing 
no  relation  to  the  corporate  business,  due  from  a  third  person 
to  the  payee  of  the  note,  neither  the  payee  nor  any  other  person 
with  knowledge  of  the  circumstances  under  which  the  note  was 
insured,  can  recover  on  it  against  the  corporation.2 

§  210.  Just  as  agents  of  natural  persons,  the  agents  of  a  cor- 
poration in  contracting  or  otherwise  acting  on  its 
of  corpo-       behalf  have  incidental  authority  to  make  admissions 
Noticfto3'    or  declarations,  which  within  the  scope  of  the  agent's 
them.  ordinary  employment,  or  of  the  authority  specially 

conferred  on  him  for  the  matter  in  hand,  will  bind  the  corpora- 
tion or  be  evidence  against  it,  according  to  the  nature  of  the 
admission.3     Likewise,  notice  to  directors  or  other  corporate 


ics'   Bk.    v.    Batchers    and    Drovers' 
Bk.,  16  N.  Y.  125,  142. 

1  Culver  v.  Reno  Real  Estate  Co., 
91  Pa.  St.  367. 

2  Hall  v.  Auburn  Turnpike  Co.,  27 
Cal.  255.  See,  also,  Ehrgott  v.  Bridge 
Manufactory,  16  Kan.  486;  Rahm  v. 
Same,  16  Kan.  277. 

8  Xenia  Bank  v.  Stewart,  114  U.  S. 
224;  Northrup  v.  Mississippi  Valley 
Ins.  Co.,  47  Mo.  435;  Western  Boat- 
men's Benevolent  Ass'n  v.  Kribben, 
48  Mo.  37;  Toll  Bridge  Co.  v.  Bets- 
worth,  30  Conn.  380;  Morris  and 
Essex  R.  R.  Co.  v.  Green,  15  X.  J. 
Eq.  469;  Malecek  v.  Tower  Grove, 
etc.,  Ry.  Co.,  57  Mo.  17;  Hoag  v. 
Lamont,  60  N.  Y.  96;  Webb  a.  Smith, 
6  Col.  365;  Merchants'  Despatch 
Trans.  Co.  v.  Leysor,  89  111.  43;  Hunt- 
ington, etc.,  R.  R.  Co.  v.  Decker,  82 
Pa.  St.  119;  Brush  Elec.  L.  &  P.  Co. 
v.   Montgomery,    114  Ala.   433.     For 

178 


instance,  declarations  of  a  freight 
agent  made  in  performance  of  his 
duty  are  evidence  against  a  railroad 
company.  Lane  v.  Boston  &  A.  R. 
R.  Co.,  112  Mass.  455.  Declarations 
of  brakemen,  engineers,  conductors, 
etc.,  to  be  admissible  against  the  cor- 
poration must  be  made  at  the  time 
of  the  occurrence  so  as  to  constitute 
part  of  the  res  gestae.  Vicksburg  & 
M.  R.  R.  Co.  v.  O'Brien,  119  U.  S.  99; 
Michigan  Central  R.  R.  Co.  v.  Cole- 
m;m,  28  Mich.  440;  Hannibal  &  St. 
Jo.  R.  R.  Co.  v.  Martin,  11  111.  App. 
386;  Dietrich  v.  Baltimore,  etc.,  Ry. 
Co.,  58  Md.  347;  Michigan  Central 
It.  R.  Co.  v.  Carrow,  73  111.  348;  Pitts- 
burgh C.  &  St.  L.  R.  R.  Co.  v.  Theo- 
bald, 51  Ind.  246.  Compare  McLeod 
v.  Ginther,  80  Ky.  399;  O'Connors. 
Chicago,  etc.,  Co.,  27  Minn.  166. 
The  acts  of  an  agent  within  his  pow- 
ers may  estop  a  corporation  as  they 


PART    II.]  ACTS   WITHIN  THE   CORPORATE  POWERS.  [§  210. 

agents,  or  knowledge  on  their  part,  regarding  matters  within 
the  scope  of  their  authority  or  the  range  of  their  ordinary 
occupations,  received  or  possessed  while  transacting  corporate 
business,  will  be  the  knowledge  of  or  notice  to  the  corporation.1 
But,  on  the  other  hand,  the  admissions  or  statements  of  cor- 
porate agents  regarding  matters  beyond  their  authority  to  act 
for  the  corporation,2  or  matters  in  which  they  are  not  acting  on 


would  an  individual  principal.  Rail- 
road Co.  v.  Schutte,  103  U.  S.  118; 
Little  Rock  &  N.  R.  R.  Co.  v.  Little 
Rock,  etc.,  R.  R.  Co.,  36  Ark.  663. 

i  Keith  v.  Globe  Ins.  Co.,  52  111. 
518;  Pont-Chartrain  R.  R.  Co.  v. 
Heirn,  2  La.  Ann.  129;  Pittsburgh, 
etc.,  R.  R.  Co.  v.  Ruby,  38  Ind.  294; 
Egerton  v.  Fulton  Nat.  Bk.,  43  How. 
Pr.  (N.  Y.)  216;  Ex  parte  Stewart,  11 
Jur.  N.  S.  25;  Lovell  v.  St.  Louis 
Mutual  Life  Ins.  Co.,  Ill  TJ.  S.  204; 
New  York  &  N.  E.  R.  R.  Co.  v.  New 
York,  etc.,  R.  R.  Co.,  52  Conn.  274, 
280;  Cragie  v.  Hadley,  99  N.  Y.  131; 
Loring  ».  Biodie,  134  Mass.  453; 
Hunts ville,  etc.,  Ry.  Co.  v.  Corpening 
97  Ala.  681 ;  Granite  Co.  v.  Mulliken, 
66  Vt.  465;  Sherry  v.  Wakefield  In- 
stitute, 21  R.  I.  162;  Harris  v.  Am. 
B.  &  L.  Ass'u,  122  Ala.  545;  Central 
of  Ga.  Ry.  Co.  v.  Joseph,  125  Ala. 
313.  See,  Morris  v.  Ga.  L.  S.  &  B. 
Co.,  109  Ga.  12;  Fouche  v.  Merchants 
Nat.  B'b,  110  Ga.  827;  State  ex  inf. 
Crow  v.  Firemen's  Fund  Ins.  Co.,  152 
Mo.  1.  Notice  of  the  dangerous 
condition  of  the  mines  to  the  super- 
intendent is  notice  to  the  mining 
company.  Quincy  Coal  Co.  v.  Hood, 
77  111.  68.  Knowledge  of  the  presi- 
dent of  a  bank  received  or  possessed 
while  discounting  a  note  on  its  be- 
half, is  the  knowledge  of  the  bank; 
and  his  accidental  absence  at  any 
particular  time  is  no  legal  excuse 
to  the  bank  for  its  failure  to  act  on 
such  knowledge.  Central  National 
Bank  v.  Levin,  6  Mo.  App.  543.     No- 


tice to  a  board  of  directors  is  notice 
to  the  bank,  and  no  subsequent 
change  of  directors  can  require  a 
new  notice.  Mechanics'  Bank  v. 
Seton,  1  Pet.  299.  If  notice  is  given 
to  a  director  officially,  to  the  end 
that  it  may  be  communicated  to  the 
board,  the  corporation  is  affected 
with  notice,  although  the  director 
does  not  communicate  it  to  the  board. 
Boyd  v.  Chesapeake  and  Ohio  Canal 
Co.,  17  Md.  195.  Compare  National 
Security  Bank  v.  Cushman,  121  Mass. 
490,  and  the  cases  in  the  following 
notes.  Knowledge  of  an  officer  of  a 
corporation  acquired  long  prior  to 
the  formation  of  the  corporation  and 
not  present  to  his  mind  at  the  time 
of  a  transaction  will  not  bind  the 
corporation.  Red  River  V.  L.  &  I. 
Co.  v.  Smith,  7  N.  Dak.  236. 

2  Bishop  v.  Globe  Co.,  135  Mass. 
132;  Commonwealth  v.  Reading  Sav- 
ings Bank,  137  Mass.  431,  444;  Tripp 
v.  New  Metallic  Packing  Co.,  137 
Mass.  499;  Johnston  v.  Elizabeth 
Building  Ass'n,  104  Pa.  St.  394.  That 
an  individual  is  a  director,  and  a 
member  of  the  discount  board  of  a 
bank,  will  not,  in  the  absence  of 
special  authority  to  act  as  its  agent 
in  a  particular  transaction  regarding 
the  renewal  of  a  note,  authorize  him 
to  make  admissions  or  statements 
concerning  such  transaction  which 
will  be  binding  on  the  corporation. 
East  River  Bk.  v.  Hoyt,  41  Barb. 
441 ;  ace.  Florida  Midland  R.  R.  Co. 
v.  Varnedoe,  81  Ga.  176.     The  treas- 

179 


§  210.]         THE  LAW   OF   PRIVATE   CORPORATIONS.  [CHAP.  VII. 


its  behalf,  are  not  evidence  against  it ; 1  nor  is  a  corporation 
affected  with  notice  to  a  corporate  agent  or  with  his  knowledge 
acquired  under  such  circumstances.2  According^,  when  an 
officer  of  a  corporation  sells  it  his  own  property,  he  does  not 
represent  the  corporation  in  the  transaction  so  as  to  affect  it 
with  knowledge  which  he  possesses,  but  does  not  communicate, 
of  tacts  derogatory  to  his  title  to  the  property.3  And  the  fact 
that  the  cashier  of  a  bank  was  a  director  in  another  corporation, 
which  was  the  payee  and  indorser  of  a  note,  will  not  affect  the 
bank  with  notice  of  equities  subsisting  between  the  maker  and 


urer  of  a  manufacturing  company 
lias  no  authority  virtute  officii  to 
bind  it  by  written  admissions  as  to 
the  amount  due  on  a  disputed  claim 
for  salary  of  the  superintendent. 
Kalamazoo  Novelty  Mfg.  Co.  ».  Mc- 
Alister,  3o  Mich.  327;  see  Henry  v. 
Northern  Bk.,  63  Ala.  527.  Nor  to 
confess  judgment  on  behalf  of  his 
corporation.  Stevens  v.  Carp  River 
Iron  Co.,  57  Mich.  417.  Nor  to  ex- 
ecute a  promissory  note.  Cracker 
Co.'s  Estate,  161  Pa.  St.  157.  Contra, 
Merc's  Bk.  v.  Gas  L.  Co.,  159  Mass. 
505. 

1  Gilmorev.  Mittineague  Paper  Co., 
169  Mass.  471.  Declarations  or  state- 
ments of  individual  directors,  made 
when  the  board  is  not  in  session, 
and  not  accompanying  any  official 
act,  are  not  competent  evidence 
against  the  corporation.  Peck  v. 
Detroit  Novelty  Works,  29  Mich. 
313.  Cf.  Richardson  v.  Watson,  51 
La.  An.  1390;  Knoblock  v.  Germ. 
Sav.  B'k,  50  S.  C.  259. 

2  Bank  of  United  States  v.  Davis,  2 
Hill  (N.  Y.),  451;  Casco  Nat.  Bk.  r. 
Clark,  139  N.  Y.  307;  Corcoran  v. 
Snow  Cattle  Co.,  151  Mass.  74 ;  Johns- 
ton v.  Shortridge,  93  Mo.  227;  Com- 
mercial Bk.  v.  Burgwin,  110  N.  C. 
267;  Piatt  v.  Birmingham  Axle  Co., 
41  Conn.  255;  Savannah  Bank  v. 
Hartridge,  73  Ga.  22:);  Fairfield  Sav- 
ings   Bank    i\    Chase,    72    Me.    226; 

180 


Shaw  v.  Clark,  49  Mich.  384;  Farrel 
Foundry  v.  Dart,  26  Conn.  376;  Mer- 
cier  v.  Canonge,  8  La.  Ann.  37;  Uni 
ted  States  Ins.  Co.  v.  Shriver,  3  Md 
Ch.  381;  Wells  v.  American  Exp, 
Co.,  44  Wis.  342;  Winchestei  v.  Balti 
more  &  S.  It.  R.  Co.,  4  Md.  231;  Gun 
ster  v.  Scranton  Co.,  181  Pa.  St.  327 
Compare  Hoffman  Coal  Co.  v.  Cum 
berland  C.  Co.,  16  Md.  456;  Smith  v 
South  Royalton  Bk.,  32  Vt.  341;  Ter 
rell  v.  Branch  Bank,  12  Ala.  502 
Whelan  v.  McCreary,  64  Ala.  319 
First  Nat.  B'k  v.  Briggs  Ass.,  71  Vt 
594;  Express  Co.  v.  Walker,  9  N 
Mex.  456. 

3  Barnes  v.  Trenton  Gas  Light  Co., 
27  N.  J.  Eq.  33;  Peckham  v.  Hendren, 
76  Ind.  47;  Wickersham  v.  Chicago 
Zinc  Co.,  18  Kan.  481;  Davis  Im- 
proved Wrought  Iron  Wagon  Wheel 
Co.  v.  Davis,  etc.,  Co.,  22  Blatchf. 
221;  Merchants'  Nat.  Bk.  v.  Lovitt, 
114  Mo.  519;  Koehler  v.  Dodge,  31 
Neb.  328;  Eng.  Am.  L.  &  T.  Co.  v. 
Hiers,  112  Ga.  823.  Compare  Tar- 
box  v.  Gorman,  31  Minn.  60;  Mihill's 
Mfg.  Co.  v.  Camp.  49  Wis.  130;  Seav- 
erns  v.  Presbyterian  Hospital,  173 
111.  414.  But  when  an  agent  is  prac- 
tically the  corporation,  and  does 
business  in  its  name  or  his  own  as 
suits  him,  his  knowledge  in  regard 
to  a  conveyance  by  him  of  property 
to  it  is  imputable  to  the  corporation. 
Anderson  v.  Kinley,  90  Iowa,  554. 


PART  II.]    ACTS    WITHIX    THE   CORPORATE   POWERS. 


[§  211. 


the  payee.1  Nor  will  knowledge  by  one  of  several  corporators 
of  the  existence  of  an  incumbrance  on  property  purchased  by 
the  corporation,  affect  his  associates  when  he  does  not  act  as 
their  agent  in  forming  the  company.2 

§  211.  If  an  unauthorized  act  is  done  on  behalf  of  a  corpora- 
tion, although  the  corporation  may  not  be  bound  by  the  act  as 
done,  yet,  if  the  corporation  or  that  corporate  authority  which 
would  have  been  competent  originally  to  do  the  act,  knowingly 
ratifies  it  or  accepts  the  benefit  of  it,  or  if  all  the  per-   Ratifica- 
sons  having  a  right  to  object  to  the  act  knowingly   ^u°f 
acquiesce  in  it,  the  act  will  be  as  binding  on  the   thonzed 
corporation  as  if  it  had  been  originally  authorized.3 
This  proposition  is  but  an  application  of  the  doctrine  of  the 
law  of  agency,  that  when  a  person  ratifies  the  unauthorized 
act  of  another  who  has  purported  to  act  on  his  behalf,  the 
legal  effect  of  the  act  will  be  the  same  as  if  it  had  been  author- 
ized before  it  was  done.     True,  in  applying  this  doctrine  to 
corporations,  circumstances  and  the  complicated  legal  relations 
subsisting  in  respect  of  corporate  enterprises  must  be  taken  into 
consideration.     Nevertheless,  the  doctrine  applies  to  corpora- 
tions in  its  fullest  scope,4  and  with  them,  as  with  natural  prin- 
cipals, subsequent  ratification  is  equivalent  to  antecedent  au- 
thority.5    The  important  principle  to  be  borne  in  mind  is  this : 


1  First  Nat.  Bk.  v.  Loyhed,  28  Minn. 
396.  Compare  National  Bk.  v.  Wal- 
lan,  37  Minn.  404;  Martin  v.  South 
Salem  Land  Co.,  94  Va.  28.  See 
§641. 

2  Burt  v.  Batavia  Paper  Mfg.  Co., 
86  111.  66.  So,  on  the  other  hand, 
when  a  person  is  merely  in  posses- 
sion of  bank  stock  as  collateral  se- 
curity, does  not  participate  in 
shareholders'  meetings,  and  is  not 
recognized  by  shareholders  as  a 
member,  he  is  not  such  a  member  of 
the  corporation  as  to  be  bound  to 
have  knowledge  of  facts  known  to 
the  corporation  or  its  officers.  Baker 
v.  Woolston,  27  Kan.  185. 

3  The  effect  of  acquiescence  in 
ultra  vires  acts,  by  persons  entitled 
to  object,  is  discussed  in  Part  III,  of 


the  present  chapter.  The  discussion 
here  relates  only  to  acts  within  the 
scope  of  the  corporate  powers. 

4Kelsey  ».  Nat.  Bk.,  69  Pa.  St. 
426;  Ace.  German  Nat.  Bank  ».  First 
Nat.  Bank,  59  Neb.  7;  Dedrick  v. 
Ormsly  Land  &  Mort.  Co.,  12  S.  Dak. 
29;  Phillips  ».  Sanger  Lumber  Co., 
130  Cal.  431. 

5  First  Nat.  Bk.  v.  Fricke,  75  Mo. 
178;  Planters'  Bk.  v.  Sharp,  12  Misc. 
75;  Mt.  Washington  Hotel  Co.  v. 
Marsh,  63  N.  H.  230;  Greenleaf  v. 
Norfolk  Southern  R.  R.  Co.,  91  N.  C. 
33;  Wash.  Times  Co.  v.  Wilson,  12 
D.  C.  App.  Ca.  62. 

In  re  West  Jersey  Traction  Co.,  59 
N.  J.  Eq.  63.  The  corporation  by 
ratifying  the  act  of  its  agent  becomes 
charged    with  notice   of   what  such 

181 


§   212.]        THE   LAW   OF   PRIVATE   CORPORATIONS.  [CHAP.  VII. 


W 


the  ratification  to  be  binding  on  the  corporation  must  be  the 
act  or  acquiescence  of  some  corporate  agency  which  itself 
would  have  had  the  power  to  do  or  authorize  the  unauthorized 
acts;  for  a  ratification  cannot  arise  from  the  action  either  of 
the  officers  who  did  the  unauthorized  acts1  or  of  those  who 
would  have  had  no  authority  to  do  them.2  But  unquestionably 
a  valid  ratification  can  take  place  through  the  action  of  superior 
corporate  agents,  for  instance  directors,  who  could  competently 
have  done  the  act  themselves  or  authorized  it  to  be  done.3 
And  the  body  corporate,  in  a  duly  summoned  meeting,  may 
ratify  any  act  of  the  directors  which  it  was  competent  for  the 
body  corporate  acting  as  such  to  perform.4 

§212.  A  formal  ratification  is  not  requisite.  If  there  is  no 
express  ratification  by  the  action  either  of  the  body 
ratification  corporate,  or  of  superior  agents  having  authority 
whether  or  not  an  act  has  been  ratified  is  a  question 
of  fact  for  the  jury.  And,  in  general,  it  may  be  said, 
that  whether  the  alleged  ratification  be  that  of  the  body  cor- 
porate or  of  superior  corporate  agents,  it  may  be  proved  by 
continued  acquiescence  on  the  part  of  the  persons  competent 


not  neces- 


agent  learned  in  the  course  of  the 
transaction.  Morris  v.  Ga.  L.  S.  & 
B.  Co.,  109  Ga.  12;  Fouche  v.  Mer- 
chants Nat.  Bank,  110  Ga.  827.  See 
Valdetero  v.  Citizen's  Bank  of  Jen- 
nings, 51  La.  An.  1651 ;  Morisette  v. 
Howard,  62  Kns.  463. 

The  maxim  Omnia  ratihdbitio  retro 
trahitur  et  mandato  priori  o&quipara- 
tur  applies.  Fleckner  e.  Bank  of  the 
U.  S.,  8  Wheat.  338,  363.  But  it  has 
been  held  that  a  subsequent  ratifica- 
tion of  unauthorized  conveyance  of 
property  is  inoperative  as  to  rights 
of  creditors  arising  before  said  rati- 
fication. Norton  v.  Alabama  Nat. 
Bk.,  102  Ala.  420.  See  Jordan  & 
Co.  v.  Collins,  107  Ala.  572. 

1  Tracy  v.  Guthrie  County  Agricul- 
tural Society,  47  Iowa,  27. 

2  Even  directors  cannot  ratify  the 
act  of  the  president,  which  they 
themselves  had  no  authority  to  per- 

182 


form.     Crum's  Appeal,   66    Pa.    St. 
474. 

3  Scott  v.  Middletown,  etc.,  K.  R. 
Co.,  86  N.  Y.  200;  Fleckner  v.  Bank 
of  U.  S.,  8  Wheat.  338,  363;  Sherman 
v.  Fitch,  98  Mass.  59;  Lyndeborough 
Glass  Co.  v.  Massachusetts  Glass 
Co.,  Ill  Mass.  315;  Reichwald  v. 
Commercial  Hotel  Co.,  106  111.  439; 
Ubbyv.  Land  Co.,  68  N.  11.444. 

4  For  example,  if  it  is  within  the 
power  of  the  body  corporate  to  issue 
further  stock,  but  not  within  the 
power  of  the  directors,  an  unauthor- 
ized issue  made  by  the  directors 
may  be  ratified  by  a  vote  of  the  body 
corporate.  In  re  New  Zealand  Bank- 
ing Co.,  Sewell's  Case,  L.  R.  3  Ch. 
131;  In  re  British  Provident,  etc., 
Assurance  Society,  Lane's  Case,  1 
DeG.  J.  &  S.  504;  see  Payson  v. 
Stoever,  2  Dill.  427,  §  213. 


PART  H.]    ACTS    WITHIN    THE   CORPORATE   POWERS.  [§  213. 


to  ratify,  when  knowledge  of  the  facts  may  be  shown,  reason- 
ably inferred,  or  presumed  to  have  been  had  by  the  persons  ac- 
quiescing.1 

Thus,  if  the  president  of  a  manufacturing  company,  in  excess 
of  his  authority,  executes  a  mortgage,  the  mortgage  will  be 
binding  on  the  company  if  the  directors  who  could  competently 
have  authorized  it  knowingly  acquiesce  for  a  considerable  time.2 
So,  in  another  case  where  a  master  mechanic  on  a  railroad 
without  authority  employed  a  physician  to  attend  an  injured 
employe,  and  sent  the  ph\'sician's  bill  in  a  letter  to  the  division 
superintendent,  who  would  have  had  authority  to  employ  the 
physician,  it  was  held  that  a  jury  might  find  a  ratification  on 
the  part  of  the  superintendent  from  his  neglect  to  pay  any  at- 
tention to  the  bill  and  letter  sent  him.3 

§  213.  In  a  similar  manner  the  ratification  on  the  part  of  the 
body  corporate  or  shareholders  may  be  proved.  Thus,  the 
capital  stock  of  a  company  had  been  increased  by  the  directors 
without  authority.  At  a  regular  annual  meeting,  however, 
the  matter  was  reported  to  the  shareholders,  who  did  not  then 
object,  and  the  holders  of  the  shares  improperly  issued  voted 
at  the  meeting  as  shareholders.  These  facts,  it  was  held, 
amounted  to  a  ratification.4  Again,  the  trustees  of  a  manufac- 
turing corporation  in  good  faith  conveyed  all  its  property  to 


1  Indianapolis  Rolling  Mill  v.  St. 
Louis,  etc.,  R.  R.  Co.,  120  U.  S.  256. 
See  Merrill  v.  Consumers1  Coal  Co., 
114  N.  Y.  216;  Campbell  v.  Pope,  96 
Mo.  468;  Stokes  v.  Detrick,  75  Md. 
256;  Manhattan  Hardware  Co.  v. 
Phalen,  128  Pa.  St.  110;  Western  H. 
&  I.  Co.  v.  Bank,  9  N.  Mex.  1;  Al- 
exander v.  Culbertson  I.  &  W.  P.  Co., 
61  Neb.  333;  Libby  v.  Land  Co.,  68  N. 
H.  444.  To  constitute  a  valid  ratifi- 
cation, the  principal  must  bave  had 
at  the  time  of  the  ratification  full 
knowledge  of  the  circumstances  at- 
tending the  performance  of  the  un- 
authorized act.  Benninghoff  v.  Agri- 
cultural Ins.  Co.,  93  N.  Y.  495.  See 
§§214,  215,  216. 

2 Sherman  v.  Fitch,  98  Mass.  59; 
Lyndeborough  Glass  Co.    v.    Massa- 


chusetts Glass  Co.,  Ill  Mass.  315; 
Lester  v.  Webb,  1  Allen,  34;  Wal- 
worth County  Bank  v.  Farmers'  Loan 
and  Trust  Co.,  16  Wis.  629;  Darst  v. 
Gale,  83  111.  136;  Chicago  Building 
Society  v.  Crowell,  65  111.  453;  Perry 
v.  Simpson  Waterproof  M'f'g  Co., 
37  Conn.  520;  see  Texas  and  St.  L. 
R.  R.  Co.  v.  Robards,  59  Tex.  545; 
West  Salem  Land  Co.  v.  Montgomery 
Land  Co.,  89  Va.  192;  Peterborough 
R.  R.  Co.  v.  Nashua  and  L.  R.  R. 
Co.,  59  N.  H.  385. 

3  Pacific  R.  R.  Co.  v.  Thomas,  19 
Kan.  256.  See,  also,  Lewis  v.  Alber- 
marle,  etc.,  R.  R.  Co.,  95  N.  C.  179. 

4  Payson  v.  Stoever,  2  Dill.  427; 
Phosphate  of  Lime  Co.  v.  Green,  L.  R. 
7  C.  P.  43.  See  Martin  v.  Niagara 
Paper   Co.,    122  N.  Y.    165;  Mineral 

183 


§  214.]  THE    LAW    OF    PRIVATE    CORPORATIONS.  [CHAP.  VII. 

settle  a  judgment  debt  which  the  corporation  had  no  other 
means  of  paying.  The  value  of  the  property  conveyed  did  not 
exceed  the  amount  of  the  judgment,  and  all  the  shareholders 
had  notice  of  the  conveyance  about  the  time  when  it  was  made. 
The  court  held,  that  after  the  lapse  of  four  years  no  action 
would  lie  either  by  the  corporation  or  its  shareholders  to  set 
aside  the  conveyance.1 

§  214.  An  implied  ratification  may  also  arise  if  the  corpo- 
ration accepts  the  benefit  of  the  unauthorized  act.2 
Ratification    T^  .  . 

through        Uut  a  corporation  will  not  be  held  to  have  ratified 

benefited  an  a°t  impliedly  by  accepting  the  benefit  of  it,  un- 
i/ni't't01"  ^ess  knowledge  of  the  act  was  actually  possessed  by 
Knowledge    some  corporate  agent  who  would  have  had  authority 

or  implied  ...  . 

notice  es-  to  act  for  the  corporation  m  the  matter,3  or  whose 
function  it  was  to  report  it  to  the  proper  authorities  ; 
or  unless  knowledge  of  the  act  would  have  been  possessed  by 
some  such  agent  had  there  not  been  neglect  of  duty  on  his  part, 
the  consequences  of  which  are  to  be  borne  by  the  corporation, 
rather  than  by  the  party  from  whose  performance  it  has  been 
benefited.4 


Springs  Co.  v.  De  Bautte,  50  La.  Ann. 
1281.  Compare  Miller  v.  Rutland, 
etc.,  R.  R.  Co.,  36  Vt.  452. 

1  Sheldon  Hat  Blocking  Co.  v. 
Eickmeyer  Hat  Blocking  Machine 
Co.,  90  N.  Y.  607.  See,  also,  Stokes 
v.  Detrick,  75  Md.  256:  Underbill  v. 
Santa  Barbara  Land  Co.,  93  Cal.  312. 

2  Railway  Companies  v.  Keokuk 
Bridge  Co.,  131  IT.  S.  371;  Taylor  v. 
Agricultural,  etc.,  Ass'n,  68  Ala.  229; 
Bezan  r.  Pike,  23  La.  Ann.  788; 
Medoniak  Bank  v.  Curtis,  24  Me.  36; 
Grape  Sugar  MTg  Co.  v.  Small,  40 
Md.  395;  Wood  Hydraulic  MTg  Co. 
v.  King,  45  Ga.  34. 

a  Gilman,  etc.,  R.  R.  Co.  v.  Kelly, 
77  111.  426;  Murray  v.  Nelson  Lum- 
ber Co.,  143  Mass.  250. 

Thus,  where  the  president  of  a  cor- 
poration executed  an  unauthorized 
lease  of  mining  property,  and  the 
corporation  accepted  tbe  rent,  but  as 

184 


"  money  for  ores  sold,"  not  knowing 
of  the  lease,  it  was  held  that  there 
was  no  ratification.  Yellow  Jacket 
Silver  M'g  Co.  v.  Stevenson,  5  Nev. 
224.     See  §  212,  note. 

4  Where  a  railroad  company  re- 
ceives railroad  material  bought  with- 
out authority  by  the  president  on  its 
credit  and  for  its  use,  and  the  mate- 
rial is  used  for  corporate  purposes 
with  the  assent  of  the  directors,  that 
is  an  adoption  and  ratification  of  tbe 
president's  act;  and  the  directors 
using  the  purchased  material  were 
bound  to  inquire  and  were  presumed 
to  know  whether  it  was  paid  for  or 
not;  it  is  not  essential  to  tbe  adop- 
tion of  tbe  acts  of  an  officer  that  the 
directors  should  know  tbe  terms  of 
his  contracts.  Scott  v.  Middletown, 
etc.,  R.  R.  Co.,  80  N.  Y.  200.  See 
Blen  v.  Bear  River,  etc.,  Water  Co., 
20  Cal.  602;  Hazelhurst  v.  Savannah, 


PART  II.]     ACTS    WITHIN   THE   CORPORATE   POWERS.         [§  216. 

§  215.  Consequently,  in  order  to  constitute  an  implied  ratifi- 
cation on  the  part  of  the  corporation,  arising  from  acquiescence 
or  from  accepting  the  benefit  of  an  act,  it  may  not  be  necessary 
that  the  circumstances  should  be  such  as  to  warrant  a  jury  in 
finding  actual  knowledge  on  the  part  of  the  corporation  or  cor- 
porate agents  competent  to  ratify.  For  the  knowledge  of  one 
agent  may,  at  least  in  the  absence  of  proof  to  the  contrary,  be 
imputed  to  other  agents  who  have  authority  to  do  the  acts  in 
question,  or  even  to  the  corporation.  Thus,  where  certain  un- 
authorized loans  were  made  by  a  person  on  behalf  of  a  corpora- 
tion with  banking  powers,  who  notified  the  cashier,  it  was  held, 
although  the  cashier  himself  had  no  power  to  ratify  the  unau- 
thorized acts,  that  notice  to  him  was  notice  to  the  board  of 
directors,  who  had  power  to  ratify  ;  and  accordingly  a  ratifica- 
tion was  inferred  through  their  neglect  to  repudiate ;  the  court 
saying:  "  It  was  the  duty  of  the  managers  at  those  meetings  to 
inform  themselves  of  the  affairs  of  the  company,  and  to  take 
the  same  care  of  its  funds  and  property  as  a  prudent  man  would 
take  of  his  own.  The  cashier  was  an  officer  selected  and  ap- 
pointed by  themselves,  in  whom  they  must  be  supposed  to  have 
entire  confidence.  An  important  part  of  his  duty  was  to  keep 
the  managers  informed  of  the  state  and  condition  of  the  com- 
pany's funds,  and  to  communicate  to  them  everything  affecting 
the  interests  of  the  company.  Without  presuming  a  gross  neg- 
lect of  duty  on  the  part  of  the  managers  in  meeting  and  mak- 
ing the  inquiries  in  relation  to  the  funds  in  New  York,  and  a 
like  neglect  of  duty  on  the  part  of  their  cashier  in  giving  them 
information,  it  cannot  be  supposed  that  the  managers  remained 
ignorant  of  the  loan  now  in  controversy,  or  of  the  entire  dis- 
position which  had  been  made  of  their  funds  in  the  defendants' 
bank  during  the  month  of  June.  The  plaintiffs  themselves  can- 
not call  on  a  court  or  jury  to  presume  such  a  neglect  on  their 
part." l 

§  216.  Likewise  notice  to  an  agent  who  himself  has  no  au- 
thority to  ratify,   may  be  notice  to  the  corporation :    and  if 


etc.,  R.  R.  Co.,  43  Ga.  13;  Indian- 
apolis Rolling  Mill  v.  St.  Louis,  etc., 
R.  R.  Co.,  120  U.  S.  256.  Compare 
Benniughoff  y.  Agricultural  Ins.  Co., 
93  N.  Y.  495,  §  212,  note. 


:New  Hope,  etc.,  Bridge  Co.  v. 
Phoenix  Bank,  3  N.  Y.  156,  164;  see 
Chicago,  etc.,  Ry.  Co.  v.  James,  24 
Wis.  388;  Martin  v.  Webb,  110  U.  S. 
7. 

185 


§  218.]         THE    LAW    OF    PRIVATE   CORPORATIONS.   [CHAP.  VII. 


within  a  reasonable  time  after  such  actual  and  implied  notices 
there  is  no  repudiation,  an  implied  ratification  from  acquies- 
cence may  be  presumed.  Thus,  in  Gold  Mining  Co.  v.  Na- 
tional Bank,1  a  person  acting  as  the  agent  of  the  company 
borrowed  money  on  its  account.  The  president  accepted  the 
accounts  of  the  agent,  thus  acquiring  actual  knowledge  of  the 
transactions;  and  the  court  said  that  the  president  "was  the 
suitable  man  to  receive  the  information."  Accordingly,  the 
company  failing  to  disavow  the  loan  made  to  its  agent  within 
a  reasonable  time  after  its  president  had  received  information 
in  the  matter,  was  held  to  have  assented  to  the  acts  of  its 
agent  as  originally  done  in  its  name.2 

§  217.  Mere  lapse  of  time  does  not  in  itself  constitute  a  rati- 
fication ;  though  in  connection  with  the  circumstan- 
ces of  the  case  lapse  of  time  may  be  competent  evi- 
dence of  a  ratification  arising  from  acquiescence.3 
And  when  the  corporation  has  had  the  full  benefit  of 
the  unauthorized  acts  of  its  agents,  from  very  slight  evidence  a 
ratification  may  be  inferred,4  as  may  be  inferred  from  slight 
evidence  the  ratification  of  an  act  plainly  beneficial  to  the  cor- 
poration, like  the  acceptance  of  a  grant.5 

§  218.  The  rules  governing  the  powers  of  corporate  agents 
.    ..  in  general  to  act  for  their  corporations  having  now 

Authority  °  '  ° 

of  special  been  discussed,  as  well  as  the  legal  effect  of  their  acts 
corporate  as  between  the  corporation  and  persons  with  whom 
agents.         they  contract,  it  remains  to  consider  more  specifi- 


Lapse  of 
time  no 
ratifica- 
tion. 


1 96  U.  S.  640. 

2  See,  also,  Bennett  v.  Maryland 
Fire  Ins.  Co.,  14  Blatchf.  422;  Hil- 
liard  v.  Goold,  34  N.  H.  230.  What 
directors  ought  by  proper  diligence 
to  have  known  as  to  the  general 
course  of  business  of  their  corpora- 
tion, they  may  be  presumed  to  have 
known  in  any  contest  between  the 
corporation  and  those  who  are  justi- 
fied by  the  circumstances  in  dealing 
with  its  officers  upon  the  basis  of 
that  course  of  business.  Martin  v. 
Webb,  110  U.  S.  7;  see  Kissam  v. 
Anderson,  145  U.  S.  435;  and  §  240. 
See,    also,    Merchants'    Union    Barb 

186 


Wire  Co.  v.  Rice,  70  Iowa,  14; 
Lowry  Banking  Co.  v.  Empire,  etc., 
Co.,  91  Ga.  624;  Field  v.  Investment 
Co.,  123  Mo.  603.  Directors  are 
chargeable  with  notice  of  the  con- 
tents of  the  books  of  the  corpora- 
tion. Hanover  Bk.  v.  Dock  Co.,  148 
N.  Y.  612. 

3  See  Evans  v.  Smallcombe,  L.  R. 
3  H.  L.  249,  253,  260.  See,  also, 
especially  §§  269  et  seq.. 

4  See,  generally,  cases  in  the  pre- 
ceding notes  ;  also,  §§  279  and  280. 

5  Bank  of  U.  S.  v.  Dandridge,  12 
Wheat.  64,  70. 


PART  II.]     ACTS   WITHIN    THE   CORPORATE   POWERS.         [§  220. 


cally  the  authority  of  certain  prominent  classes  of  corporate 
agents.  And  first  of  all  as  to  the  authority  of  the  board  of 
directors. 

§  219.  As  a  usual  thing,  the  entire  management  of  the  busi- 
ness of  a  corporation  is  by  its  constitution  vested  in 
the  board  of  directors ;  so  that  from  the  beginning   the  board 
the  shareholders  have  little  to  do  with  the  corporate  oL ireCt" 
management,  their  main  function  being  to  elect  the 
directors.     It  may  be,  however,  that  according  to  the  original 
organization  of  the  company  the  corporate  powers  are  left  to  a 
large  extent  in  the  hands  of  the  shareholders,  to  be  exercised  by 
themselves  if  they  see  fit.     Under  such  circumstances  the  share- 
holders by  resolution  or  by-law  may  delegate  authority  to  the 
directors ;  and  may  at  will   revoke  it,   provided   thereby   no 
vested  rights  are  affected.     This  latter  style  of  organization  is 
infrequent,  and  usually  the  powers  of  the  directors  emanate 
directly  from  the  constitution  of  the  corporation.     Accordingly, 
whether  or  not  any  given  act  is  within  the  scope  of  their  au- 
thority is,  in  most  instances,  to  be  ascertained  by  a  construction 
of  the  charter,  or  enabling  acts  and  articles  of  association,  in- 
cluding any  statutes  that  may  be  applicable. 

The  common  phrase  is  something  like  this  :  "  The  business  of 
the  corporation  shall  be  managed  by  the  board  of  directors ; " 
or  "  The  powers  of  the  corporation  shall  be  exercised  by  the 
board  of  directors."  In  consequence,  the  directors  for  ordinary 
purposes  have  full  authority  to  act  for  the  corporation  and  rep- 
resent it  in  all  matters  pertinent  to  the  corporate  enterprise.1 

§  220.  The  first  and  most  general  rule  as  to  the  extent  of  the 
power  conferred  by  "authority  to  manage  the  busi- 
ness of  the  corporation,"  is  that  such  power  extends   of  general 
to  the  doing  of  any  ordinary  act  conducive  to  the 


1See  Hoyt  ».  Thompson's  Ex'r,  19 
N.  Y.  207,  216;  Burrill  v.  Nahant 
Bank,  2  Mete.  (Mass.)  163,  166; 
Wood  o.  Whelen,  93  111.  153;  Sims 
v.  Street  Railroad  Co.,  37  Ohio  St. 
556;  Maynard  v.  Firemen's  Fund 
Ins.  Co.,  34  Cal.  48;  Wright  v.  Oro- 
ville  M'g  Co.,  40  Cal.  20;  Dana  v. 
Bank  of  U.  S.,  5  W.  &  S.  246;  Bank  of 
U.  S.  u.  Danbridge,  12  Wheat.  113 (per 


Marshall,  C.  J.);  Tripp  v.  Swanzey 
Paper  Co.,  13  Pick.  291;  Leavitt  v. 
Oxford,  etc.,  M.  Co.,  3  Utah,  265. 
When  the  directors  and  shareholders 
of  a  corporation  are  not  identical,  it 
is  incompetent  for  the  directors  to 
bind  the  corporation  by  an  agree- 
ment with  a  certain  person  that  he 
shall  be  a  director.  Seymour  v.  De- 
troit   Rolling    Mills,    56    Mich.    117. 

187 


§  223.]         THE   LAW    OF    PRIVATE   CORPORATIONS.  [CHAP.  VII. 

success  or  required  by  the  exigencies  of  the  business ;  and,  since 
any  person  vested  with  authority  to  act  for  another  must  neces- 
sarily act  largely  according  to  an  honest  discretion,  which  un- 
der certain  circumstances  warrants  acts  that  under  different 
circumstances  would  constitute  a  flagrant  breach  of  trust,  so  it 
may  be  said,  that  in  critical  emergencies  the  discretionary  au- 
thority of  directors  justifies  the  doing  of  many  acts  which  would 
be  unauthorized  under  ordinary  circumstances. 

§  221.  The  next  general  rule  regarding  the  construction  of 
the  authority  of  directors  is  a  negative  one.     Au- 

St'itGiiiGnt  """   "~ 

of  firat  gen-  thojrity_to_mana!ge._the  affairs_.of  ..a  coxporation  does 
tion. imi  *"   not  authorize  the  directorJTto  change  the  scheme  of 

tFe  corporate  enterprise  or  the  nature  of  the  corpo- 
rate business ;  nor  does  it  authorize  them  to  bring  the  business 
to  a  conclusion  either  directly,  or  indirectly  through  acts  which 
render  the  further  carrying  on  of  it  as  planned  impossible. 

§  222Trhirdly  and  finally,  since  the  constitution  and  all  au- 
thority thereby  conferred  relate  to  a  specific  enterprise  and  cor- 
porate purpose,  no  authority  is  conferred  on  directors  to  bind 

the  corporation  in  regard  to  matters  having  no  con- 

Statement 

of  second  nection  with  the  objects  of  incorporation. : 
UmHation.  The  three  preceding  rules  outline  the  law  regulat- 
ing the  power  of  directors  to  bind  by  their  acts  the 
corporation  and  its  property  ;  and  the  cases  and  instances  now 
to  be  referred  to  will  be  but  illustrations  of  their  application ; 
but  of  their  application  as  affected  by  rules  previously  discussed 
in  regard  to  presumptions  and  estoppels  and  by  special  provi- 
sions in  the  constitution  or  by-laws  of  the  corporation. 

§  223.  How  is  the  scope  of  the  first  general  rule  deter- 
gc  of  mined, — that  directors  may  do  any  regular  or  ordi- 
the  gen-        nary  act  within  the  corporate  powers,  in  the  man- 

cril  rule.  ii' 

agement  of  the  corporate  business  \  The  word 
"ordinary"  here  is  by  no  means  synonymous  with  "routine;" 
it  is  in  no  sense  limited  to  dairy  clerical  or  ministerial  manage- 
ment.    It  has  a  far  more  comprehensive  meaning ;  and  a  trans- 


Compare  Wilbur  v.  Stoebel,  82  Mich. 
344;  King  r.  Barnes,  109  N.  Y.  267. 

1  See  Bathe  v.  Decatur  Agric.  Soc, 
73  Iowa,  11.  That  directors  have  no 
power  to  organize  a  second  corpora- 

188 


tion  in  another  state,  and  bind  their 
home  company  for  the  expenses,  was 
held  in  Eakins  v.  White  Bronze  Co., 
75  Mich.  568. 


PART  II.]    ACTS    WITHIN   THE   CORPORATE   POWERS.         [§  224. 

action  may  still  be  "  ordinary  "  although  of  great  importance, 
involving  a  large  amount  of  money.  In  construing  the  term 
"ordinary  business,"  which  a  by-law  empowered  a  quorum 
composed  of  less  than  a  majority  of  directors  to  transact, 
Judge  Comstock  said,  giving  the  opinion  of  the  New  York 
Court  of  Appeals  in  Hoyt  v.  Thompson's  Executor : l  "  The 
ordinary  business  of  the  corporation  had,  I  think,  no  limit 
short  of  the  varied  and  extensive  affairs  in  which  it  was  author- 
ized by  its  charter  to  engage.  It  could  construct  and  operate  a 
canal,  deal  in  stocks  and  in  trusts,  and  it  could  carry  on  the 
business  of  banking  in  all  its  departments.  If  the  due  execu- 
tion of  these  powers  did  not  constitute  the  ordinary  business  of 
the  company,  then  it  seems  to  me  impossible  to  suggest  any 
definition  of  the  term,  and  the  by-law  becomes  senseless  and  un- 
meaning ;  and  if  these  express  powers  of  the  corporation  were 
embraced  in  the  terms  of  the  by-law,  it  must  necessarily  follow 
that  the  quorum  designated  took  all  the  incidental  authority 
which  the  whole  board  would  possess  in  the  execution  of  the 
same  powers.  In  the  operation  of  banking,  which  constituted 
one  portion  of  the  ordinary  business,  it  might  become  necessary 
to  borrow  money,  and  the  power  to  do  so  existed.  As  debts 
could  be  contracted,  the  incidental  power  of  paying  them  can- 
not be  doubted.  So,  the  condition  of  the  company's  affairs 
might  require  a  negotiation  with  creditors,  and  the  postpone- 
ment and  securing  of  their  demands.  To  secure  a  debt,  and 
procure  its  forbearance  in  a  period  of  embarrassment,  would 
not  by  any  means  be  an  extraordinary  act,  in  the  sense  of  the 
by-law,  although  it  might  be  unusual  in  the  magnitude  and  im- 
portance of  the  transaction."2 

§  224.  Accordingly,  all  business  relating  to  the  legitimate 
objects  of  incorporation,  not  involving  a  departure  from  the 
original  plan,  may  be  transacted  by  the  directors.3    They  have 


i  19  N.  Y.  206,  217. 

2  Compromises  to  avoid  and  reduce 
losses  come  within  the  general  scope 
of  the  powers  of  a  board  of  directors 
of  a  national  bank,  and  are  submitted 
to  their  discretion,  except  in  so  far 
as  there  may  be  restrictions  in  the 
charter  and  by-laws.     Banks  may  do 


in  this  behalf  whatever  natural  per- 
sons could  do  under  like  circum- 
stances. First  Nat.  Bank  v.  Nat. 
Exchange  Bank,  92  U.  S.  122.  See 
Keyser  v.  Hitz,  2  Mackey  (Dist.  of 
Col.),  513. 
3  Wood  v.  Whelan,  93  111.  153. 

189 


§  225.]  THE  LAW    OF    PRIVATE   CORPORATIONS.  [CHAP.  VII. 


full  power  to  manage  the  concerns  of  the  company.1  Thus, 
bank  directors  have  authority  to  make  discounts,  and  fix  the 
discount  rate.2  And  with  directors  rests  the  power  to  place 
unsubscribed  stock.3  Directors  of  a  railroad  company  may 
competently  contract  to  transport  freight  for  a  fixed  term  at 
a  certain  rate ; 4  and  it  has  been  held  to  be  within  the  discre- 
tionary power  of  the  boards  of  two  connecting  roads  to  make 
an  agreement  for  the  division  of  earnings  proportioned  to  the 
distance  that  each  corporation  carries  the  passengers  or  freight 
for  which  the  money  is  paid.5  Again,  in  a  case  where  the  deed 
of  settlement  of  a  joint-stock  bank  gave  its  directors  extensive 
powers  to  carry  on  the  business  of  banking  and  to  act  in  such 
manner  as  might  appear  to  them  best  calculated  to  promote  the 
interest  of  the  bank,  it  was  held  that  they  had  power  to  guar- 
anty the  payment  of  interest  on  debentures  of  another  com- 
pany issued  for  the  purposes  of  its  formation,  when  that  was 
of  importance  to  the  bank.6  Directors  are  the  proper  officers 
to  institute  legal  proceedings  on  behalf  of  the  corporation,  and 
i4i*/st0  that  end  have  unquestioned  authority  to  employ  counsel,7 
and  compromise  litigation.8 

§  225.  To  carry  on  the  corporate  business,  directors  have 


2 


1  Sims  u.  Street  Railroad  Co.,  37 
Ohio  St.  556;  see  Dana  v.  Bank  of 
United  States,  5  W.  &  S.  223,  246; 
Bank  of  Kentucky  v.  Schuylkill  Bank, 
1  Pars.  Sel.  Cas.  (Pa.)  236;  Wright 
v.  Oroville  M'g  Co.,  40  Cal.  20;  com- 
pare Beaty  v.  Knowler's  Lessee,  4 
Pet.  152;  Bargate  v.  Shortridge,  5 
H.  L.  Cas.  297. 

2  Bank  of  United  States  v.  Dunn,  6 
Pet.  51 ;  Bank  Commissioners  v.  Bank 
of  Buffalo,  6  Paige,  497. 

3  Sims  v.  Street  Railroad,  37  Ohio 
St.  556. 

4  Railroad  Co.  v.  Furnace  Co.,  37 
Ohio  St.  321. 

5Elkins  v.  Camden  and  Atlantic 
R.  R.  Co.,  36  N.  J.  Eq.  241. 

6  In  re  West  of  England  Bank, 
Ex  parte  Booker,  L.  R.  14  Ch.  D.  317. 
So,  where  a  lease  was  made  of  its  road 

190 


by  one  railroad  corporation  to  an- 
other, which  lease  was  executed  by 
the  share-holders  and  provided  for  a 
guaranty  by  the  lessee  corporation  of 
a  ten  per  cent,  annual  dividend  on 
the  stock  of  the  lessor  corporation, 
it  was  held  that  the  respective  boards 
of  directors  had  power  to  modify  the 
terms  of  the  lease  and  reduce  the 
amount  guaranteed.  People  v.  Met- 
ropolitan Ry.  Co.,  26  Hun,  82;  Flagg 
v.  Manhattan  Ry.  Co.,  10  Fed.  Rep# 
413;  S.  C,  20  Blatchf.  142.  (Quaere 
as  to  the  propriety  of  these  two  de- 
cisions.)  See  Sheffield  Nickel  Co.  v. 
Unwin,  36  L.  T.  N.  S.  246;  S.  C,  L. 
R.  2  Q.  B.  Div.  214. 

7  See  Pollock  v.    Shultze,  1   Hun, 
320. 

8  Donohue  v.  Mariposa  Land,  etc., 
Co.,  66  Cal.  317.     See  §  223,  note. 


PART    IT.]    ACTS    WITHIN    THE   CORPORATE   POWERS.         [§  225. 


power  to  borrow  money  for  the  corporation,1  and  in 
the  absence  of  express  restriction  on  their  power  in  of  directors 
this  respect,2  may  secure  the  corporate  indebtedness  °  orrow- 
by  a  pledge  of  its  personal  property  or  a  mortgage  of  its  real 
estate.3  Likewise  directors  may  assign  any  choses  in  action  or 
transfer  any  property  of  the  corporation,4  provided  the  property 
transferred  be  not  essential  to  the  carrying  out  of  the  objects 
of  incorporation.5  And  authorities  hold  that  the  directors  of  an 
insolvent  corporation  may  assign  all  its  property  for  the  pay- 
ment of  its  debts,  when  to  make  such  an  assignment  is  within 
the  powers  of  the  corporation.6    Thus,  according  to  a  Massa- 


1  Ridgway  v.  Farmers'  Bk.,  12  S.  & 
R.  256,  and  cases  in  following  notes. 
But  a  single  director  has  no  such 
power  by  virtue  of  being  a  director. 
Lawrence  p.  Gebhard,  41  Barb.  575. 

2  See  Davis  v.  Flagstaff  Silver  Mg. 
Co.,  2  Utah,  74;  compare  Flagstaff 
Silver  Mg.  Co.  v.  Patrick,  ib.  304. 
An  enabling  statute  may  contain  a 
specific  restriction  on  the  power  of 
trustees  or  directors  to  mortgage  the 
corporate  property. 

Capital  not  paid  up  is  only  sub  mo  do 
property  of  the  corporation ;  the  due 
makiug  of  a  call  being  a  condition 
precedent  to  the  absolute  proprietary 
right  of  the  company  therein.  Con- 
sequently, a  power  given  to  the  di- 
rectors to  mortgage  the  property  of  a 
corporation  does  not  authorize  them 
to  include  in  such  mortgage  future 
calls,  i.  e.,  the  unpaid  capital  of  the 
company.  Bank  of  South  Australia 
v.  Abrahams,  L.  R.  6  P.  C.  265. 

3  Wood  v.  Whelen,  93  111.  153; 
Burrilla.  NahantBk.,2  Mete.  (Mass.) 
163;  Hendee  v.  Pinkerton,  14  Allen, 
381;  Saltmarsh  v.  Spaulding,  147 
Mass.  224.  See  Tripp  v.  Swanzey 
Paper  Co.,  13  Pick.  291;  Hopson  v. 
Aetna  Axle,  etc.,  Co.,  50  Conn.  597. 
The  executive  committee  of  the 
board  of  directors,  having  been  au- 
thorized by  the  board  to  procure  a 
loan,  and  possessing  according  to  the 


constitution  of  the  corporation 
power  to  transact  "any  official  busi- 
ness," may  execute  a  mortgage. 
Taylor  v.  Agricultural,  etc.,  Ass'n, 
68  Ala.  229.  Compare,  as  to  author- 
ity of  the  directors  of  a  railroad  com- 
pany to  execute  a  mortgage  of  its 
property  and  franchise,  McCurdy's 
Appeal,  65  Pa.  St.  290,  which  seems 
to  proceed  on  the  assumption  that 
they  have  such  power,  at  least  when 
the  mortgage  is  not  repudiated  soon. 
Directors  of  a  manufacturing  com- 
pany may  mortgage  practically  all 
its  property  to  enable  it  to  go  on. 
Hopson  v.  Aetna  Axle,  etc.,  Co.,  50 
Conn.  597.  See  also,  Arms  v.  Con- 
ant,  36  Vt.  745,  748. 

4  Marvine  v.  Hymers,  12  N.  Y.  223. 
But  power  to  sell  bonds  is  not  in  a 
single  director  virtute  officii.  Titus 
v.  Cairo  and  Fulton  R.  R.  Co.,  37  N. 
J.  L.  98.  Compare  New  Haven  and 
Northampton  Co.  v.  Hayden,  107 
Mass.  525. 

5  See  §  229. 

6  Chamberlain  p.  Bromberg,  83  Ala. 
576;  Descombes  v.  Wood,  91  Mo.  196 
Hutchinson  v.  Green,  91  Mo.  387 
Tripp  v.  National  Bank,  41  Minn 
400;  Huse  v.  Ames,  104  Mo.  91 
Union  Bank  i\  Ellicott,  6  G.  &  J.  363 
Dana  o.  Bank  of  U.  S.,.  5  W.  &  S 
223,  247;  Catlin  o.  Eagle  Bank,  6 
Conn.  233;  Gibson  o.  Goldthwaite,  7 

191 


§  227.]         THE   LAW   OF   PRIVATE   CORPORATIONS.  [CHAP.  VII. 


cbusetts  case,  directors  of  a  corporation,  suddenly  rendered  in- 
solvent by  the  burning  of  its  works,  have  authority  to  convey 
to  a  creditor  all  the  corporate  property  provisionally,  upon  con- 
dition to  pay  or  provide  for  the  payment  of  the  just  debts  of 
the  corporation  to  himself  ;  he  giving  proper  security  to  apply 
no  more  than  necessary  and  pay  over  the  remainder  to  the  treas- 
urer of  the  corporation  for  the  benefit  of  other  creditors.1 
§  226.  Under  the  second  general  rule,  that  directors  cannot 

First  ^ene-   cnanoe  ^ne  scneme  °f  the  corporate  enterprise  nor 
rai   liiaita-    bring-  the  business  to  a  conclusion,  there  are  four 

tion.  i  .  i  •   i     t 

things  which  directors  cannot  do. 

§  227.  First,  they  cannot  change  the  nature  or  plan  of  the 

corporate  business,  nor,  in  the  absence  of  special  authorization, 

can  they  accept  from  the  legislature  any  substantial  alteration 

or  amendment  in  the  corporate  constitution.2     But  the  rule  de- 


Ala.  281 ;  Rogers  v.  Pell,  154  1ST.  Y. 
518.  See  Merrick  v.  Bank  of  the 
Metropolis,  8  Gill,  59;  Sheldon  Hat 
Blocking  Co.  v.  Eickemeyer  Hat 
Blocking  Machine. Co.,  90  N.  Y.  607; 
Duneomb  v.  New  York,  H.  &  N.  R. 
R.  Co.,  88  N.  Y.  1;  S.  C,  84  N.  Y. 
190;  Boynton  v.  Roe,  114  Mich.  401; 
Cf.  Parker  v.  Bank,  53  S.  C.  583; 
Contra,  Bk.  Com'rs  v.  Bank  of  Brest, 
Harrington's  Ch.  (Mich.)  100;  Kyle 
v.  Wagner,  45  W.  Va.  349.  An  as- 
signment made,  without  the  consent 
of  shareholders,  by  the  directors  of 
a  bank  of  all  its  assets  is  voidable  at 
the  suit  of  shareholders;  but  a  cred- 
itor cannot  object  to  the  directors' 
lack  of  power.  Eppright  i\  Nicker- 
son,  78  Mo.  482.     See  §  230,  note. 

1  Sargent  v.  Webster,  13  Mete. 
(Mass.)  497. 

2  Baker's  Appeal,  109  Pa.  St.  461; 
Commonwealth  v.  Cullen,  13  Pa.  St. 
133;  Brown  v.  Fairmount  Gold  Mg. 
Co.,  10  Phila.  32;  Marlborough  Mfg. 
Co.  p.  Smith,  2  Conn.  579;  Hope  Mat. 
Fire  Ins.  Co.  ».  Beckmann,  47  Mo.  93, 
96;  Mississippi,  etc.,  R  R.  Co.  v.  Cas- 
ter, 24  Ark.  96.  See  Venner  ».  Atchi- 
son, etc.,  R.    Co.,  28  Fed.   Rep.  581. 

192 


But  see  semble  contra,  Dayton,  etc., 
R.  R.  Co.  v.  Hatch,  1  Disney  (Cin. 
Sup.  Ct. ),  86;  Matter  of  Excelsior 
Fire  Ins.  Co.,  16  Abb.  Pr.  (N.  Y.)  8; 
Illinois  River  R.  R.  Co.  v.  Zimmer,  20 
111.  654;  Banet  v.  Alton,  etc.,  R.  R. 
Co.,  13  111.  504,  508.  Compare  Case  of 
St.  Mary's  Church,  6  S.  &  R.  498; 
S.  C,  7  S.  &  R.  517;  Railway  Co.  v. 
Allerton,  18  Wall.  233,  235.  In  some 
of  the  cases  in  this  note  holding  it 
beyond  the  power  of  directors  to  ac- 
cept an  amendment,  the  assent  of  all 
the  shareholders  might  have  been 
necessary.     See  §  532. 

In  the  absence  of  express  power  in 
the  deed  of  settlement,  it  is  not  com- 
petent for  the  directors  to  amalga- 
mate with  auother  company  carrying 
on  the  same  business,  and  assume  on 
behalf  of  their  own  corporation  the 
liabilities  of  the  other  company.  A 
clause  in  the  deed  of  settlement  au- 
thorizing the  directors  "generally, 
where  these  presents  are  silent,  or 
do  not  otherwise  provide,  to  act  in 
the  direction  of  the  concerns  of  the 
society  in  such  manner  as  at  their 
absolute  discretion  they  shall  think 
most  conducive  to    the  interests  of 


PART  II.]    ACTS   WITHIN   THE    CORPORATE   POWERS.         [§  228. 

nying  the  authorit}^  of  directors  to  accept  any  legislation  mate- 
rially changing  the  constitution  is  not  to  be  construed  to  pre- 
clude them  from  accepting  the  benefit  of  a  statute  which  effects 
no  changes,  but  which  merely  facilitates  the  exercise  of  fran- 
chises already  conferred.1 

§  228.  Secondly,  directors  have  no  power  to  increase  or  de- 
crease the  capital  stock  of  the  corporation.2  In  the  leading 
case  on  this  point,  Railway  Company  v.  Allerton,  Justice  Brad- 
ley said:3  "A  change  so  organic  and  fundamental  as  that  of 
increasing  the  capital  stock  of  a  corporation  beyond  the  limit 
fixed  by  the  charter  cannot  be  made  by  the  directors  alone, 
unless  expressly  authorized  thereto.  The  general  power  to 
perform  all  corporate  acts  refers  to  the  ordinary  business 
transactions  of  the  corporation,  and  does  not  extend  to  a  recon- 
struction of  the  body  itself,  or  to  an  enlargement  of  its  capital 
stock." 4 


the  society,"  is  not  an  authority  for 
the  purpose.  In  re  Era  Assurance 
Society,  Ex  parte  Williams,  30  L.  J. 
Eq.  137.  Directors  have  no  power  to 
consolidate  with  auother  corporation. 
Greenville  Co.  o.  Planters'  Press,  70 
Miss.  669.  See  Blachford  ».  Ross,  5 
Abb.  Pr.  N.  S.  (N.  Y.)  434.  Direct- 
ors of  a  railroad  company  have  no 
authority  to  purchase  the  road  of  an- 
other company.  Deaderick  v.  Wil- 
son, 8  Bax.  (Tenn.)  108. 

1  A  statute  was  passed  authorizing 
a  railroad  company  to  take  for  a  pas- 
senger station  land  belonging  to  an- 
other railroad  company.  The  by-laws 
provided  that  the  directors  might 
purchase  what  real  estate  they 
deemed  necessary  for  the  railroad, 
and  exercise  all  powers  granted  to 
the  company  by  the  charter,  for  the 
purpose  of  locating,  constructing, 
and  completing  the  road,  and  all 
other  powers  necessary  and  proper 
to  carry  out  the  objects  of  the  corpo- 
ration :  Field,  that  an  acceptance  of 
the  statute  by  shareholders  was  not 
necessary  to  authorize  directors  to 

13 


take  land  in  pursuance  of  it.  East- 
ern R.  R.  Co.  ».  Boston  and  Maine 
R.  R.  Co.,  Ill  Mass.  125.  See  Joy  v. 
Jackson,  etc.,  Plank  Road  Co.,  11 
Mich.  155,  170. 

2  When  a  corporation  has  the  power 
to  increase  or  diminish  its  capital 
stock,  the  mode  of  doing  it  and  the 
conditions  under  which  it  may  be 
done  are  usually  prescribed  by  stat- 
ute. But  when  the  statute  is  silent 
the  power  rests  in  the  body  corpo- 
rate, not  in  the  board  of  directors. 
Eiduian  o.  Bowman,  58  111.  444;  Mc- 
Nulta  v.  Corn  Belt  Bk.,  164  111.  427. 
On  the  general  principle  that  the 
powers  of  a  corporation  not  specially 
vested  in  any  particular  officers  re- 
main in  the  body  corporate,  see  Mat- 
ter of  Wheeler,  2  Abb.  Pr.  N.  S.  (N. 
Y.)  361;  People  i\  Twaddel,  18  Hun, 
427,  432 ;  State  v.  Merchant,  37  Ohio 
St.  251. 

3  18  Wall.  233,  234. 

4  Gill  v.  Balis,  72  Mo.  424;  Finley 
Shoe  and  Leather  Co.  o.  Kurtz,  34 
Mich.  89;  Eidman  r.  Bowman,  58  111. 
444;  Percy  v.  Millaudon,  3  La.  569. 

193 


§  230.]  THE   LAW   OF   PRIVATE   CORPORATIONS.   [CHAP.  VII. 

§  229.  Thirdly,  directors  cannot  transfer  property  of  fcfee  cor- 
poration which  is  essential  to  the  continuance  of  the  corporate 
business;1  nor  have  they  power  to  give  away  the  corporate 
funds  or  deprive  the  corporation  of  the  means  which  it  possesses 
to  accomplish  the  purposes  of  its  incorporation.2  Accordingly, 
directors  cannot  ordinarily  lease  the  whole  plant  of  a  corpora- 
tion ; 3  nor  can  the  directors  of  a  railroad  company  lease  its  road 
without  special  authority.4 

§  230.  Fourthly,  if  directors  have  no  power  to  sell  corporate 
property  which  is  essential  to  the  continuance  of  the  business, 

And    directors    cannot  increase 


the 

capital  stock  indirectly,  e.  g.,  by 
agreeing  to  pay  in  stock  for  services 
and  for  money  loaned,  when  the  cor- 
poration has  no  stock  in  its  treasury. 
Finley  Shoe  and  Leather  Co.  v.  Kurtz, 
supra. 

1  Abbot  v.  American  Hard  Rubber 
Co.,  33  Barb.  578;  Rollins  v.  Clay,  33 
Me.  132;  Balliet  v.  Brown,  103  Pa. 
St.  546;  Forrester  v.  B.  &  M.  Min. 
Co.,  21  Mont.  544.  Compare  Sheldon 
Hat  Blocking  Co.  v.  Eickemeyer  Hat 
Blocking  Machine  Co.,  90  N.  Y.  607; 
Reichwald  v.  Commei-cial  Hotel  Co., 
106111.  439;  Temp.  Ass'n  v.  Friendly 
Soc,  187  Pa.  St.  38;  and  see  §225. 

2  Burke  v.  Smith,  16  Walt.  390, 
395;  Bedford  R.  R.  Co.  v.  Bowser,  48 
Pa.  St.  29,  37;  Jones  v.  Morrison,  31 
Minn.  140;  Field  v.  Investment  Co., 
123  Mo.  603.  See  Penobscot,  etc.,  R. 
R.  Co.  v.  Dunn,  39  Me.  587,  601. 

But  it  has  been  held  that  directors 
have  power  to  apply  £1,500  out  of 
the  undivided  profits  of  a  manufac- 
turing company,  as  a  gratuity  of  one 
week's  extra  pay  to  each  worker  in 
the  factory  who  had  worked  with  a 
good  character  throughout  the  year. 
Hampson  ».  Price's  Patent  Candle 
Co.,  44  L.  J.  Eq.  437.  The  point 
came  up  on  a  motion  by  a  shareholder 
to  restrain  the  payment.  But  see 
Jones  v.  Morrison,  31  Minn.  140. 

194 


3  Library  Hall  Co.  v.  Pittsburg 
Assn.,  173  Pa.  S.  C.  30;  Cass  v.  Man- 
chester Iron  and  Steel  Co.,  9  Fed. 
Rep.  640.  In  the  last  case  the  holder 
of  a  majority  of  stock  had  protested. 

*  Stevens  v.  Davison,  18  Gratt. 
819;  Mills  v.  Central  R.  R.  Co.,  41 
N.  J.  Eq.  1;  Board,  etc.,  Tippecanoe 
County  v.  Lafayette,  etc.,  R.  R.  Co., 
50Ind.  85,  112;  Martin  v.  Continental 
Passenger  Ry.  Co.,  14  Phila.  (Pa.) 
10.  Nor  can  directors  change  the 
termini  of  a  railroad.  See  Board, 
etc.,  Tippecanoe  County  v.  Lafayette, 
etc.,  R.  R.  Co.,  supra. 

When  the  lease  of  the  railroad  of 
ono  company  has  been  made  to  an- 
other railroad  company,  and  ratified 
by  the  shareholders,  the  directors 
have  no  power,  as  against  objecting 
shareholdei's,  to  change  its  provi- 
sions. March  v.  Eastern  R.  R. 
Co.,  43  N.  H.  515.  Compare  S.  C, 
40  N.  H.  548.  See  Kersey  Oil  Co.  v. 
Oil  Creek,  etc.,  R.  R.  Co.,  12  Phila. 
374.  Compare  Black  v.  Delaware 
and  Raritan  Canal  Co.,  22  N.  J.  Eq. 
130,  407  et  seq.,  and  §  224,  note.  Iu 
Beveridge  v.  N.  Y.  E.  R.  Co.,  112  N. 
Y.  1,  it  was  held  that  when  to  lease 
its  road  was  within  the  powers  of  a 
railroad  corporation,  the  directors 
had  authority  to  make  the  lease,  the 
powers  of  the  corporation  being  by 
its  charter  vested  in  them. 


PART  II.]    ACTS    WITHIN   THE   CORPORATE   POWERS.  [§  232 


a  fortiori  they  have  no  power  to  wind  up  the  affairs  of  the^or- 
poration.1 

§  231.  The  last  of  the  three  general  rules  above  mentioned,2 
is  that  directors  have  no  authority  to  bind  the  cor-   „ 

.        J  Second 

poration  in  matters  not  relating  to  the  corporate  general 
business.  On  the  face  of  it,  this  rule  seems  self- 
evident.  All  the  powers  of  directors  to  represent  the  corpora- 
tion, whether  derived  directly  from  the  corporate  constitution 
or  conferred  by  a  vote  of  the  body  corporate,  have  their  ulti- 
mate basis  in  that  constitution  and  in  the  agreement  of  the 
associates  embodied  in  it.  Consequently,  directors  have  no 
power  to  do  any  act  ultra  vires  the  corporation ; 3  and  as  the 
corporate  constitution  and  the  agreement  embodied  in  it  relate 
only  to  the  corporate  enterprise,  any  acts  having  no  relation  to 
the  corporate  enterprise  must  be  beyond  the  authority  of  di- 
rectors. As  Yice  Chancellor  Wickens  said  in  Pickering  v. 
Stephenson  : 4  "  The  special  powers,  given  either  to  the  directors 
or  to  a  majority  by  statutes  or  other  constituent  documents  of 
the  association,  however  absolute  in  terms,  are  always  to  be 
construed  as  subject  to  a  paramount  and  inherent  restriction 
that  they  are  to  be  exercised  in  subjection  to  the  special  pur- 
poses of  the  bond  of  association."  Accordingly,  directors  have 
nop^ro1  to  give  the  note  of  the  corporation  for  a  debt  having 
no  relation  to  its  business,  due  to  the  payee  of  the  note  ;  and 
the  note  will  be  void  in  the  hands  of  any  person  having  notice 
of  the  circumstances  under  which  it  was  given.5 

§  232.  On  the  other  hand,  if  directors  acting  within  the  ap- 


1  Bank  Commissioners  ».  Bank  of 
Brest,  Harrington's  Ch.  (Mich.)  106; 
Smith  v.  Smith,  3  Des.  Ch.  (S.  C. ) 
547;  Angell  and  Ames  on  Corp., 
§772.  See,  State  v.  Mitchell,  104 
Tenn.  336.  But  it  is  held  that  direct- 
ors may  make  an  assignment  of  the 
corporate  property  for  the  equal 
benefit  of  all  creditors,  when  the  cor- 
poration is  insolvent.  Descombes  v. 
Wood,  91  Mo.  196;  Hutchinson  v. 
Green,  91  Mo.  367.     But  a  minority 


of  the  diiectoi-s  cannot  make  such 
an  assignment.  Calumet  Paper  Co. 
v.  Haskell  Show  Pr.  Co.,  144  Mo.  331. 
See  §  225. 

2  §  222. 

3  §  267. 

*  L.  R.  14  Eq.  322,  340.  See,  also, 
Minor  v.  Mechanics'  Bank,  1  Pet.  46, 
71. 

3 Hall  ».  Auburn  Turnpike  Co.,  27 
Cal.  255.  See  Salem  Bk.  v.  Glou- 
cester Bk.,  17  Mass.  30. 

195 


§  233.]  THE   LAW   OF   PRIVATE  CORPORATIONS.  [CHAP.  VII. 

parent  scope  of  their  authority,  commit  or  intend  a 
tioifto^tT      breach   of   trust,  the  rights  of  an   innocent   person 

dealing  with  them  will  not  be  affected  thereby.1 
Thus,  if  directors  borrow  money  for  their  corporation,  having 
authority  to  do  so,  the  lender  is  not  bound  at  his  peril  to  see 
that  the  money  is  not  applied  to  purposes  ultra  vires  the  cor- 
poration,2 nor  embezzled  by  the  directors.  And  if  a  person 
sells  to  directors  for  their  corporation  such  property  as  it  is  au- 
thorized to  buy,  he  need  not  ascertain  whether  it  requires  his 
particular  property7 .3  In  this  last  case,  Eastern  Counties  Rail- 
way Co.  v.  Hawkes,  Lord  St.  Leonards  said  that  the  English 
decisions4  did  "not  authorize  directors  to  bind  their  companies 
by  contracts  foreign  to  the  purposes  for  which  they  were  es- 
tablished, but  they  do  hold  companies  bound  by  contracts  duly 
entered  into  by  their  directors  for  purposes  which  they  have 
treated  as  within  the  objects  of  their  Acts,  and  which  cannot 
clearly  be  shown  not  to  fall  within  them ;  and  they  further 
hold  companies  to  be  bound  by  a  continual  course  of  dealing 
by  their  directors  with  third  persons  in  relation  to  their  shares, 
although  that  mode  of  dealing  is  contrary  to  the  regulations  of 
their  deed  of  management."5 

§  233.  As  to  what  portion  of  their  authority  directors  may 

delegate  to  some  of  their  own  number  or  to  other 
o/amhor-11  officers  of  the  corporation  it  is  difficult  to  state  any 
rectors'11"       rme  °*  general  application  more  specific  than  this: 

Directors  may  not  delegate  authority  which  it  was 
intended  that  the  board  should  exercise.  From  some  cases  it 
might  indeed  be  inferred  that  it  was  ordinarily  competent  for 
them  to  delegate  authority  to  perform  mere  ministerial  acts,  but 
not  authority  to  do  acts  involving  discretion.6  Thus,  it  has  been 
held  that  the  power  of  directors  to  lease  property  of  the  corpo- 

jgLJ    j    &  /  o 

1  See  §§  203  et  seq.  *+  6*^  Gst      'Drew,  2  Macq.  103;  Bargate  ».  Short- 


2  In  re  Marseilles  Extension  Rail- 
way and  Land  Co.,  20  W.  R.  254; 
North  Hudson  B'ld'g  Ass'n  v.  Bank, 
79  Wis.  31. 

3  Eastern  Counties  R'y  Co.  v. 
Hawkes,  5  H.  L.  Cas.  831. 

4  7.    e.,  National  Exchange    Co.    v. 

196 


ridge,  5  H.  L.  Cas.  29G. 

5  5  H.  L.  Cas.  381. 

6  Silver  Hook  Road  v.  Greene,  12 
R.  I.  164;  Farmers'  Mutual  Ins.  Co. 
».  Chase,  56  N.  H.  341;  Temple  v. 
Dodge,  89  Tex.  68.  Compare  Sheri- 
dan Elec.  L.  Co.  v.  Nat.  Bank,  127 
N.  Y.  517. 


PART    II.]    ACTS    WITHIN   THE   CORPORATE    POWERS.        [§  234. 

ration  could  not  be  delegated  to  an  agent.1  But  this  view  is 
not  borne  out  by  the  authorities.2 

Directors  may  undoubtedly  appoint  subordinate  officers,  and 
empower  them  to  do  all  acts  which  properly  come  within  the 
scope  of  their  respective  offices.3  Such  appointments,  however, 
are  rather  an  exercise  than  a  delegation  of  their  powers  by  di- 
rectors ;  for  clearly  it  was  not  intended  that  the  board  of  direct- 
ors should  perform  the  duties  of  subordinate  officers.  Directors 
may  also  regulate  the  authority  of  whatever  officers  they  have 
the  power  to  appoint.  Accordingly,  they  may  authorize  the 
president,  or  president  and  cashier,  or  the  general  agent,  to 
borrow  money  and  draw  and  indorse  negotiable  paper  in  the 
name  of  the  corporation ; 4  or  may  authorize  a  treasurer  to 
assign  mortgages  belonging  to  the  corporation.5 

§  234.  Powers  involving  a  wide  discretion  —  wider  than 
should  be  vested  in  any  single  officer  or  subordinate   ^  , 

•J  o  Delegation 

agent — may  be  delegated  by  directors  to  a  committee   of  powers 
of  their  own  number,  especially  when  the  member-   board  to  a 
ship  of  the  board  is  large.     In  New  York  it  is  held   comnu  ee- 
that  a  board  of  twenty-three  directors  may  delegate  to  a  "  quo- 
rum" of  any  live  of  their  number  authority  to  transact  all 
ordinary  business.0     Likewise,  a  board  may  delegate  to  a  com- 


i  Gillis  v.  Bailey,  21  N.  H.  149;  see 
Tippets  v.  Walker,  4  Mass.  595. 

2  See  Burrill  v.  Nahant  Bank,  2 
Mete.  (Mass.)  163;  Iloyt  v.  Thomp- 
son's Ex'r,  19  N.  Y.  207;  Wood  v. 
Wiley  Cons'n  Co.,  56  Conn.  87; 
Mercer  County  Ins.  Co.  v.  Stranalian, 
104  Pa.  St.  246;  Metropolitan  Tel. 
Co.  v.  Domestic  Tel.  Co.,  44  1ST.  J.  Eq. 
568,  571. 

8  Kitchen  v.  Cape  Girardeau,  etc., 
R.  R.  Co.,  59  Mo.  514.  Unless,  to  be 
sure,  the  power  of  appointment  re- 
mains with  the  body  corporate.  Di- 
rectors usually  receive  express  au- 
thority to  appoint  the  higher  officers, 
as,  e.  g.,  the  cashier.  See  Fleckner 
v.  Bank  of  the  U.  S.,  8  Wheat.  338, 
356. 

*  Ridgway  v.  Farmers'  Bank,  12  S. 
&  R.  256;  Spear  v.  Ladd,  11  Mass. 


94;  Northampton  Bank  v.  Pepoon, 
11  Mass.  288;  Fleckner  v.  Bank  of  the 
IT.  S.,  8  Wheat.  338,  356;  Preston  v. 
Missouri,  etc.,  Lead  Co.,  51  Mo.  43; 
see  Merrick  v.  Bank  of  the  Metropolis, 
8  Gill  (Md.),  59;  Bank  Commission- 
ers v.  Bank  of  Buffalo.  6  Paige,  497; 
Manchester  and  Lawrence  R.  R  Co. 
v.  Fisk,  33  N.  H.  297. 

5  Commonwealth  v.  Reading  Sav- 
ings Bank,  137  Mass.  431. 

6  Hoyt  b.  Thompson's  Ex'r,  19  N. 
T.  207;  see  §223.  See  Leavitt  p. 
Oxford,  etc.,  M.  Co.,  3  Utah,  205. 
But  it  has  also  been  held  that  the  au- 
thority possessed  by  a  portion  of  the 
directors  to  do  "  ordinary  business," 
did  not  authorize  them  to  compro- 
mise a  large  debt  due  the  corporation. 
Kirk  ».  Bell,  16  Q.  B.  290. 

197 


§  236.]         THE   LAW    OF    PRIVATE   CORPORATIONS.  [CHAP.  VII. 

raittee  of  their  own  number  authority  to  alienate  or  mortgage 
real  estate  of  the  corporation,1  or  to  transfer  its  personal  prop- 
erty.2 The  power  to  do  certain  acts,  however,  the  board  of 
directors  cannot  delegate,  even  to  a  committee  of  their  own 
number.  They  cannot  delegate  authority  to  allot  shares,3  to 
make  calls,4  to  declare  dividends,5  or  to  order  a  sale  of  shares 
for  the  nonpayment  of  assessments.6 

§  235.  It  may  be  added  that  the  power  of  agents,  appointed 
Authority     by  the  board  of  directors,  to  act  for  the  corporation, 
doefno*8       1S  n°t  terminated  by  the  expiration  of  the  authority 
expire -with   0f  the  directors  appointing  them.7 
directors  §  236.  To  lay  down  any  general  rule,  sufficiently 

point  them,    definite  to  be  of  practical  value,  as  to  the  powers  of 

presidents  of  corporations  is  well  nigh  impossible. 
Virtute  officii  a  president  has  very  little  authority  to 

act  for  his  corporation,  and  can  bind  it  only  by  such 
contracts  as  plainly  come  within  its  most  ordinary  routine  busi- 
ness.8    Thus,  it  is  held  that  a  president  without  special  author- 


Authority 

of  a  presi- 
dent. 


1  Burrill  v.  Nahant  Bauk,  2  Mete. 
(Mass.)  163;  Augusta  Bauk  v.  H am- 
ble t,  35  Me.  491;  Taylor  v.  Agricul- 
tural, etc.,  Ass'n,  68  Ala.  229;  Hoyt 
v.  Thompson's  Ex'r,  supra. 

2  Mitchell  v.  Deeds,  49  111.  418  ; 
compare  Palmer  v.  Yates,  3  Sandf. 
(N.  Y.)137. 

8  In  re  Leeds  Banking  Co.,  How- 
ard's Case,  36  L.  J.  Eq.  42;  S.  C, 
L.  R.  1  Ch.  561;  In  re  County  Pala- 
tine Loan,  etc.,  Co.,  Cartmell's  Case, 
43  L.  J.  Eq.  588;  compare  Crocker 
v.  Crane,  21  Wend.  211.  But  au- 
thority to  delegate  this  power  to  a 
committee  of  their  own  number  may 
be  given  in  the  corporate  constitution. 
Harris's  Case,  L.  R.  7  Ch.  587. 

4  Silver  Hook  Road  v.  Greene,  12 
R.  I.  164;  Farmers'  Mutual  Ins.  Co. 
v.  Chase,  56  N.  H.  341  (in  both  the 
cases  the  delegation  was  to  the  treas- 
urer); compare  Read  v.  Memphis 
Gayoso  Gas  Co.,  9  Heisk.  (Tenn. ) 
545. 

5  This  power  is  especially  confided 

198 


to  the   discretion  of  the  board;  see 
§562. 

6  York  and  Cumberland  R.  R.  Co. 
v.  Ritchie,  40  Me.  425. 

7  Anderson  v.  Langdon,  1  Wheat. 
85;  Northampton  Bk.  v.  Pepoon,  11 
Mass.  288,  294  ;  Dedham  Bank  v. 
Checkering,  3  Pick.  335;  Union  Bank 
v.  Rklgely,  1  Har.  &  G.  (Md.)  324, 
431-2. 

In  regard  to  the  authority  of  direct- 
ors to  release  shareholders  from  their 
subscriptions,  see  §§  549-551,  745, 
746,  780. 

8  First  Nat.  Bk.  v.  Hoch,  89  Pa.  St. 
324;  Blen  v.  Bear  River,  etc.,  Water 
Co.,  20  Cal.  602;  Risley  o.  Indian- 
apolis, etc.,  R.  R.  Co.,  1  Hun,  202; 
Templin  r.  Chicago,  etc.,  Ry.  Co.,  73 
Iowa,  548;  Griffith  v.  Chicago,  etc., 
Ry.  Co.,  74  Iowa,  85;  Nat.  State  Bk. 
v.  Vigo  Bk.,  141  Ind.  352.  See 
Crump  ».  U.  S.  Mining  Co.,  7  Gratt. 
352;  Dawes  b.  North  River  Ins.  Co., 
7  Cow.  462;  Hodges  v.  Rutland,  etc., 
R.   R.   Co.,  29  Vt.  220;  Calteaux  v. 


PART  II.]    ACTS    WITHIN    THE   CORPORATE   POWERS.  [§  236. 

ity  cannot  borrow  money  and  bind  the  corporation  to  repay  it  ;a 
nor  can  he  mortgage  corporate  property,  or  confess  judgment 
on  behalf  of  the  corporation ; 2  nor  has  he  authority  to  begin 
an  action  in  the  name  of  the  corporation,3  or  employ  counsel.4 
Neither  has  the  president  of  a  railroad  corporation  power  to 
appoint  an  agent  to  sell  its  lands ;  and  sales  made  by  an  agent 
appointed  by  the  president  will  not  bind  the  corporation  ; 5  nor 
has  the  president  authority  himself  to  sell  lands  of  the  corpo- 
ration.6 Likewise,  the  president  of  an  insurance  company  has 
no  authority  ex  officio  to  indorse  and  negotiate  a  note  belonging 
to  it.7  And  when  by  the  charter  the  management  is  intrusted 
to  the  board  of  directors,  the  president  and  cashier,  unless 
specially  authorized,  have  no  power  to  assign  choses  in  action 
of  the  corporation  in  payment  of  an  antecedent  debt,  or  to  do 
any  act  requiring  the  use  of  the  corporate  seal,8  and  the  lack  of 
authority  in  the  affixing  of  the  seal  may  be  shown  by  the  cor- 


Muller,  102  Wis.  525.  But  compare 
Hayiier  v.  Am.  Popular  Life  Ins. 
Co.,  3  J.  &  Sp.  (X.  Y.)  266;  Eureka 
Iron  Works  v.  Bresuaban,  60  Mich. 
332. 

1  Life  and  Fire  Ins.  Co.  v.  Mechanic 
Fire  Ins.  Co.,  7  Wend.  31;  Fifth  Ward 
Savings  Bk.  v.  First  Nat.  Bk.,  47 
N.  J.  L.  357.  See  City  El.  Ry.  Co.  v. 
Nat.  Bk.,  62  Ark.  33.  In  an  action 
against  an  incorporated  bank,  decla- 
rations or  admissions  of  its  presi- 
dent are  not  admissible  to  establish 
liability  against  it.  Henry  v.  North- 
ern Bank,  63  Ala.  527.  See  Hodge 
v.  First  Nat.  Bk.,  22  Gratt.  51. 

2  Stokes  v.  New  Jersey  Pottery  Co., 
46  N.  J.  L.  237;  Benuett  v.  Keen,  59 
N.  J.  Eq.  634;  England  v.  Dearborn, 
141  Mass.  590;  Alta  Silver  M'g  Co.  v. 
Mining  Co.,  78  Cal.  629;  although  he 
own  most  of  the  stock;  same  cases. 

8  Ashuelot  Mfg.  Co.  v.  Marsh,  1 
Cosh.  507.  But  see  American  Ins. 
Co.  v.  Oakley,  9  Paige,  496;  Mumford 
v.  Hawkins,  5  Denio,  355. 

4  Brightly  v.  Metairie  Cemetery 
Ass'n,  33  La.  Ann.  58;  see   Bridge- 


port Savings  Bk.  v.  Eldridge,  28 
Conn.  556;  Pacific  Bank  o.  Stone,  121 
Cal.  202;  and  cases  in  the  last  note. 
Contra,  Coleman  v.  Oil  Co.,  25  W.  Va. 
148;  Nat.  Bk.  v.  Berry,  53  Kan.  696; 
Beebe  v.  Beebe  Co.,  64  N.  J.  L.  497. 
See  Wetherbee  v.  Fitch,  117  111.  67. 
Later  cases  recognize  the  authority 
of  a  president  to  institute  suit.  Reno 
Water  Co.  v.  Leete,  17  Nev.  203; 
Guernsey  v.  Coal  Co.,  99  Iowa,  471. 

5  Chicago,  etc.,  R.  R.  Co.  v.  James, 
22  Wis.  194. 

6  Bliss  v.  Kaweah  Co.,  65  Cal.  502; 
McKeag  v.  Collins,  87  Mo.  164. 

7  Marine  Bank  v.  Clements,  3  Bos. 
(N.  Y.)  600.  But  see  Clark  v.  Tit- 
comb,  42  Barb.  122;  Scott  v.  John- 
son, 5  Bos.  (N.  Y.)  213. 

8  Hoyt  v.  Thompson,  5  N.  Y.  320; 
see  England  v.  Dearborne,  141  Mass. 
590;  Norton  v.  Ala.  Nat.  Bk.,  102  Ala. 
420.  Compare  Hadden  u.  Linville, 
86  Md.  210.  But  it  is  held  that  a 
president  may  satisfy  a  judgment  in 
favor  of  the  corporation.  Booth  v. 
Farmers  and  Mechanics1  Nat.  Bk., 
50  N.  Y.  396. 

199 


§    236.]  THE    LAW    OF    I'KIVATK    CORPORATIONS.    [CHAP.  Vlt. 


poration.1  An  agreement,  moreover,  by  the  president  and 
cashier  of  a  bank,  that  the  indorser  of  a  promissory  note  shall 
not  be  liable  to  the  bank  on  his  indorsement,  is  invalid.2  In- 
deed, in  a  case  where  a  respected  court  held  a  president  incom- 
petent to  authorize  a  director  to  sell  bonds  of  the  corporation, 
the  learned  judge  giving  the  opinion  said  :  "  In  the  absence  of 
anything  in  the  act  of  incorporation  bestowing  special  power 
on  the  president,  he  has  from  his  mere  official  station  no  more 
control  over  the  corporate  property  and  funds  than  any  other 
director.  The  affairs  of  corporate  bodies  are  within  the  exclu- 
sive control  of  their  boards  of  directors,  from  whom  authority 
to  dispose  of  their  assets  must  be  derived."3 


1  Koeliler  v.  Black  River  Falls  Iron 
Co.,  2  Black.  715;  Hoyt  v.  Thompson, 
5  N.  Y.  320. 

2  Bank  of  the  United  States  v. 
Dunn,  6  Pet.  51;  Bauk  of  the  Metro- 
polis y.  Jones,  8  Pet.  12;  First  Nat. 
Bk.  v.  Tisdale,  18  Hun,  151.  See 
United  States  v.  City  Bauk,  21  How. 
356;  Hodge  ».  First  Nat.  Bk.,  22 
Gratt.  51.  Compare  Booth  v.  Farm- 
ers and  Mechanics'  Nat.  Bk.,  50  N.  Y. 
390;  First  Nat.  Bk.  v.  Kimherlands, 
16  W.  Va.  555.  One  who  is  presi- 
dent and  general  manager  of  an  in- 
surance company  has  no  authority 
to  hind  it  by  an  accommodation  in- 
dorsement. Aetna  Nat.  Bk.  v.  Insur- 
ance Co.,  50  Conn.  167;  Dobson  v. 
Moore,  164  111.  110;  or  by  an  accom- 
modation acceptance  of  a  draft. 
National  Bank  v.  Knitting  Works, 
68  Mich.  620.  A  president  and  treas- 
urer of  a  savings  hank  has  no  implied 
power  to  purchase  building  mate- 
rials. Slattery  v.  North  End  Savings 
Bank,  175  Mass.  380. 

3  Titus  o.  Cairo  and  Fulton  R.  R. 
Co.,  37  N.  J.  L.  98,  102,  per  Van 
Syckel,  J.  Ace.  Wickersham  v.  Crit- 
tenden, 93  Cal.  17,  30;  Lyndon  Mill 
Co.  v.  Lyndon  Ins'n,  63  Vt.  581.  See 
Fulton  Bank  v.  New  York  Sharon 
Coal  Co.,  4  Paige,  127,  134;  Brush 
Elec.  L.  &  P.   Co.    v.    Montgomery, 

200 


114  Ala.  433;  Des  Moines  M.  &  S.  Co. 
v.  Tilford  M.  Co.,  9  S.  Dak.  542;  and 
Walworth  County  Bank  v.  Farmers' 
Loan  and  Trust  Co.,  14  Wis.  325, 
where  it  was  held  that  a  president 
could  not  give  a  valid  bill  of  sale  for 
railroad  ties  in  payment  of  an  ante- 
cedent debt  of  his  corporation.  See, 
also,  LTnion  Gold  Mining  Co.  i\  Rocky 
Mountain  Nat.  Bank,  2  Col.  565. 

The  affairs  of  the  bank  being  by 
statute  placed  in  hands  of  directors, 
the  president  and  cashier  have  not 
power  together,  virtute  officii,  to  sell 
the  safe  of  a  bank  for  an  antecedent 
debt.     Asher  v.  Sutton,  31  Kan.  286. 

The  president  of  a  corporation  or- 
ganized under  the  New  York  Act  of 
1848  cannot  bind  it  by  the  purchase 
of  goods  required  in  its  business, 
when  a  resolution  forbidding  such 
acts  appears  on  the  corporate  books, 
although  the  seller  had  no  notice  of 
it.  There  was  no  regular  course  of 
business  in  the  corporation  to  the 
contrary,  by  which  the  president 
had  habitually  made  such  purchases. 
Westerfield  v.  Radde,  7  Daly,  326. 
A  president  of  a  railroad  company 
has  no  authority  to  consent  that  a 
(municipal)  subscription  absolute 
on  its  face  shall  become  conditional. 
Morgan  County  v.  Thomas,  76  111. 
120. 


PART  II.]    ACTS   WITHIN    THE   CORPORATE   POWERS.  [§  238. 


§  237.  It  is  submitted,  however,  that  the  above  decisions  are 
to  be  relied  on  with  great  caution  ;  for  presidents  of 
corporations  are  usually  empowered  either  expressly,   {f  nlcrg?d 
or  impliedly  by  acquiescence  and   the   nature   and 
course  of  the  business  which  they  transact  for  their  corporations, 
to  do  many  acts  which,  according  to  any  rule  deducible  from 
these  cases,  would  be  beyond  their  authority.     Very  likely  in 
order  that  the  agreement  of  a  president  may  bind  the  corpora- 
tion, the  agreement  must  in  some  way  be  shown  to  have  been 
within  the  scope  of  his  authority  ; x  but  this  may  be  shown  from 
the  general  course  of  his  acts  acquiesced  in  by  the  corporation 
or  its  directors.2 

§  238.  When  a  president  is  authorized  to  make  contracts  for 
the  corporation,  he  receives  impliedly  the  power  to  do  acts  in- 
cidentally necessary  in  the  matter.3  Thus,  a  president  em- 
powered to  sell  property  of  his  corporation,  may  agree  to  pay 
a  broker  a  commission.4  So,  a  resolution  of  the  board  of 
directors  that  the  president  have  full  power  and  control  of  the 


1  Farmers  Bank  v.  McKee,  2  Pa.  St. 
318. 

2Ragland  v.  McFall,  137  111.  81; 
Fitzgerald  Construction  Co.  v.  Fitz- 
gerald, 137  U.  S.  98;  Fifth  Nat.  Bk.  v. 
Phosphate  Co.,  119  N.  Y.  256;  Oakes 
v.  Water  Co.,  143  N.  Y.  430;  Cham- 
bers b.  Lancaster,  160  N.Y.  342;  Petti- 
bone  v.  Lake  View  Town  Co.,  134 
Cal.  227;  Tuscaloosa  Cotton  Seed  Oil 
Co.  13.  Perry,  85  Ala.  158;  Burch  v. 
West,  134  111.  258;  Sherman  Center 
Town  Co.  v.  Swigart,  43  Kan.  292; 
Sparks  v.  Dispatch  Co.,  104  Mo.  531; 
Fitzhugh  v.  Land  Co.,  81  Tex.  306; 
Dougherty  v.  Hunter,  54  Pa.  St.  380; 
McElroy  v.  Minn.  P.  H.  Co.,  96  Wis. 
317;  Africa  v.  Duluth  Tribune  Co., 
82  Minn.  283.  See  Westerfield  v. 
Radde,  7  Daly  (N.  Y.),  326;  Western 
R.  R.  Co.  v.  Bayne,  11  Hun,  166; 
Solomon  R.  R.  Co.  v.  Jones,  30  Kan. 
601;  Nash  v.  Minn.  Title,  etc.,  Co., 
159  Mass.  438.  The  president  and 
superintendent  of  a  boom  company 
have     authority    to    hire     laborers. 


Hardy   v.    Boom    Co.,    52    Mich.   45; 
Vilas  Nat.  Bk.  v.  Strait,  58  Yt.  448. 

When  a  president,  who  is  also  the 
general  manager  of  the  corporate 
business,  mortgages  personal  prop- 
erty of  the  corporation  without  spe- 
cial authority,  the  acquiescence  of 
the  directors  may  make  the  mortgage 
valid.  Sherman  v.  Fitch,  98  Mass. 
59.  Compare  Crum's  Appeal,  66  Pa. 
St.  474;  Edellioff  v.  Horner  &  Miller 
M'f'g  Co.,  86  Md.  595;  §  212. 

3  A  president  of  a  corporation  who 
has  general  authority  to  contract  for 
the  sale  of  its  goods,  has  authority  to 
release  from  contract  of  sale.  In- 
dianapolis Rolling  Mill  v.  St.  Louis, 
etc.,  R.  R.  Co.,  120  U.  S.  256.  See, 
also,  Ceeder  v.  Lumber  Co.,  86  Mich. 
541;  Smith  v.  Wells  M'f'g  Co.,  148 
Ind.  333. 

4  Northern  Central  R'y  Co.  v.  Bas- 
tian,  15  Md.  494;  Lee  v.  Pittsburg, 
Coal  Co.,  56  How.  Pr.  373,  affirmed 
75  N.  Y.  601.  Under  a  power  given 
to  the  president  of  a  turnpike  com- 

201 


238.]         THE    LAW   OF   PRIVATE   CORPORATIONS.    [CHAP.  VII. 


corporate  business,  authorizes  him  to  purchase  materials  to  be 
used  in  its  business,  and  to  borrow  money  for  the  corporation, 
giving  its  note  for  the  loan.1  Indeed,  the  custom  of  investing 
presidents  with  extensive  powers  is  so  general  as  to  have  ob- 
tained judicial  recognition  in  at  least  one  state,  Illinois,  where 
the  following  language  was  used  by  the  judge  giving  the  opinion 
of  the  court  in  Smith  v.  Smith  :a  "In  absence  of  legislative 
enactment  or  provision  made  in  the  by-laws,  corporations  us- 
ually act  through  their  president,  or  those  representing  him. 
He  being  the  legal  head  of  the  body,  when  an  act  pertaining 
to  the  business  of  the  company  is  performed  by  him,  the  pre- 
sumption will  be  indulged  that  the  act  is  legally  done,  and  is 
binding  upon  the  body.  And,  as  a  general  rule,  in  the  absence 
of  the  president,  or  when  a  vacancy  occurs  in  the  office,  the 
vice-president  may  act  in  his  stead,  and  perform  the  duties 
which  devolve  upon  the  president."3 


pany  to  mortgage  the  road,  he  may 
mortgage  a  part  thereof.  Greens- 
burg,  etc.,  Co.  v.  McCormick,  45  Ind. 
239.  Where  process  can  be  served 
on  the  president,  he  can  confess  judg- 
ment for   the   corporation.      Cliam- 


thority,  mortgage  its  personal  prop- 
erty. Luse  v.  Isthmus  Transit  R'y 
Co.,  6  Oreg.  125. 

2  62  111.  493,  496.  See,  also,  Mitch- 
ell v.  Deeds,  49  111.  410,  424;  Union 
Mutual  Ins.   Co.    v.   White,    106  111. 


berlin  v.  Mammoth  M'g  Co.,  20  Mo.    07;  Glover  v.  Lee,  140  111.  102;  Fitch 
96.     Sed  queer e.  j  o.    Constantino    Hydraulic    Co.,    44 

1  Castle  v.  Belfast  Foundry  Co.,  Mich.  74;  Gooduow  v.  Oakley,  68 
72  Me.  167;  Siebe  v.  Machine  Works,  Iowa,  25;  Morse  v.  Beale,  68  Iowa, 
86  Cal.  390.  Quwre,  as  to  the  extent  j  463;  Mathias  v.  White  Sulphur 
to  which  such  a  sweeping  resolution    Springs  Assn.,  19  Mont.  359. 


would  be  valid  in  view  of  the  re- 
stricted competency  of  directors  to 
delegate  their  powers,  see  §§  233, 
234.  A  by-law  providing  that  the 
"president  shall  have  the  general 
charge  and  direction  of  the  business 
of  the  company,  as  well  as  all  mat- 
ters connected  with  the  interests  and 
objects  of  the  corporation,"  does 
not  give  him  authority  in  matters 
expressly  confided  to  the  finance 
committee.  Twelfth  Street,  Market 
Co.  v.  Jackson,  102  Pa.  St.  269. 

It  has,  however,  been  held  that  a 
president  who  was  the  "business 
and  financial  agent'*  of  the  corpora- 
tion, could  not,  without  further  au- 


:!  This  case  upheld,  as  against  a 
subsequent  purchaser  under  a  tax 
sale,  a  deed  of  corporate  lauds  exe- 
cuted by  the  vice-president,  during 
a  vacancy  in  the  presidency,  under  a 
resolution  authorizing  the  president 
to  convey  the  property.  Compare, 
also,  Curry  v.  Supervisors  of  Decatur 
County,  61  Iowa,  71.  When  a  con- 
tract made  by  a  president  is  one 
which  the  directors  might  properly 
have  authorized  him  to  make,  the 
burden  of  proof  is  on  the  corporation 
to  show  that  the  directors  had  not 
authorized  or  acquiesced  in  it.  Pat- 
terson v.  Robinson,  116  N.  Y.  193. 


202 


4rf 


PART  n.]    ACTS    WITHIN   THE   CORPORATE   POWERS.  [§  240. 


of  a  cash- 
ier. 


§  239.  Fully  as  important  in  his  functions  as  a  president  is 
the  cashier  of  a  bank  or  other  moneyed  corporation.  A  h  . 
The  cashier  is  the  financial  officer  of  the  bank,  hav- 
ing, in  accordance  with  general  custom,  authority  to 
transact  its  ordinary  current  business,1  and  in  the  performance 
of  his  duties  his  acts  bind  the  bank.2  As  Justice  Story  said,  in 
Wild  v.  Bank  of  Passamaquoddy  : 3  "  The  cashier  of  a  bank  is, 
virtute  officii,  generally  intrusted  with  the  notes,  securities,  and 
other  funds  of  the  bank,  and  is  held  out  to  the  world  by  the 
bank  as  its  general  agent  in  the  negotiation,  management,  and 
disposal  of  them.  Prima  facie,  therefore,  he  must  be  deemed 
to  have  authority  to  transfer  and  indorse  negotiable  securities 
held  by  the  bank  for  its  use,  and  in  its  behalf.  No  special  au- 
thority for  this  purpose  is  necessary  to  be  proved.  If  any  bank 
choose  to  depart  from  this  general  course  of  business,  it  is  cer- 
tainly at  liberty  so  to  do ;  but  in  such  case  it  is  incumbent  on 
the  bank  to  show  that  it  has  interposed  a  restriction,  and  that 
such  restriction  is  known  to  those  with  whom  it  is  in  the  habit 
of  doing  business."4 

§  240.  Accordingly,  a  bank  will  be  liable  to  an  outsider  act- 
ing in  good  faith,  for  the  contracts  as  well  as  for  the  frauds  of 
its  cashier  made  or  committed  while  acting  within  the  ordinary 


1  It  is  not  negligent  for  a  bank  to 
intrust  its  cashier  to  select  and  pay 
out  of  his  salary  all  the  clerks  and 
other  servants  employed  in  the  bank- 
ing room  ;  no  negligence  appearing 
in  the  selection  of  the  cashier.  Smith 
o.  First  National  Bank,  99  Mass.  605. 

2  Lloyd  v.  West  Branch  Bank,  15 
Pa.  St.  172  ;  First  Nat.  Bk.  of  Bir- 
mingham v.  First  Nat.  Bk.  of  New- 
port, 116  Ala.  520. 

3  3  Mason,  505,  506. 

4  See,  also,  State  v.  Commercial 
Bank,  14  Miss.  218.  That  a  cashier 
has  authority  to  transfer  and  indorse 
negotiable  paper  belonging  to  his 
bank  is  undoubted.  City  Bank  v. 
Perkins,  29  N.  Y.  554  ;  Hartford 
Bank  v.  Barry,  17  Mass.  94.  See 
Caldwell  v.  Nat.  Mohawk  Valley 
Bank,  64  Barb.  333  ;   Robb  v.  Ross 


County  Bank,  41  Barb.  586  ;  Burn- 
ham  v.  Webster,  19  Me.  234  ;  Potter 
v.  Merchants'  Bank,  28  N.  Y.  641. 
Cf.  Re  Assignment  of  Bank  of  Ore- 
gon, 32  Or.  84.  Likewise  a  cashier 
has  general  authority  to  superintend 
the  collection  of  notes  under  pro- 
test. Bank  of  Pennsylvania  v.  Reed, 
1  Watts  &  S.  101. 

Where  a  vice-president  who  was 
also  a  director,  with  the  knowledge 
of  the  president  and  the  cashier,  but 
without  notice  to  the  board  of  direct- 
ors, guarantees  on  behalf  of  the  bank 
the  payment  of  a  note  belonging  to 
it,  the  bank,  by  using  the  proceeds 
of  the  note,  renders  the  act  of  the 
vice-president  as  binding  as  if  ex- 
pressly authorized.  People's  Bank 
».  National  Bank,  101  U.  S.  181.  See, 
also,  Hutchins  v.  Bank,  128  N.  C.  72. 

203 


§  240.]        THE   LAW   OP   PRIVATE   CORPORATIONS.    [CHAP.  VII. 

scope  of  the  powers  and  duties  pertaining  to  his  office,1  or 
within  the  scope  of  such  further  authority  as  may  have  been 
conferred  on  him  by  the  constitution  of  the  bank,  or  by  the 
action  or  acquiescence  of  the  directors  or  shareholders.2  Con- 
sequently, notice  to  the  cashier  in  regard  to  the  ordinary  busi- 
ness dealings  of  the  bank  is  notice  to  it;3  and  it  is  affected 
with  the  knowledge  of  its  cashier  who  takes  a  note  knowing 


1  See  e.  g.,  Phillips  v.  Mercantile 
Nat.  Bank,  140  N.  Y.  556.  A  cashier 
h;is  the  implied  power  to  borrow  on 
behalf  of  his  bank  and  pledge  its 
property  to  secure  the  repaymeut  of 
the  loan.  Coats  v.  Donnell,  94  N.  Y. 
168.  In  order  to  show  a  cashier's 
authority  to  borrow  for  his  bank, 
special  power  from  the  directors  is 
not  essential.  His  acts  in  the  ordi- 
nary course  of  his  employmeut  are 
evidence.  Ringling  v.  Kohn,  6  Mo. 
App.  333;  Donnell  v.  Lewis  County 
Savings  Bank,  80  Mo.  165.  Sernble 
contra,  West.  Nat.  Bk.  v.  Armstrong, 
152  U.  S.  346;  First  Nat.  Bk.  of 
Corunna  v.  Michigan  City  Bk.,  8 
N.  Dak.  608.  But  see  Aldrich  v. 
Chemical  Nat.  Bk.  176  U.  S.  618, 
distinguishing  Western  Nat.  Bk.  v. 
Armstrong,  152  U.  S.  346.  The  cash- 
ier of  a  bank  as  its  executive  officer 
has  authority  to  take  such  measures 
as  he  deems  proper  for  the  securing 
and  eventual  collection  of  a  debt, 
and  to  compromise  a  debt  according 
to  the  course  of  business.  Briden- 
becker  ».  Lowell,  32  Barb.  9;  see 
Wakefield  Bank  v.  Truesdell,  55 
Barb.  602.  But  see  Sandy  River  Bank 
v.  Merchants',  etc.,  Bank,  1  Biss.  146. 
The  fact  that  a  cashier  of  a  national 
bank,  at  the  time  of  receiving  a  de- 
posit, makes  an  agreement  that  the 
bank  shall  invest  the  same  in  stocks 
and  bonds,  is  no  defence  to  an  ac- 
tion to  recover  the  money  without 
interest,  even  though  the  agreement 
was  invalid,  and  the  money  was  in 
fact    appropriated  by  the    cashier. 

204 


L'Herbette  v.  Nat.  Bk.,  162  Mass. 
137;  see,  Hanson  v.  Heard,  69  N.  H. 
190. 

It  is,  in  general,  within  the  au- 
thority of  a  cashier  to  sign  a  blank 
transfer  on  a  certificate  of  stock 
held  by  the  bank  as  collateral  se- 
curity, and  to  deliver  the  certificate 
to  the  pledgor;  and  thus  signing  a 
transfer  warrants  the  genuineness 
of  the  certificate,  so  that  a  bona  fide 
transferee  for  value  from  the  fraudu- 
lent pledgor  can  hold  the  bank  liable. 
Matthews  v.  Massachusetts  Nat.  Bk. 
1  Holmes,  396.  So  a  bank  was  held 
liable  where  a  cashier  negotiated, 
through  an  agent,  a  certificate  of  de- 
posit, although  no  deposit  had  been 
made  and  the  cashier  embezzled  the 
proceeds  of  the  transaction.  Barnes 
v.  Ontario  Bank,  19  N.  Y.  152.  Com- 
pare Reynolds  u.  Kenyon,  43  Barb. 
515;  Mapes  ».  Second  Nat.  Bk.,  80 
Pa.  St.  163;  Foster  v.  Essex  Bk.,  17 
Mass.  479 ;  State  v.  Atherton,  40  Mo. 
209;  Morris  Canal,  etc.,  Co.  v.  Van 
Vorst,  21  N.  J.  L.  (1  Zab.)  100;  Lor- 
ing  r.  Brodie,  134  Mass.  453. 

2  Thus,  when  the  cashier  has  gen- 
eral charge  of  stock  transfers,  his 
acts  in  regard  thereto  bind  the  hank, 
which  will  be  liable  for  his  wrong- 
ful refusal  to  permit  a  transfer. 
Case  v.  Bank,  100  U.  S.  446;  see  Na- 
tional Bank  v.  Watsontown  Bank,  105 
U.  S.  217.  Cf.  Wing  v.  Bank,  103 
Mich.  565. 

3  New  Hope,  etc.,  Bridge  Co.  v. 
Phoenix  Bank,  3  N.  Y.  156;  Harris  v. 
Am.    B.  &  L.  Assn.,   122  Ala.  545; 


PART  II.]    ACTS   WITHIN   THE   CORPORATE   POWERS.  [§  24] . 

the  same  to  have  had  a  fraudulent  inception.1  Accordingly,  if 
a  cashier  takes  securities  for  his  bank  from  a  trustee  to  secure 
a  loan  made  to  the  trustee  individually,  knowing  that  the  trus- 
tee holds  them  in  trust,  the  bank  is  affected  with  the  knowledge 
of  its  cashier.2 

§  241.  But  the  duties  and  powers  of  a  cashier,  as  recognized 
judicially,  are   restricted  to   the  transaction  of   the 
ordinary  business  of  the  bank  and  to  the  care  and   p^ifr^ 
management  of  its  affairs  in  the  usual  way.3     Thus,   strictedto 

.  „  ...      transac- 

tbe  cashier  (and  president)  of  a  bank  cannot  bind  it   tion  of 
by  their  agreement  with  an  indorser  of  a  promissory   business. 
note  that  he  shall  not  be  liable  to  the  bank  on  his  in- 
dorsement.4    The  cashier  has  no  power  to  bind  his  bank  as  an 
accommodation  indorser  on  his  individual  note;  and  the  payee 
failing  to  prove  that  the  cashier  had  authority  to  make  the  in- 
dorsement cannot  recover  against  the  bank.5     Likewise  a  cashier 


Bank  v.  Penland,  101  Tenn.  445.  As 
to  declarations  of  cashier,  see  Xenia 
Bank  ».  Stewart,  114  U.  S.  224. 

1  Fall  River  Union  Bk.  v.  Sturte- 
vant,  12  Cash.  372.  So,  by  the  knowl- 
edge of  a  director  who  takes  a  note. 
Nat.  Sec'y  Bank  v.  Cushman,  121 
Mass.  490. 

2  Loring  v.  Brodie,  134  Mass.  453. 

8  First  Nat.  Bank  v.  Ocean  Nat. 
Bank,  60  N.  Y.  278.  The  word  "  or- 
dinary," as  here  used,  will  be  seen  to 
be  more  restricted  in  its  meaning 
than  as  applied  to  transactions  falling 
within  the  powers  of  directors.  See 
§223. 

*Bank  of  the  U.  S.  ».  Dunn,  6 
Pet.  51;  Bank  of  the  Metropolis  v. 
Jones,  8  Pet.  12.  See  Cocheco  Nat. 
Bank  v.  Haskell,  51  N.  H.  116.  Com- 
pare Payne  v.  Commercial  Bank,  6 
Smedes  &  M.  24;  Hodge  v.  First  Nat. 
Bank,  22  Gratt.  51;  Ryan  v.  Dunlop, 
17  111.  40.  So,  the  plea  that  before 
indorsing,  the  cashier  and  a  director 
falsely  and  fraudulently  assured  the 
indorser  that  the  drawer  was  good, 
and  that  it  would  be  safe  to  indorse, 


is  bad;  as  such  representations  are 
not  within  the  course  of  the  duties  of 
such  officers,  and  therefore,  though 
wilfully  false,  will  not  affect  the 
rights  of  the  bank.  Mapes  v.  Second 
Nat.  Bank,  80  Pa.  St.  163.  "A 
cashier,  as  such,  has  no  power  to  ac- 
cept a  note  signed  by  two  parties 
only,  in  payment  and  discharge  of  a 
note  upon  which  another  party  was 
also  bound  with  the  two,  so  as  to 
relieve  such  third  party  from  his 
indebtedness  to  the  bank.  Such  an 
act  does  not  fall  within  the  well- 
known  range  of  powers  and  duties 
naturally  and  necessarily  pertaining 
to  the  office  of  cashier.  He  cannot 
virtute  officii  release  a  surety  upon  a 
note  even  though  the  bank  holds 
other  security  to  which  it  might  re- 
sort, nor  make  collateral  contracts  or 
agreements  of  any  kind."  Ecker  v. 
First  Nat.  Bank,  59  Md.  291,  303.  A 
cashier  has  no  authority  to  release  a 
debt.  Delta  Lumber  Co.  v.  Williams, 
73  Mich.  86. 

5  West    St.    L.    Savings     Bank    v. 
Shawnee  County  Bank,  95  U.  S.  557. 
205 


§  241.]         THE    LAW    OF    PRIVATE   CORPORATIONS.    [CHAP.  VII. 

cannot  on  behalf  of  his  bank  guarantee  the  performance  of  a 
contract  by  an  outsider  in  which  the  bank  had  no  interest.1 

And  it  was  held  in  United  States  v.  City  Bank  of  Columbus2 
that  a  cashier  had  no  authority  to  empower  a  director  to  con- 
tract with  the  secretary  of  the  treasurer  for  the  transportation 
of  moneys  belonging  to  the  United  States,  and  consequently 
that  the  bank  was  not  liable  to  reimburse  money  delivered  by 
the  secretary  to  the  director  in  pursuance  of  such  contract.  Giv- 
ing the  opinion  of  the  court,  Justice  Wayne  said :  "  In  the  case 
of  Bank  of  the  United  States  v.  Dunn  (6  Pet.  51)  the  court 
would  not  permit  the  president  and  cashier  of  the  bank  to  bind 
it  by  their  agreement  with  the  indorser  of  a  promissory  note 
that  he  should  not  be  liable  on  his  indorsement.  It  said  it  is 
not  the  duty  of  the  cashier  and  president  to  make  such  con- 
tracts, nor  have  they  power  to  bind  the  bank  except  in  the  dis- 
charge of  their  ordinary  duties.  All  discounts  are  made  under 
the  authority  of  the  directors,  and  it  is  for  them  to  fix  any  con- 
ditions which  they  may  think  proper  in  loaning  money.  The 
court  defines  the  cashier  of  a  bank  to  be  an  executive  officer,  by 
whom  its  debts  are  received  and  paid,  and  its  securities  taken 
and  transferred,  and  that  his  acts,  to  be  binding  upon  a  bank, 
must  be  done  within  the  ordinary  course  of  his  duties.  His 
ordinary  duties  are  to  keep  all  the  funds  of  the  bank,  its  notes, 
bills,  and  other  choses  in  action,  to  be  used  from  time  to  time 
for  the  ordinary  and  extraordinary  exigencies  of  the  bank.  He 
usually  receives  directly,  or  through  the  subordinate  officers  of 
the  bank,  all  moneys  and  notes  of  the  bank,  delivers  up  all  dis- 
counted notes  and  other  securities  when  they  have  been  paid, 
draws  checks  to  withdraw  the  funds  of  the  bank  when  they 
have  been  deposited,  and,  as  the  executive  officer  of  the  bank, 
transacts  most  of  its  business. 

"  The  term  ordinary  business  with  direct  reference  to  the 
duties  of  cashiers  of  banks  occurs  frequently  in  English  cases, 
and  in  the  reports  of  the  decisions  of  our  state  courts,  and  in 
no  one  of  them  has  it  been  judicially  allowed  to  comprehend  a 
contract  made  by  a  cashier,  without  an  express  delegation  of 

A   cashier   cannot    certify  his    own  I      x  Norton   v.    Derby   Nat.    Bank,  61 
check.     Lee  v.    Smith,   84   Mo.    304.    N.  H.  589. 
Compare  People's  Bank  v.  Nat.  Bank,       2  21  How.  356. 
101  U.  S.  181;  §239.  ' 

206 


PART  II.]    ACTS    WITHIN    THE   CORPORATE   POWERS.  [§  241. 

power  from  a  board  of  directors  to  do  so,  which  involves  the 
payment  of  money,  unless  it  be  such  as  has  been  loaned  in  the 
usual  aud  customary  way.  Nor  has  it  ever  been  decided  that 
a  cashier  could  purchase  or  sell  the  property,  or  create  an 
agency  of  any  kind  for  a  bank,  which  he  had  not  been  author- 
ized to  make  by  those  to  whom  has  been  confided  the  power  to 
manage  its  business,  both  ordinary  and  extraordinary." l  In  a 
recent  case  the  Federal  Supreme  Court  expressed  its  views  re- 
garding the  powers  of  a  cashier  substantially  as  follows :  Al- 
though a  cashier  has  no  power  by  virtue  of  his  office  to  bind 
the  bank,  except  in  the  discharge  of  his  ordinary  duties,  and 
the  ordinary  business  of  a  bank  does  not  comprehend  a  con- 
tract made  by  a  cashier  involving  the  payment  of  money  not 
loaned  by  the  bank  in  the  customary  way,  and  a  cashier  may 
not,  in  the  absence  of  authority  conferred  by  the  directors,  can- 
cel its  deeds  of  trust  given  as  security  for  money  loaned,  cer- 
tainly not,  unless  the  debt  is  paid ;  still  a  bank  may  be  repre- 
sented by  its  cashier,  at  least  where  its  charter  does  not  other- 
wise provide,  in  transactions  outside  of  his  ordinary  duties, 
without  his  authority  to  do  so  being  in  writing  or  appearing 
upon  the  record  of  the  proceedings  of  the  directors.  His  au- 
thority may  be  proved  by  parol  and  collected  from  circum- 
stances, or  inferred  from  the  general  manner  in  which,  for  a 
period  sufficiently  long  to  establish  a  settled  course  of  business, 
he  has  been  allowed  without  interference  to  conduct  the  af- 
fairs of  the  bank.  It  may  be  implied  from  the  conduct  or  ac- 
quiescence of  the  corporation,  as  represented  by  the  board  of 
directors.  When  during  a  series  of  years,  or  in  numerous  busi- 
ness transactions,  he  has  been  permitted,  without  objection, 
and  in  his  official  capacity,  to  pursue  a  particular  course  of  con- 
duct, it  may  be  presumed,  as  between  the  bank  and  those  who 
in  good  faith  deal  with  it  upon  the  basis  of  his  authority  to 
represent   the   corporation,  that   he  has   acted  in  conformity 


1  United  States  v.  City  Bank,  21 
How.  364.  Without  authority  from 
the  bank,  evidenced  by  a  resolution 
of  the  board  of  directors,  usage  in 
similar  cases,  or  in  some  other  way,  a 
cashier  has  no  authority  to  assigu  a 
non-negotiable  note.  Barrick  v.  Aus- 
tin, 21    Barb.  241;  Holt  v.  Bacon,  25 


Miss.  567.  But  see  Bank  of  Ver- 
gennes  v.  Warren,  7  Hill,  91.  Nor 
to  pledge  assets  of  the  bank  for  the 
payment  of  an  antecedent  debt. 
State  of  Tennessee  v.  Davis,  50  How. 
Pr.  ( N.  Y. )  447.  Nor  to  release  the 
bank's  security.  Ellis  v.  First  Nat. 
B'k  of  Woonsocket,  22  R.  I.  565. 

207 


§  243.]         THE   LAW    OF  PRIVATE  CORPORATIONS.   [CHAP.  VII. 

with  instructions  received  from  those  who  have  the  right  to 
control  its  operations.1 

§  242.  In  concluding  the  discussion  of  the  powers  of  cashiers, 
it  will  be  convenient  to  consider  the  liability  of  banks  Certifica. 
on  checks  certified  by  the  cashier,  or,  as  nowadays  is   ti,,n  i,f 

checks. 

more  usual,  by  the  paying  teller.2 

§  243.  The  leading  case  on  the  power  of  a  cashier  to  certify 
checks  is  Merchants'  Bank  v.  State  Bank.3  That  case  decided 
that  if  a  cashier  is  shown  to  have  frequently  pledged  in  writing 
the  credit  of  his  bank  for  large  amounts  in  the  usual  course  of 
business,  with  the  knowledge  of  the  directors — borrowing  and 
lending  its  money,  and  buying  and  selling  exchange — doing  all 
this  usually  on  the  cashier's  own  checks,  though  sometimes  by 
certificates  of  deposit,  and  sometimes  by  memoranda,  the  trans- 
actions being  uniformly  made  on  the  faith  of  the  implied  powers 
of  the  cashier,  without  inquiry  as  to  special  authorization,  and 
such  is  shown  to  be  the  usage  of  other  banks,  this  is  evidence 
from  which  a  jury  may  infer  that  the  cashier  is  authorized  to 
pledge  the  bank's  credit  by  certifying  a  check  to  be  "  good  ; " 
even  though  it  is  not  shown  that  any  cashier  of  any  bank  in 
the  place  where  the  transaction  occurred  ever  made  such  a  cer- 
tification. In  this  case  the  certified  check  was  given  by  the 
cashier  of  the  defendant  bank  to  the  cashier  of  the  plaintiff 
bank,  on  receipt  by  the  defendant's  cashier  from  the  plaintiffs 
cashier  of  the  equivalent  of  the  check  in  gold.  Whether  the 
gold  actually  went  into  the  defendant  bank  did  not  appear; 
but  the  plaintiff  bank  acted  in  entire  good  faith,  and  the  cir- 
cumstances of  the  transaction  warranted  the  assumption  that 
the  gold  was  destined  for  the  defendant  bank.  Giving  the  opin- 
ion of  the  majority  of  the  court,  Justice  Swayne  said  :4  "The 
cashier  is  the  executive  officer,  through  whom  the  whole  finan- 
cial operations  of  the  bank  are  conducted.     He  receives  and 


i  Martin  v.  Webb,  110  U.  S.  71, 
which  held  that  the  cancellation  by 
the  cashier  of  trust  deeds  belonging 
to  the  hank,  without  receiving  for  it 
payment  in  full,  bound  the  bank  un- 
der the  circumstances.  A  cashier 
has  no  authority  to  assign  discount- 
ed bills  and  notes   to  a  depositor  in 

208 


payment  of  his   deposit.     Lamb   v. 
Cecil,  25  W.  Va.  288. 

2  The  liability  of  banks  for  special 
deposits  and  for  the  frauds  or  felon- 
ies of  their  cashiers  regarding  the 
same,  is  discussed  in  §§  161,  337. 

3  10  Wall.  604. 
*  10  Wall.  650. 


PART    H.]    ACTS    WITHIN   THE   CORPORATE   POWERS.        [§  244. 


pays  out  its  moneys,  collects  and  pays  its  debts,  and  receives 
and  transfers  its  commercial  securities.  Tellers  and  other  sub- 
ordinate officers  may  be  appointed,  but  they  are  under  his  di- 
rection, and  are,  as  it  were,  the  arms  by  which  designated  por- 
tions of  his  various  functions  are  discharged.  A  teller  may 
be  clothed  with  the  power  to  certify  checks,  but  this  in  itself 
would  not  affect  the  right  of  the  cashier  to  do  the  same  thing. 
The  directors  may  limit  his  authority  as  they  deem  proper,  but 
this  would  not  affect  those  to  whom  the  limitation  was  un- 
known." 

§  244.  It  has  been  held  in  Massachusetts  that  a  teller  has  no 
authority,  by  virtue  of  his  office,  to  certify  a  check  ; '  but  at 
present  for  tellers  to  certify  checks  seems  to  be  a  general  cus- 
tom, which  obtains  recognition  in  the  courts.2  Neither 
a  cashier  nor  a  teller,  however,  has  power  to  certify, 
unless  the  drawer  has  funds  in  the  bank  sufficient  to 
cover ;  and  no  person  knowing  the  drawer  not  to  have 
funds  in  the  bank  can  recover  on  the  certification.3 
But  a  bona  fide  holder  for  value  of  a  certified  check  without 
notice  can  hold  the  bank  on  its  teller's  certification,  although 
the  drawer  had  no  funds  in  the  bank  at  the  time,  and  the  teller 
certified  the  check  in  violation  of  his  duty  for  the  mere  accom- 
modation of  the  drawer ; 4  for  a  person  is  entitled  to  assume  that 
the  facts  exist  on  which  depends  the  right  of  the  teller  or 
cashier  to  exercise  his  powers  ;  and  may  presume  that  such 
officers  are  doing,  not  violating,  their  duty.     As  Judge  Selden 


Certifica- 
tion by 
teller. 
Accommo- 
dation   cer- 
tifications. 


1Mussey  v.  Eagle  Bank,  9  Mete. 
(Mass. )  306. 

2  See  Farmers  and  Mechanics'  Bank 
v.  Butchers  and  Drovers1  Bank,  16 
N.  Y.  125. 

3F.  and  M.  Bank  v.  B.  and  D. 
Bank,  16  X.  Y.  125;  S.  C,  14  N.  Y. 
623.  A  bank  is  usually  not  author- 
ized to  make  an  accommodation  in- 
dorsement, and  is  not  liable  to  any 
one  taking  the  paper  with  notice  of 
the  character  of  the  indorsement. 
Bank  of  Genesee  v.  Patchin  Bank, 
13  N.  Y.  309;  Morford  r,  Farmers' 
Bank,  26  Barb.  568.  Compare  Na- 
tional   Park    Bank  o.    Warehousing 

14 


Co.,  116  N.  Y.  281.  Other  corpora- 
tions as  well  as  banks  have  no  au- 
thority to  make  accommodation  en- 
dorsements. Carney  v.  Duniway, 
35  Or.  131.  That  a  cashier  has  no 
power  to  certify  unless  in  funds  is 
presumed  to  be  known  generally; 
and  that  a  postdated  check  was  cer- 
tified before  the  day  on  which  it  was 
payable,  is  a  fact  sufficient  to  put 
any  one  with  knowledge  of  it  on  his 
inquiry.  Clarke  Nat.  Bank  v.  Bank 
of  Albion,  52  Barb.  592.  See  Pope 
v.  Bank  of  Albion,  57  N.  Y.  126. 

*F.   and  M.   Bank  r.    B.     and    D. 
Bank,  supra. 

209 


§  245.]  THE   LAW    OF    PRIVATE   CORPORATIONS.   [CHAP.  VII. 


said,  giving  the  opinion  of  the  court  in  Farmers  and  Mechanics' 
Bank  v.  Butchers  and  Drovers'  Bank:1  "A  citizen  who  deals 
directly  with  a  corporation,  or  who  takes  its  negotiable  paper, 
is  presumed  to  know  the  extent  of  its  corporate  powers.  But 
when  a  paper  is  upon  its  face  in  all  respects  such  as  the  corpo- 
ration has  authority  to  issue,  and  its  only  defect  consists  in 
some  extrinsic  fact,  such  as  the  purpose  or  object  for  which  it 
was  issued,  to  hold  that  the  person  taking  the  paper  must  in- 
quire as  to  such  extraneous  fact,  of  the  existence  of  which  he 
is  in  no  way  apprised,  would  obviously  conflict  with  the  whole 
policy  of  the  law  in  regard  to  negotiable  paper."2 

§  245.  By  certifying  a  check  in  the  usual  form  a  bank  cer- 
tifies to  the  genuineness  of  the  drawer's  signature, 
represents  that  he  has  funds  in  the  bank  sufficient  to 
meet  the  check,  and  engages  that  those  funds  shall 
not  be  withdrawn  by  him  to  the  prejudice  of  any 
bona  fide  holder  of  the  check.  But  the  certification  is  not  an 
absolute  guaranty  that  the  body  of  the  check — the  amount  and 
name  of  the  payee — is  genuine ;  nor  is  it  a  guaranty  that  at  all 
events  the  precise  check  certified  shall  be  paid  from  funds  of 
the  drawer  in  the  bank,  or  at  all.3  Therefore,  when  a  bank  cer- 
tifies a  check  which  was  raised  before  certification  (the  bank 
not  being  negligent  in  the  matter)  it  cannot  in  consequence  of 
its  certification  be  held  to  pay  the  amount  of  the  raised  check  ; 
and  when,  without  negligence,  a  bank  pays  the  amount  of  a 
raised  check  which  it  has  certified,  it  can  recover  the  money 
thus  paid  as  money  paid  by  mistake.4  So,  if  subsequently  to 
the  certification  the  check  is  raised,  and  then  sent  by  some  one 


Effect  of  a 
certifica- 
tion. 

"  Raised  " 
checks. 


1 16  N.  Y.  129. 

2  Ace.  Meads  v.  Merchants'  Bank, 
25  N.  Y.  143;  Cooke  v.  State  Nat. 
Bank,  52  N.  Y.  96. 

A  corporation  is  bound  by  its  ac- 
commodation indorsement  to  a  bona 
fide  holder  for  value  of  a  note,  who 
discounts  it  before  maturity  on  the 
faith  of  its  being  business  paper. 
Mechanics'  Banking  Ass'n  v.  New 
York,  etc.,  White  Lead  Co.,  35  N.  Y. 
505. 

3  See,  e.  <y.,  Goshen  Nat.  B'k  v. 
Bingham,  118  N.  Y.  349. 

210 


4  Clews  v.  Bank  of  New  York,  89 
N.  Y.  418;  Marine  Nat.  Bank  v.  Nat. 
City  Bauk,  59  N.  Y.  67;  Security 
Bank  v.  Nat.  Bank,  67  N.  Y.  458; 
Espy  v.  Bank  of  Cincinnati,  18  Wall. 
604.  See  Nat.  Bank  of  Commerce  v. 
Nat.  Mechanics'  B'k'g  Ass'n,  55 
N.  Y.  211.  Second  Nat.  Bank  v. 
Western  Nat.  Bank,  51  Md.  128;  and 
compare  Helwege  v.  Hi  hernia  Nat. 
Bank,  28  La.  Ann.  520.  But  see, 
contra,  Louisiana  Nat.  Bank  v.  Citi- 
zens' Bank,  28  La.  Ann.  189. 


PART  II.]    ACTS   WITHIN    THE   CORPORATE   POWERS.  [§  246. 

to  the  bank  to  ascertain  whether  the  certification  is  correct,  and 
the  teller  says  that  it  is,  this  answer  will  cover  no  more  than 
the  certification  of  a  check  already  raised  would  have  covered, 
and  will  not  render  the  bank  liable  to  pay  the  amount  of  the 
check.1 

§  246.  The  legal  effect  is  similar  when  an  uncertified  check 
is  sent  to  the  bank  for  information.  The  law  presumes  knowl- 
edge on  the  part  of  the  bank  only  of  the  drawer's  signature 
and  the  state  of  his  account ;  and  a  verbal  statement  that  the 
check  is  "  good,"  or  "  all  right,"  extends  only  to  the  matters  of 
which  the  bank  is  presumed  to  have  knowledge,  unless  the 
teller's  attention  is  especially  directed  beyond  those  matters. 
And  if  the  bauk  subsequently  pays  the  check  to  the  person 
who  sent  it  to  the  bank  for  information  (or  sernble  to  any  one 
else),  it  may  recover  back  the  money  if  the  check  turns  out  to 
have  been  raised.  For  the  general  principle  is  that  money 
paid  by  mistake  on  a  raised  check  ma\^  be  recovered  back.2 


1  Clews  v.  Bank  of  New  York,  89 
N.  Y.  418.  (See  a  criticism  on  this 
case  in  the  following  note.) 

2  Espy  v.  Bank  of  Cincinnati,  18 
Wall.  604;  Corn  Exchange  Bank  v. 
Nassau  Bank,  91  N.  Y.  74;  Frank  v. 
Lanier,  ib.  112.  See  §  C72  for  the 
responsibility  of  a  bank  that  pays  a 
check  to  which  the  drawer's  or  in- 
dorsees signature  is  forged. 

A  teller  is  an  ageut  acting  under  a 
special  or  express  authority,  and  not 
one  so  appointed  by  a  principal  that 
there  can  arise  any  implication  of 
undefined  powers;  aud  a  teller's 
statement  that  an  indorsement  on  a 
check  is  goodwill  not  bind  the  bank, 
when  the  indorser  is  not  a  customer 
of  the  bauk,  aud  the  statement  is 
made  at  the  request  of  a  stranger, 
and  not  in  the  ordinary  course  of  de- 
fendant's business.  Walker  o.  St. 
Louis  Nat.  Bank,  5  Mo.  App.  214. 
When  there  is  a  receiving  as  well  as 
a  paying  teller,  the  former  alone  has 
authority,  by  virtue  of  his  office,  to 
receive  deposits.     A    paying    teller 


(when  there  is  a  receiving  teller)  in 
receiving  funds  from  a  stranger  upon 
a  promise  to  apply  them  in  payment 
of  a  bill  or  note;  is  the  agent  of  the 
stranger,  not  of  the  bank;  and  con- 
sequently, the  bank  will  not  be  liable 
for  a  breach  or  neglect  of  the  duty 
which  the  teller  assumes.  Thatcher 
v.  Bauk  of  the  State  of  N.  Y.,  5  Sand. 
121  (said  to  have  been  affirmed  in  the 
Court  of  Appeals). 

The  situation  where  a  pei-son  sends 
an  uncertified  check  to  a  bank  to  in- 
quire whether  it  is  good,  as  in  Espy 
v.  Bank  of  Cincinnati,  differs  from 
Clews  o.  Bank  of  New  York  in  a 
point  that  leads  the  writer  to  doubt 
the  correctness  of  the  decision  in  the 
latter  case,  in  which,  indeed,  Judge 
Danforth  gave  an  able  dissenting 
opinion.  Since  the  bank  is  presumed 
to  know  only  its  depositor's  signa- 
ture and  the  state  of  his  account, 
anything  further  that  a  teller  might 
s  ly  in  regard  to  an  uncertified  check 
would  presumably,  as  well  as  in  the 
nature  of  things,  be   merely  the  ex- 

211 


CZorf3or<*~t<2,    T^rWjrfJ^J^&s. 


§  248.]        THE   LAW   OF   PRIVATE   CORPORATIONS.    [CHAP.  VII. 


Validity  of 
the  acts  of 
corporate 
agents  as 
dependent 
on  formali- 
ties. 


§  247.  Having  considered  the  powers  of  corporate  agents  and 
the  legal  effect,  between  the  corporation  and  persons 
with  whom  they  transact  business,  of  their  acts  as 
depending  on  their  actual  power,  and  on  such  power 
as  the  corporation  is  estopped  to  deny  that  they  pos- 
sess, it  is  now  necessary  to  consider  the  legal  effect  of 
acts  done  on  behalf  of  a  corporation  as  depending  on  the 
manner  in  which  these  acts  are  done,  and  on  the  observance 
of  formalities  required  or  directed  to  be  observed  in  doing 
them.1 

The  old  common  law  notion  that  a  corporation  can 

act  only  by  deed  under  its  corporate  seal  has  long 

since  dropped  from  the  law  ; 2  and  to-day  a  corporation 

need  use  its  seal  only  when  it  would  be  essential  for 

an  individual  to  use  one.3     Accordingly,  the  use  of  the  corpo- 


§248. 


Use  of  cor- 
porate seal 


pression  of  his  opinion  (e.  y.,  as  to 
whether  the  check  had  been  raised). 
But  when  a  certified  check  is  sent  to 
the  bank  for  information,  the  case  is 
different,  as  by  turning  to  his  book 
the  teller  may  ascertain  whether  on 
the  day  when  the  check  is  dated  he 
certified  a  check  for  the  drawer,  for 
the  face  of  the  check  shown  him. 
If  the  teller  had  done  this  in  the 
Clews  case,  he  would  not  only  have 
found  that  he  had  certified  no  such 
check,  but  would  also  have  seen  an 
entry  made  of  a  letter  received  by  the 
bank  notifying  it  not  to  pay  the 
check  which  on  that  day  it  had  cer- 
tified for  the  drawer,  which  was  the 
check  afterwards  raised.  The  court 
relied  on  the  point  that  the  bank 
owed  no  duty  to  Clews  &  Co.  in  the 
matter.  But,  admitting  that  the 
bank  was  under  no  duty  to  Clews  & 
Co.  to  give  them  any  information  at 
all,  it  still  seems  to  the  writer  that, 
since  it  did  give  them  information,  it 
owed  them  the  duty  to  take  reason- 
able care  that  the  information  was 
correct.  The  teller  ought  to  have 
looked  in  his  book. 

In  the  above  case,  on  subsequent 

212 


appeals,  the  plaintiff  finally  recov- 
ered. Hence  the  proposition  in  the 
the  last  sentence  of  §  245  of  the  text 
is  to  be  taken  very  narrowly;  and 
the  grounds  of  the  decision — that 
the  bank  owed  no  duty  to  the  plain- 
tiffs— are  hardly  to  be  considered 
law.  See  Clews  v.  Bank  of  New 
York,  114  N.  Y.  70;  S.  C,  105  N.  Y. 
398. 

1  The  manner  in  which  the  body 
corporate  should  act  is  discussed, 
§  184. 

2  See  Bank  of  Columbia  v.  Patter- 
son, 7  Cranch,  299;  Bank  of  U.  S.  v. 
Dandridge,  12  Wheat.  04;  Savings 
Bank  v.  Davis,  8  Conn.  191;  Flaherty 
v.  Atlantic  Lumber  Co.,  58  N.  J.  Eq. 
407;  Dist.  of  Columbia  v.  Camden 
In  m  Works,  181  U.  S.  453.  Cf.  Pullis 
r.  Pullis,  157  Mo.  505. 

3  Crawford  v.  Longstreet,  43  N.  J. 
L.  325;  Allen  v.  City  of  Portland,  35 
Or.  420.  But  see  Williams  Co.  v. 
U.  S.  Baking  Co.,  80  Md.  475.  Com- 
pare Amer.  Sav.  L.  Assn.  v.  Smith, 
122  Ala.  502.  A  scroll  instead  of  the 
corporate  seal  on  a  mortgage  was 
held  to  be  sufficient  iu  Thayer  v. 
Nehalem  Mill  Co.,  31  Or.  437. 


PART    II.]    ACTS    WITHIN   THE    CORPORATE    POWERS.        [§  248. 

rate  seal  is  not  essential  to  the  valid  appointment  of  an  agent ;' 
and  a  corporation  may  be  bound  by  the  oral  or  written  con- 
tracts of  its  agents,  which  are  neither  authorized  nor  executed 
under  the  corporate  seal.2  Further,  a  contract  may  bind  the 
corporation  although  the  officers  making  it  use  their  private 
seals.3  But  a  contract  so  executed  is  not  the  deed  of  the  cor- 
poration ;  and  if  suit  is  brought  on  it  against  the  corporation  in 
a  court  where  the  old  forms  of  action  are  preserved,  the  proper 
action  is  assumpsit  and  not  covenant;*  while,  if  the  contract 
had  been  under  the  corporate  seal,  assumpsit  would  not  lie.5 
Indeed  not  a  few  cases  hold  that  a  corporation  may  bind  itself 
in  any  way  in  which  an  individual  can. 6 


1  Bank  of  Columbia  v.  Patterson,  7 
Cranch,  299,  305;  Randall  v.  Van 
Vechten,  19  Johns.  60;  Reynolds  v. 
Collins,  78  Ala.  9-4;  Leekins  v.  The 
Nordyke,  etc.,  Co.,  66  Iowa,  471; 
Bancroft  v.  Wilmington  Conference 
Acad.,  5  Houst.  (Del.)  577;  Angell 
and  Ames  on  Corp.,  §  283.  This 
holds  true,  although  the  agent  be 
appointed  to  convey  or  mortgage  real 
estate  of  the  corporation.  Despatch 
Line  v.  Bellamy  M'f'g  Co.,  12  N.  H. 
205 ;  Cook  v.  Kuhn,  1  Neb.  472 ;  Fitch 
v.  Steam  Mill  Co.,  80  Me.  84. 

2  Fleckner  v.  U.  S.  Bank,  8  Wheat. 
358;  Bank  of  the  Metropolis  v.  Gutts- 
chlick,  14  Pet.  19;  Chesapeake  and 
Ohio  Canal  Co.  v.  Knapp,  9  Pet.  541; 
Trustees  of  Christian  Church  v.  John- 
son, 53  Ind.  273;  Racine  aud  Miss.  R. 
R.  Co.  v.  Farmers'  Loan  and  Trust 
Co.,  49  111.  331;  Hoag  i\  Laraont, 
60  N.  Y.  96;  Speirs  v.  Union  Drop 
Forge  Co.,  174  Mass.  175;  Angell  and 
Ames  on  Corp.,  §  237. 

Unless  prohibited  by  statute  or 
other  positive  regulation,  a  valid 
contract  of  insurance  may  be  made 
by  parol.  Relief  Fire  Ins.  Co.  v. 
Shaw,  94  U.  S.  574. 

"  Whenever  a  corporation  is  acting 
within  the  scope  of  the  legitimate 
purposes  of  its  institution,  all  parol 
contracts     made   by   its   authorized 


agents  are  express  promises  of  the 
corporation;  and  all  duties  imposed 
on  them  by  law,  and  all  benefits  con- 
ferred at  their  request,  raise  implied 
promises  for  the  enforcement  of 
which  an  action  may  well  lie." 
Story,  J.,  in  Bank  of  Columbia  v. 
Patterson,  7  Cranch,  299. 

3  Eureka  Co.  v.  Bailey  Co.,  11  Wall. 
488;  Randall  v.  Van  Vechten,  19 
Johns.  60.  See  Whitford  v.  Laidler, 
94  N.  Y.  145,  151. 

4  Bank  of  the  Metropolis  v.  Gutts- 
chlick,  14  Pet.  19;  Whitford  v.  Laid- 
ler, supra.  The  deed  of  a  corpora- 
tion can  be  proved  only  by  proving 
that  the  seal  affixed  is  the  seal  of  the 
corporation,  or  that  it  was  affixed  as 
the  corporate  seal  by  an  officer  of  the 
corporation  or  other  person,  there- 
unto duly  authorized.  Osborne  v. 
Tunis,  25  N.  J.  L.  (1  Dutch.)  633. 
See,  Dist.  of  Columbia  v.  Camden 
Iron  Works,  181  U.  S.  453. 

6  Marine  Ins.  Co.  v.  Young,  1 
Cranch,  332. 

6  Kelly  v.  Board  of  Public  Works, 
75  Va.  263;  Blunt  v.  Walker,  11  Wis. 
334.  "Corporations,  with  the  ex- 
press and  substantive  powers  con- 
ferred by  their  charters,  take  by  im- 
plication all  the  reasonable  modes  of 
execution  which  a  natural  person 
may  adopt  in  the  exercise  of  similar 

213 


250.]         THE    LAW    OP    PKIVATE   CORPORATIONS.    [CHAP.  VII. 


Non-obser- 
vance of 
prescribed 
formalities 


§  249.  Moreover,  not  only  by  the  express  contracts  of  its 
agents  may  a  corporation  be  bound.  When,  had  the 
contracts  agent  been  acting  for  ;i  natural  principal  his  acts 
would  have  raised  implied  promises  on  the  part  of 
the  latter,  or  would  have  affected  him  with  implied  obligations, 
similar  implied  promises  and  obligations  will  be  held  to  arise 
on  the  part  of  the  corporation.1  Thus,  if  labor  is  performed 
for  a  corporation  at  the  request  of  its  general  agent,  the  corpo- 
ration may  be  held  to  pay  for  it  on  a  quantum  meruit? 

§  250.  When  a  provision  in  the  constitution  of  a  corporation 
prescribes  either  the  manner  of  doing  an  act  or  cer- 
tain formalities  as  prerequisite,  careful  distinctions 
must  be  drawn  ;  for  the  legal  effect  of  omitting  the 
formalities,  or  of  doing  the  act  in  a  manner  other 
than  that  indicated,  will  depend  on  whether  the  provision  was 
imperative  or  only  directory  ;  whether  it  provided  a  manner  in 
which  the  act  must  be  done,  or  only  indicated  a  manner  in 
which  it  might  be  done;3  whether  the  formalities  prescribed 
were  conditions  precedent  to  the  validity  of  the  act  or  not.4 

A  corporation  owes  to  sureties  on 
the  bonds  of  its  officers  good  faith, 
but  not  diligence.  Sparks  v.  Farm- 
ers1 Bank,  3  Del.  Cb.  274;  Wilming- 
ton, etc.,  K.  K.  Co.  v.  Ling,  18  S.  C. 
116;  Batcbelor  ».  Planters'  Nat.  Bk., 
78  Ky.  435;  Mutual  Loan,  etc.,  Ass'n 
v.  Price,  16  Fla.  204;  Bennett  v.  S.  A. 
R.  E.  B.  &  L.  Ass'n,  57  Tex.  72; 
Cbew  v.  Ellingwood,  86  Mo.  260.  For 
tbe  liability  of  sureties  on  the  bonds 
of  corporate  officers,  see  American 
Surety  Co.  v.  Pauly,  No.  1,  170  U.  S. 
133;  id.  No.  2,  idem,  160;  Barry  v. 
Screwmen's  Association,  67  Tex.  250. 

2  Goodwin  v.  Union  Screw  Co.,  34 
N.  H.  378.  Similarly  in  selling  ma- 
terials a  corporation  may  be  held  on 
implied  warranties,  like  an  individ- 
ual. See  Kellogg  Bridge  Co.  v.  Ham- 
ilton, 110  U.  S.  108. 

3  It  needs  no  authority  to  estab- 
lish, that  if  a  general  statute  prescribe 
tbe  mode  or  modes  in  which  corpora- 


powers."      New   England   Fire   Ins. 
Co.  v.  Robinson,  25  Ind.  536,  541. 

1  See  Bank  of  Columbia  v.  Patter- 
son, supra ;  Hayden  v.  Middlesex 
Turnpike  Co.,  10  Mass.  397;  Gowen 
Marble  Co.  v.  Tarrant,  73  111.  608; 
Foulke  v.  San  Diego,  etc.,  R.  R.  Co., 
51  Cal.  365;  Pixley  v.  Western  Pa- 
cific R.  R.  Co.,  33  Cal.  183:  Tyler  v. 
Trustees,  14  Greg.  485.  When  a  per- 
son is  induced  to  become  surety  by 
the  representations  of  the  secretary 
of  a  building  association,  the  associa- 
tion cannot  allege  want  of  authority 
in  its  agent  to  bind  it  by  his  repre- 
sentations, and  at  the  same  time  take 
the  benelit  of  the  contract  made  by 
him.  Jones  v.  Nat.  BTd'g  Ass'n,  94 
Pa.  St.  215.  Compare  Gass  v.  Citi- 
zens' Building  Ass'n,  95  Pa.  St.  101. 
To  render  a  surety  liable  no  formal 
evidence  of  the  acceptance  of  tbe 
bond  is  necessary.  Bostwick  v.  Van 
Voorhis,  91  N.  Y.  353. 


4  See  Bank  of  U.  S.  e.  Dandridge,  12  Wheat.  64. 


214 


PART    II.]    ACTS   WITHIN   THE    CORPORATE   POWERS.        [§  251. 

§  251.  It  is  impossible  to  state  any  general  rule  by  which,  in 
every  instance,  or  even  in  most  instances,  may  be  de-  „ 

J  ,  .   .-  %  •      Formah- 

termined  whether  a  provision  of  this  character  is  ties,  imper- 
imperative  or  directory.  It  is  clear,  however,  that  if  rectory. 
the  provision  is  contained  in  some  instrument,  of  fionssump~ 
which  the  person  dealing  with  the  corporate  agent 
has  no  knowledge,  and  with  knowledge  of  which  he  is  in  no 
way  affected,  the  provision  will  not  affect  his  rights ; 1  and  so  if 
the  formality  prescribed  is  one  that,  under  the  circumstances, 
the  person  dealing  with  the  corporate  representative  is  justified 
in  assuming  to  have  been  performed,  his  rights  will  not  be 
affected  by  its  non-performance.2  Just  as  a  person  dealing  with 
5,  corporate  agent  is  entitled  to  assume,  in  regard  to  the  sub- 
stance of  the  transaction,  that  the  agent  is  not  acting  wrong- 
fully,8 so  such  a  person  is  entitled  to  assume  that  the  corporate 
agent  is  acting  regularly,  and  that  the  antecedent  formalities 
and  the  regulations  relating  to  the  internal  management  of  the 
affairs  of  the  corporation  have  been  complied  with. 

The  law  on  this  subject  has  been  lucidly  stated  in  a  recent 
case  in  the  New  Jersey  Court  of  Errors  and  Appeals,4  as  fol- 
lows :  "  Persons  taking  securities  of  this  character5  are  charge- 
able with  knowledge  of  the  power  to  make  them  as  conferred 
by  the  charter.  If  the  power  granted  by  the  charter  is  subject 
to  a  condition  relating  either  to  the  form  in  which  the  security 
shall  be  made  in  order  to  be  valid,  or  to  some  preliminary  pro- 
ceeding extraneous  to  the  acts  of  the  corporation  or  its  officers, 
securities  issued  not  in  the  prescribed  form,  or  without  the  pre- 
liminary proceedings  had,  are  subject  to  defences  in  consequence 
thereof,  even  in  the  hands  of  bona  fide  holders.  Thus,  where 
the  statute  required  such  bonds  to  be  certified  across  their  face, 
and  to  be  registered,  and  declared  that  no  bonds  should  be 
valid  unless  so  registered,  bonds  issued  without  such  registry 


tions  must  contract,  a  contract  made 
in  any  other  mode  will  not  be  bind- 
ing upon  tbe  corporation  or  the  party 
contracting  with  it,  unless  the  stat- 
ute, as  it  sometimes  does,  provides 
to  the  contrary."  Angell  and  Ames 
on  Corp.,  §253. 


1  See  §  198. 

2  See  §  203. 

3  See  §  204. 

4Hackensack  Water  Co.  v.  De  Kay, 
36  N.  J.  Eq.  548,  562. 

5  Negotiable  securities  issued  by  a 
corporation. 

215 


§  252.]         THE    LAW    OF    1'KIVATE   CORPORATIONS.    [CHAP.  VII. 


and  certificate  were  held  to  be  void.  Morrison  v.  Inhabitants 
of  Bernards,  7  Vroom,  219.  &»,  alao,  whuro  tho  statute  re- 
qairoo,  aa  a  preliminary  to  the  issuing'  of  bonds  by  acou  n  ty, 

tawjn)  nn  ntlin.n  nm-pnvitinn^  that,  thp  ;i«cnf.  nf  a.  j^rtain  pivt  por- 
tion nf  vntntTi  nr  t.M.v  payers  shall  fii-gt.  lio  nhfnimv^  thjs  requisite 
if,  onnr.nt.ialrft-ml-t,lrP,  akftwp  of  it  will  n.voirl  the  hnndgj  prpn  as 
againot  inpocreTftrthird  parties.1 

"  But  this  doctrine  does  not  prevail  in  those  instances  in 
which  the  right  to  issue  such  securities  is  by  the  charter  condi- 
tioned upon  the  performance  of  acts  by  the  corporation  or  its 
officers  relating  to  the  management  of  the  affairs  of  the  com- 
pany. In  such  cases,  as  said  by  Vice-Chancellor  Wood, '  if  the 
party  contracting  with  the  directors  finds  the  acts  to  be  within 
the  scope  of  their  power  under  the  deed  of  settlement,  he  has 
a  right  to  assume  that  all  such  conditions  have  been  complied 
with.'2  .... 

"  The  doctrine  which  validates  securities  within  the  apparent 
powers  of  the  corporation,  but  improperly,  and  therefore  ille- 
gally, issued,  applies  only  in  favor  of  bona  fide  holders  for  value. 
A  person  who  takes  such  a  security  with  knowledge  that  the 
conditions  on  which  alone  the  security  was  authorized  were  not 
fulfilled,  is  not  protected,  and  in  his  hands  the  security  is  in- 
valid, though  the  imperfection  is  in  some  matter  relating  to  the 
internal  affairs  of  the  corporation,  which  would  be  unavailable 
against  a  bona  fide  holder  of  the  same  security."3 

.  ,      requiring  the  contracts  of  certain  coxperatea^ents  to 

Approval  ^  ©  ^__^— *t  © 

be  approved  by  other  corporate  agents.     Such  provi- 
sions will  not  affect  the  rights  of  a  person  acting  in 
good  faith  in^ignorance  that  the  agent  with  whom  he  deals  is 
rem: 


by  other 
officers. 


1  Citing  Hudson  v.  Inhabitants  of 
Winslow,  6  Vroom,  437,  a  case  of 
municipal  bonds.     See  §§315  et  seq. 

2  7/i  re  Athenaeum  Society  ex  parte 
Eagle  Co.,  4  K.  &  J.  549.  See,  also, 
Connecticut  Mut.  Life  Ins.  Co.  v. 
Cleveland,  C.  and  C.  and  C.  K.  R.  Co., 
41  Barb.  9;  Berks,  etc.,  Turnpike 
Road  v.  Myers,  6  S.  &  R.  12;  Royal 

216 


British  Bank  v.  Turquand,  6  El.  & 
Bl.  327;  Webb  v.  Commissioners,  L. 
R.  5  Q.  B.  642;  Mahouy  v.  East  Holy- 
ford  M'g  Co.,  L.  R.  7  H.  L.  893,  894. 

3  36   N.    J.    Eq.    505.     See,    also, 
Nichols  v.  Mase,  94  N.  Y.  160. 

4  Medbury  v.  New  York  and  Erie 
R.  R.  Co.,  26  Barb.  564. 


PART    II.]    ACTS    WITHIN   THE   CORPORATE   POWERS.        [§  254. 


§  253.  So  far  as  to  the  effect  of  the  non-observance  of  for- 
malities when  the  person  dealing  with  the  corporate 
agent  does  not  know  of  them,  or  reasonably  assumes 


tracting 

If,  however,  a   Party  has* 

notice  of 


that  they  have  been  complied  with. 

person  actually  knows  or  is  affected  with  notice  of  the  formal- 
formalities,  and  his  contract  with  the  corporate  rep-  quired, 
resentative  is  in  a  form  indicating  their  non-observ- 
ance, he  acts  at  his  peril,1  and  may  be  unable  to  hold  the  cor- 
poration, unless  the  formality  required  was  trivial  or  had  been 
systematically  disregarded  in  the  course  of  the  corporate  busi- 
ness.2 For  the  corporation  may  rightfully  plead  that  it  is  not 
bound  to  a  party  contracting  with  its  agent  knowing  of  the 
neglect  of  formalities  which  it  or  the  legislature  has  established 
for  its  protection.  Accordingly,  if  the  contracting  party  is  in 
any  way  affected  with  knowledge  that  the  contract  to  bind  the 
company  should  be  signed  by  certain  officers,  unless  it  is  signed 
by  those  officers  the  corporation  will  not  be  bound.3 

§  254.  On  the  other  hand,  if  by  a  reasonably  liberal  construc- 
tion in  favor  of  a  person  who  acts  in  good  faith,  although 
affected  with  notice  of  the  provisions  requiring  the  formalities, 
those  provisions  may  be  construed  to  be  inapplicable  to  the 
contract  on  which  his  rights  are  based,  courts  will  gladly  avoid 
holding  the  contract  invalid.4  Moreover,  if  the  variance  be- 
tween the  manner  prescribed  and  the  manner  in  which  the  con- 


1  See  Dana  v.  Bank  of  St.  Paul,  4 
Minn.  385  ;  Hackensack  Water  Co.  v. 
De  Kay,  supra,  §  251. 

2  Leonard  v.  American  Ins.  Co.,  97 
Ind.  299  ;  Bulkley  v.  Derby  Fishing 
Co.,  2  Conn.  252  ;  Kilgore  v.  Bnlkley, 
14  Conn.  362  ;  compare  In  re  Royal 
British  Bank,  Walton's  Case,  26  L.  J. 
Ch.  545. 

3  Head  v.  Providence  Ins.  Co.,  2 
Cranch,  127  ;  Holbrook  v.  Fauquier, 
etc.,  Turnpike  Co.,  3  Cranch,  Cir. 
Ct.,  425  ;  Henning  v.  United  States 
Ins.  Co.,  47  Mo.  425  ;  Salem  Bank  v. 
(Gloucester  Bank,  17  Mass.  1  ;  Badger 
v.  American  Popular  Ins.  Co.,  103 
Mass.   244  ;    Beatty  v.    Marine   Ins. 


Co.,  2  Johns.  109.  Compare  Barnes 
v.  Ontario  Bank,  19  N.  Y.  152  ;  Saf- 
ford  v.  Wyckoff,  4  Hill,  446  ;  Melvin 
v.  Lisenby,  72  111.  63  ;  Dana  v.  Bank 
of  St.  Paul,  4  Minn.  385  ;  and  cases 
in  the  last  note. 

4  See  Trustees'  First  Baptist  Church 
v.  Brooklyn  Fire  Ins.  Co.,  19  N".  Y. 
305;  Relief  Fire  Ins.  Co.  v.  Shaw,  94 
U.  S.  574;  New  England  Ins.  Co.  v. 
De  Wolf,  8  Pick.  56;  Dana  v.  Bank 
of  St.  Paul,  4  Minn.  385;  Insurance 
Co.  v.  Colt,  20  Wall.  560;  Sanborn  v. 
Fireman's  Ins.  Co.,  16  Gray,  448; 
Mechanics'  Bank  v.  Bank  of  Colum- 
bia, 5  Wheat.  326;  Rockwell  v.  Elk- 
horn  Bank,  13  Wis.  653. 

217 


§  257.]         THE   LAW    OF   PRIVATE   CORPORATIONS.    [CHAP.  VII. 

tract  was  actually  executed  is  obviously  immaterial,  his  rights 
will  not  be  affected.  Thus,  the  charter  of  a  corporation  required 
a  certain  number  of  managers  "  to  constitute  a  quorum  with 
power  to  enter  into  a  contract."  The  contract  before  the  court 
was  actually  sealed  and  executed  by  a  less  number ;  but  the 
court  held  it  valid,  there  being  no  evidence  to  show  that  it  had 
not  been  authorized  by  the  requisite  number.1 

§  255.  In  certain  cases  where,  as  a  matter  of  fact,  the  person 
w,  contracting1  with  the  corporate  agent  is  far  less  con- 

V\  lien  cor-  °  i 

i>. .rate  versant  with  the  nature  of  the  business  in  hand  than 

contracting  the  corporation  and  its  agent,  the  court  has  permitted 
nofstand  him,  when  he  has  in  entire  good  faith  performed  his 
trams1*1  S^e  °^  ^ne  con  tract,  to  hold  the  corporation  ;  although 
some  formality  with  knowledge  of  which  he  must  be 
held  affected  is  not  complied  with,  and  he  knows  or  is  affected 
with  notice  of  its  non-observance.  Thus,  an  insurance  policy- 
contained  a  provision  that  if  any  subsequent  insurance  should 
be  made  on  the  same  property,  the  policy  should  become  null 
and  void,  unless  a  consent  to  the  further  insurance  should  pre- 
viously have  been  given  in  writing.  The  insurance  agent  orally 
consented,  and  the  insured  in  good  faith  paid  out  his  mone}r 
in  reliance  thereon.  A  loss  occurring,  the  court  held  that  the 
company  could  not  defend  on  the  ground  that  the  consent  was 
not  in  writing ;  because  such  a  defence  would  be  a  fraud  on  the 
insured.2 

§  256.  If  after  an  act  is  irregularly  done,  even  in  a  manner 
which  would  not  have  held  the  corporation,  the  cor- 
tion!  Ca~  poration  ratifies  or  acquiesces  in  the  act  as  done,  the 
corporation  will  be  bound.3 

§  257.  As  provisions  requiring  the  observance  of  formalities 


1  Berks,  etc.,  Turnpike  Co.  v.  Myers, 
6  S.  &  R.  12. 

The  defective  execution  of  a  mort- 
gage by  an  agent  who  has  authority 
to  execute  it,  will  not  invalidate  the 
mortgage  when  the  intent  is  plain. 
Taylor  v.  Agricultural,  etc.,  Ass'n,  68 
Ala.  229.  See,  also,  Bernards  Town- 
ship v.  Stebbins,  109  U.  S.  341,  §  328. 

218 


2Carrugi  v.  Atlantic  Fire  Ins.  Co., 
40  Ga.  135.  Compare  Wheeler  v. 
Smith,  9  How.  55. 

8  Chouteau  v.  Allen,  70  Mo.  290; 
State  of  Florida  v.  Florida  Central  R. 
R.  Co.,  15  Fla.  690. 


I 


PART  II.]    ACTS   WITHIN   THE    CORPORATE   POWERS.  [§  258. 


Party  con- 
tracting 
with  corpo- 
rate agent 
cannot 
plead  non- 


by  corporate  agents  exist  for  the  protection  of  the 
corporation,  there  is  obviously  no  justice  in  allowing 
a  party  who  has  himself  contracted  with  the  cor- 
porate agent  to  plead  the  neglect  of  any  formality  on 
the  part  of  the  latter,  provided  the  corporation  has   observance 

»  .  .  ■,  of  formali- 

perlormed  its  side  ot  the  contract,  or  is  ready  to  do   ties  by  the 
so.     Consequently,  except  when  the  requirement  is   sureties  on 
statutory,  and  expressly  declares  that  unless  it  is  ^"g1 
complied  with,  the  contract  or  other  act  shall  be 
void,  the  other  contracting  party  will  not  be  allowed  to  take 
advantage  of  its  non-fulfillment.1     Thus,  sureties  on  the  official 
bond  of  a  cashier,  conditioned  for  the  faithful  performance  of 
his  duties,  will  be  bound,  although  the  bond  was  not  approved 
on  the  part  of  the  bank  in  the  manner  required  by  its  charter.2 
§  258.  The  formal  requisites  necessary  to  make  the  acts  of 
the  directors  or  trustees  binding  on  the  corporation    Formaii- 
require  particular  notice.     Where  the  management   0i^serVelbv 
of  the  affairs  of  a  corporation  is  vested  in  a  board  of   directors, 
directors,  the  legal  effect  is  to  vest  the  directors  with   should  act 
authority  to  act  only  when  assembled  as  a  board. 
Therefore,  when  a  claim  against  a  corporation  is  based  on  any 
particular  contract  alleged  to  have  been  executed  by  the  di- 
rectors (to  the  validity  of  which  the  assent  of  a  quorum  of  the 
directors  was  necessary),  it  is  essential  that  the  directors  should 
have  acted  as  a  board  in  executing  it.3    Accordingly,  a  deed 

1  Moreland  v.  State  Bank,  1  Breese 
(111.),  263;  Bates  v.  Bank  of  Ala- 
bama, 2  Ala.  451;  Bond  v.  Central 
Bank,  2  Ga.  92.  See  Bank  of  South 
Carolina  o.  Hammond,  1  Rich.  L.  (S. 
C.)281. 

2  Bank  of  TJ.  S.  v.  Dandridge,  12 
Wheat.  64;  State  Bank  v.  Chatwood, 
3  Halsted  (N.  J.),  1;  Bostwick  v. 
Van  Voorhis,  91  N.  Y.  353;  see 
§  249,  note. 

3  Baldwin  v.  Canfield,  26  Minn.  43; 
Stoystown,  etc.,  Turnpike  Road  Co. 
v.  Craver,  45  Pa.  St.  386;  Hillyer  v. 
Overman  Silver  M'g  Co.,  6  Nev.  51; 
Lockwood  v.  Thunder  Bay  River 
Boom  Co.,  42  Mich.  536,  539;  Gash- 
wiler  v.  Willis,  33  Cal.   12;    D'Arcy 


v.  Lamar,  etc.,  R'y  Co.,  L.  R.  2  Ex. 
158;  S.  C,  4  H.  &  C.  463.  See 
Junction  R.  R.  Co.  v.  Reeve,  15  Ind. 
236;  Yellow  Jacket  Silver  M'g  Co.  v. 
Stevenson,  5  Nev.  224;  First  Nat. 
Bank  v.  Christopher,  40  N.  J.  L.  435, 
437;  Despatch  Line  of  Packets  v. 
Bellamy  M'f'g  Co.,  12  N.  H.  205, 
224;  Edgerly  v.  Emerson,  23  N.  H. 
555,  567;  Noblesville  Gas  Co.  v. 
Loebr,  124  Ind.  79;  Allemong  v.  Sim- 
mons, ib.  199;  Monroe  Mercantile 
Assn.  v.  Arnold,  108  Ga.  449;  Calu- 
met Paper  Co.  v.  Haskell  Show  Pr. 
Co.,  144  Mo.  331;  Alabama  Nat.  Bk. 
v.  O'Neil,  128  Ala.  192;  Broughton  v. 
Jones,  120  Mich.  462.  Compare 
Limer  v.  Traders  Co.,  44  W.  Va.  175; 
219 


§  259.]  THE    LAW    OF    PRIVATE   CORPORATIONS.   [CHAP.  VII. 


Excep- 
tions. 


executed  on  behalf  of  the  corporation  by  all  the  directors  act- 
ing separately,  which  they  never  authorized  while  acting  as  a 
board,  is  invalid.1  And  the  parol  declarations  of  individual  di- 
rectors are  not  competent  evidence  of  an  agreement  to  appro- 
priate for  a  specific  purpose  a  certain  fund  of  money,  which  in 
a  contract  made  by  the  directors  as  a  board  had  been  reserved 
to  the  use  of  the  corporation.2 

§  259.  But  this  rule  does  not  invalidate  a  contract  made  with 
a  person  acting  in  good  faith  in  ignorance  that  the 
directors  had  taken  no  action  as  a  board,  if  the  cir- 
cumstances entitled  him  to  assume  that  the  directors 
had  acted  in  the  proper  manner.3  Nor  does  the  rule  apply 
when  the  contract  relied  on  by  the  person  claiming  to  have  ac- 
quired a  right  against  the  corporation  was  actually  made,  not 
by  the  directors,  but  by  an  officer  deriving  his  authority  from 
them.  In  such  a  case,  if  the  assent  of  the  majority  of  directors 
be  shown  to  have  been  given  in  any  way  to  the  execution  of 
the  contract  by  the  officer,  or  if  the  directors  subsequently 
acquiesce,  the  corporation  will  not  be  heard  to  plead  that  the 
directors  had  never  taken  action  as  a  board  in  the  matter.4 
And  even  where  the  contract  relied  on  was  executed  separately 


New  Boston  F.  I.  Co.  v.  Upton,  67  N. 
H.  469;  Hamlin  v.  Union  Brass  Co., 
68  N.  H.  292;  Morrison  v.  Wilder  Gas 
Co.,  91  Me.  492;  Pierce  v.  Morse- 
Oliver  Co.,  94  Me.  406;  Sias  v.  Con- 
sol.  Lighting  Co.,  73  Vt.  35.  Contra, 
In  re  Bonelli's  Electric  Telegraph 
Co.,  40  L.  J.  Eq.  507.  A  director 
cannot  vote  by  proxy  at  a  directors' 
meeting.  Perry  v.  Tuscaloosa  Co., 
93  Ala.  364,  371. 

For  analogous  rules  regarding  the 
manner  in  which  the  managing 
boards  of  municipal  and  religious 
corporations  should  act,  see  Cam- 
meyer  v.  United  German  Churches, 
2  Sandf.  Ch.  186;  Dey  r.  Jersey  City, 
19  X.  J.  Eq.  412;  Schumm  v.  Sey- 
mour, 24  N.  J.  Eq.  153;  Shortz  v. 
Unangst,  3  W.  &  S.  45;  German 
Evangelical  Congregation  v.  Pressler, 
14  La.  Ann.  811. 
220 


1  Baldwin  v.  Canfield,  26  Minn.  43. 

2  Grayville  and  Mattoon  R.  R.  Co. 
v.  Burns,  92  111.  302.  See  East  Line, 
etc.,  R.  R.  Co.  v.  Garrett,  52  Tex. 
133.  Compare  Benton  v.  Springfield 
Y.  M.   C.  A.,  170  Mass.  534. 

8  See  §§251,  203.  None  of  the 
cases  cited  in  the  last  two  notes  are 
authority  for  the  application  of  the 
rule  under  such  circumstances;  and 
see  Tenney  ».  East  Warren  Lumber 
Co.,  -j:;  X.  H.  343. 

4  Bank  of  Middlebury  v.  Rutland, 
etc.,  R.  R.  Co.,  30  Vt.  159;  St.  James 
Parish  v.  Newburyport  Horse  R.  R., 
141  Mass.  500;  Wheeler  v.  Land  Co., 
14  Wash.  630.  See,  also,  Longmont 
Ditch  Co.  v.  Coffman,  11  Col.  551; 
Eureka  Iron  Works  v.  Bresuahan,  60 
Mich.  332.     See  §  212. 


I 


PART  II.]    ACTS    WITHIN   THE   CORPORATE   POWERS.  [§  260. 

by  a  majority  of  the  directors,  the  rule  requiring  them  to  act 
as  a  board  will  not  apply  if  the  contract  is  an  ordinary  contract 
acquiesced  in  for  years  by  all  the  directors,  and  is  performed  on 
the  part  of  the  other  contracting  party.  Thus,  where  a  person 
was  employed  by  three  directors  (a  majority)  acting  separately, 
to  render  services  to  a  bank,  and  he  rendered  services  for  five 
years,  to  the  knowledge  of  all  the  directors,  none  of  whom 
objected,  it  was  held  that  the  employment  was  binding  on  the 
bank.1 

Of  course,  the  rule  cannot  apply  where  the  contract  relied 
on  by  the  other  party  is  made  by  one  or  two  directors  having 
authority  to  make  it:  and  how  far  the  rule  may  apply  to  the 
action  of  directorial  committees  and  sub-committees  is  ques- 
tionable. 

§  260.  Assuming  now  that  the  directors  acting  together  as  a 
board  have  done  an  act  within  their  powers,  the  act 
will  be  valid,  in  the  absence  of  any  provision  to  the  meetings.' 
contrary  in  the  constitution  or  by-laws  of  the  corpora-   Quoruni. 
tion,  if  it  is  done  or  authorized  by  a  majority  vote  of  the  direct- 
ors present  at  the  meeting,  when  there  is  present  a  majority 
of  the  total  number  of  directors  ;  provided  the   meeting   was 
assembled  either  in  pursuance  of  some   provision   in   the   con- 
stitution or  by-laws,  or  upon  due  notice  to  all  the  directors. 
The  different  parts  of  this  proposition  require  discussion. 

In  the  first  place,  a  majority  of  all  the  directors  must  be 
present  to  constitute  a  quorum  for  the  transaction  of  business.2 
Such  being  the  case,  a  majority  vote  of  those  actually  present 
decides,  and  is  valid.3 


1  Bradstreet  v.  Bank  of  Royalton, 
42  Vt.  128;  see  Waite  v.  Mining  Co., 
37  Vt.  608;  Bank  of  New  London  v. 
Ketchum,  64  Wis.  7. 

2  In  the  absence  of  special  pro- 
vision, less  than  a  majority  of  all 
the  directors  composing  the  board 
have  no  power  to  transact  the  busi- 
ness of  the  corporation.  Price  v. 
Grand  Rapids,  etc.,  R.  R.  Co.,  13 
Ind.  58;  Stringham  v.  Oshkosh  &  M. 
R.  R.  Co.,  33  Wis.  471;  Ex  parte 
Willcocks,    7    Cow.    402;    2    Kent's 


Com.    283  ;    Angell    and   Ames    on 
Corp.,  §§  501,  502. 

Cram  v.  Bangor  House  Proprie- 
tary, 12  Me.  354;  Despatch  Line  v. 
Bellamy  Mfg.  Co.,  12  N.  H.  205; 
Wells  v.  Rahway  White  Rubber  Co., 
19  N.  J.  Eq.  402;  Booker  v.  Young, 
13  Gratt.  (Va.)  303;  Lockwood  v. 
Mechanics'  Nat.  Bk.,  9  R.  I.  308;  Ca- 
hill  v.  Kalamazoo  Ins.  Co.,  2  Dougl. 
(Mich.)  124;  Ex  parte  Willcocks,  7 
Cow.  402;  Sargent  v.  Webster,  18 
Mete.  (Mass.)  497;  Edgerly  r.  Emer- 
221 


§  261.]  THE   LAW    OF   PRIVATE   CORPORATIONS.   [CHAP.  VII. 

Unless  the  meeting  is  one  that  assembles  at  stated  times  pur- 
suant to  some  provision  in  the  constitution  or  by-laws,1  it  must 
be  duly  notified  to  all  the  directors.2  For,  even  if  a  majority 
of  a  total  number  of  directors  are  present  and  the  vote  is 
unanimous,  so  that  the  votes  of  the  absentees  could  not  have 
changed  the  result,  it  does  not  follow  that  those  actually  pres- 
ent would  not  have  voted  differently  had  they  heard  what  the 
absentees,  if  present,  might  have  said.  To  make  the  proceed- 
ings regular,  all  should  have  had  an  opportunity  to  be  present, 
and  take  part  in  them.3  Where  there  is  no  special  provision 
as  to  the  notice,  it  should  be  reasonable  in  point  of  time;4  and 
should  be  personal  if  the  directors  reside  in  the  same  place. 

§  261.  As  the  usual  presumptions  in  favor  of  regularity  apply 

to  directors'  meetings,  it  is  always  to  be  presumed 

tiousUmp"      tnat  the  meeting  was  regular;  and  the  burden  of 

proof  to  show  a  want  of  due  notice  of  the  meeting  is 


son,  23  N.  H.  555;  Buell  v.  Bucking- 
ham, 16  Iowa,  284;  Leavitt  v.  Ox- 
ford, etc.,  M.  Co.,  3  Utah,  265;  2 
Kent's  Com.,  293.  Compare  Hol- 
combe's  Exr.  v.  Managers  N.  H.  D. 
B.  Co.,  9  N.  J.  Eq.  457. 

1  Of  such  a  meeting  no  notice  is 
necessary,  or  notice  is  presumed. 
See  Despatch  Line  v.  Bellamy  Mfg. 
Co..  12  N.  H.  205,  226;  Edgerly  v. 
Emerson,  23  N.  H.  555,  567;  Angell 
and  Ames  on  Corp.,  §  488. 

2  Panly  v.  Pauly,  107  Cal.  8;  Curtin 
v.  Salmon  River,  etc.,  Co.,  130  Cal. 
345;  Cupit  v.  Park  City  Bank,  20 
Utah,  292;  Hill  v.  Mining  Co.,  119 
Mo.  9;  Gordon  p.  Preston,  1  Watts, 
385;  Farwell  v.  Houghton  Copper 
Works,  8  Fed.  Rep.  66;  Doyle  v. 
Mizner,  42  Mich.  332,  341;  Kersey 
Oil  Co.  v.  Oil  Creek,  etc.  R.  R.  Co., 
12  Phila.  374;  Doernbecher  v.  Lum- 
ber Co.,  21  Oregon,  573;  Singer  v. 
Salt  Lake  Copper  M.  Co.,  17  Utah, 
143.  Compare  Jackson  v.  Hampden, 
20  Me.  37;  Simon  v.  Sevier  Ass'n, 
54  Ark.  58;  Bank  of  Little   Rock  v. 

222 


McCarthy,  55  Ark.  473.  Compare 
Smith  v.  Dorn,  95  Cal.  73.  But  if 
all  the  directors  actually  consult  to- 
gether, and  a  majority  concur,  it 
seems  no  notification  is  necessary. 
Despatch  Line  v.  Bellamy  Mfg.  Co., 
12  N.  H.  205,  227;  Benbow  v.  Cook, 
115  N.  C.  324.  When  a  regular  meet- 
ing of  directors,  from  which  some 
are  absent,  is  adjourned  to  a  future 
day,  no  hour  fixed,  notice  of  the 
adjourned  meeting  must  be  given. 
Thompson  v.  Williams,  76  Cal.  153. 

3  In  the  case  of  Edgerly  v.  Emer- 
son, 23  N.  H.  555,  it  was  stated  "  that 
where  a  quorum  of  the  directors  of 
a  bank  meet,  and  unite  in  any  de- 
termination, the  corporation  are 
bound,  whether  the  other  directors 
are  or  are  not  notified."  23  N.  H. 
569.  The  proposition,  thus  broadly 
stated,  it  is  submitted,  is  not  law. 
But  compare  Chase  v.  Tuttle,  55 
Conn.  455. 

*  See  Covert  v.  Rogers,  38  Mich. 
363.  As  to  the  meetings  of  directors 
outside  of  the  state,  see  §  381. 


PART  II.]    ACTS    WITHIN    THE   CORPORATE   POWERS.  [§  262. 


on  the  party  impeaching  its  regularity.1  Further,  the  recital 
in  a  resolution  that  notice  of  a  meeting  of  the  board  was 
served  on  all  the  directors,  is  evidence,  though  not  under  all 
circumstances  conclusive,  of  the  regularity  of  the  notice.2 

Finally,  although  want  of  the  service  of  due  notice  on  all  the 
directors  may  be  pleaded  by  the  corporation  as  against  any 
person  acting  with  knowledge  of  the  facts,3  yet  such  omission, 
according  to  principles  already  stated,  will  not  affect  the  rights 
of  a  person  dealing  with  the  directors  on  the  bona  fide  and 
reasonable  assumption  that  their  action  has  been  regular.4 

§  262.  The  general  rules  above  stated  regarding  the  notice  of 
directors'   meetings,  tind   the   number   of    directors 
necessary  to  concur  in  the  acts  of  the  board,  may  be   provisions, 
modified  by  provisions  in  the  constitution  or  by-laws 
of  the  corporation,  and  also,  it  seems,  by  custom.5    Thus,  if  the 
constitution  requires  the  concurrence  of  a  certain  number  of 
directors  to  the  doing  of  a  given  action  or  the  making  of  a  con- 
tract, the  act  or  contract,  if  not  concurred  in  by  the  requisite 
number,  will  not  in  itself  bind  the  corporation.6 


1  Sargent  e.  Webster,  13  Mete. 
(Mass.)  497;  Lane  v.  Brainerd,  30 
Conn.  565;  Chouteau  Ins.  Co.  v. 
Holmes,  68  Mo.  601 ;  Levitt  v.  Oxford, 
etc.,  M.  Co.,  3  Utah,  265;  Singer  v. 
Salt  Lake  Copper  M.  Co.  17  Utah 
143;  Barrell  v.  Lake  View  Land  Co., 
122  Cal.  129;  Budd  v.  Walla  Walla 
Printing  Co.,  2  Wash.  Ter.  347;  Wells 
v.  Rodgers,  60  Mich.  525. 

2  Granger  v.  Original  Empire  Mill 
Co.,  59  Cal.  678. 

3  Kersey  Oil  Co.  v.  Oil  Creek,  etc., 
R.  R.  Co.,  12  Phila.  374;  Far  well  v. 
Houghton  Copper  Works,  8  Fed. 
Rep.  66. 

4  See  §  251.  There  seems  no  reason 
to  doubt  that  the  general  rules  stated 
in  regard  to  notice  and  the  requisite 
majority  will  ordinarily  apply  to  the 
meeting  of  directors1  committees. 
A  directors1  committee  may  act  by  a 
majority.  McXeil  v.  Chamber  of 
Commerce,  154  Mass.  277;  Barrell  v. 
Lake  View  Land  Co.,  122  Cal.  129. 


Contra,  Liverpool  Household  Stores 
Ass'n  in  re,  59  L.  J.  Ch.  616. 

5  Thus,  it  is  held  in  England  that 
when  the  articles  do  not  state  the 
number  of  directors  necessary  to  con- 
stitute a  quorum,  the  number  usually 
acting  in  the  business  of  the  corpora- 
tion will  suffice.  In  re  Tavistock 
Iron  Works  Co.,  Lyster's  Case,  L.  R. 
4  Eq.  233. 

6  Beatty  v.  Marine  Ins.  Co.,  2  Johns. 
109;  Ridley  v.  Plymouth  Baking  Co., 
2  Exch.  711;  see  Daws  v.  North  River 
Ins.  Co.,  7  Cow.  462,  overruled  in 
Conover  v.  Mutual  Ins.  Co.,  3  Denio, 
254;  Kirk  v.  Bell,  16  Q.  B.  290;  Card 
v.  Carr,  1  C.  B.  N.  S.  197.  But  it 
seems  where  a  statute  prescribes  the 
whole  number  of  directors,  and  also 
what  number  shall  constitute  a  quo- 
rum, that  the  quorum  may  act, 
although  the  whole  number  is  defi- 
cient. Thames  Haven  Dock  Co.  v. 
Rose,  4  M.  &  G.  552. 

223 


§  263.]         THE   LAW   OF   PRIVATE   CORPORATIONS.    [CHAP.  VII. 


Rules  of 
evidence 
applicable 
to  corpora- 
tions.    Cor- 
porate 
books. 


I'd:'..  In  evidence,  the  presumptions  applicable  to  individuals 
apply  to  corporations  ;J  and  as  a  general  rule  the  acts 
of  corporations  may  be  proved  in  the  same  manner 
as  the  acts  of  individuals.2  Often  the  charter  or  by- 
laws may  provide  that  regular  records  of  the  pro- 
ceedings of  the  managing  boards  shall  be  kept  by 
some  designated  officer.  And  when  the  record  exists,  the  rules 
of  evidence  require  its  production  as  constituting  the  best  evi- 
dence. But  the  breach  of  a  provision  requiring  acts  of  the  board 
to  be  recorded,  whatever  may  be  the  effect  of  the  omission  in 
rendering  certain  officers  derelict  in  their  duties,  does  not  im- 
pair the  validity  of  the  unrecorded  acts.3  /f'u^  <v/3~*^    ?f?*-  36$ 

The  books  of  the  corporation  are  competent  evidence  to  prove 
the  number  of  shares  subscribed  for  and  the  names  of  the  sub- 
scribers;4 they  are  competent  evidence  of  the  meeting  held  to 
organize  the  corporation  and  of  the  action  taken  thereat.5  They 
are  competent  to  prove  the  acceptance  by  the  corporation  of 
a  subscription  contract,  though  it  has  been  held  that  they  are 
not  competent  to  prove  such  contract  as  against  the  subscriber.6^ 


1  Bank  of  the  U.  S.  v.  Dandridge, 
12  Wheat.  64.  Compare  Johnson  v. 
Bush,  3  Barb.  Ch.  207. 

2  Southern  Hotel  Co.  v.  Newman, 
30  Mo.  118.  Compare  Leonard  v. 
Burlington  Mnt.  Loan  Ass' n,  55  Iowa, 
594. 

3  Bank  of  U.  S.  v.  Dandridge,  12 
Wheat.  64;  Burgess  v.  Pue,  2  Gill 
(Md. ),  254  ;  Bank  of  Kentucky  v. 
Schuylkill  Bank,  1  Parson's  Sel.  Cas. 
(Penn.)  180,  251,  263;  Trott  v.  War- 
ren, 11  Me.  227;  Cram  v.  Bangor 
House  Proprietary,  12  Me.  354;  Rus- 
sell v.  McLellan,  14  Pick.  63;  Mid- 
dlesex Husbandmen  v.  Davis,  3  Mete. 
(Mass.)  133;  Davidson  v.  Bridgeport, 
8  Conn.  472;  Sehallard  v.  Eel  River 
Nav.  Co.,  70  Cal.  144  ;  Tickett  v. 
Abney,  84  Tex.  645.  See  Hurd  r. 
Hotchkiss,  7"-'  Conn.  472;  New  Boston 
Fire  Ins.  Co.  ».  Saunders,  67  N.  H. 
249. 

4  Evans  c.  Bailey,  66  Cal.  112;  Pe- 
nobscott  R.  R.  Co.  v.  Dummer,  40  Me. 

224 


■3 


172  ;  Glenn  v.  Orr,  96  N.  C.  413.  V" 
See,  also,  Macon,  etc.,  R.  R.  Co.  v.  >* 
Vasour,  57  Ga.  314;  Washer  v.  Al- 
lensville,  etc.,  T.  P.  Co.,  81  Ind.  78; 
Fox  v.  Allensville,  etc.,  T.  P.  Co.,  46 
Ind.  31;  Lehman  o.  Glenn,  87  Ala. 
618;  Semple  v.  Glenn,  91  Ala.  245. 
Compare  Fish  v.  Smith,  73  Conn.  377. 
When  commissioners  are  provided  for 
by  statute,  their  books  are  official 
registers,  and  are  admissible  in  evi- 
dence to  prove  a  subscription.  Mon- 
roe v.  Ft.  Wayne,  etc.,  R.  R.  Co.,  28 
Mich.  272. 

5  Duke  v.  Cahawba  Nav.  Co.,  10 
Ala.  82.  See  Blake  v.  Griswold,  103 
N.  Y.  429;  Glenn  v.  Orr,  96  N.  C. 
413.  Their  competency  as  evidence 
against  the  corporation  is  not  im- 
paired by  the  fact  that  they  have 
been  in  the  possession  of  its  attor- 
neys. McCullough?).  Talladega  Ins. 
Co.,  46  Ala.  376. 

6  Colfax  H.  Co.  v.  Lyon,  69  Iowa, 
683. 


PART  II. j    ACTS    WITHIN    THE   CORPORATE    POWERS.  [§  263. 

They  are  not  competent  to  establish  a  right  in  the  corporation 
against  an  outsider.1  And  as  to  outsiders,  a  corporation  is  not 
bound  by  interpolations  fraudulently  inserted  in  its  records, 
when  such  outsiders  have  not  seen,  acted  on,  or  known  of  the 
existence  of  such  interpolations.2  But  if  outsiders  have  acted 
on  the  faith  of  the  records,  the  corporation  will  be  estopped 
from  alleging  the  falsity  of  interpolations  fraudulently  made 
in  its  books  by  its  own  secretary.3  Said  Chief  Judge  Earl,  giv- 
ing the  opinion  of  the  New  York  Court  of  Appeals,  in  Rudd  v. 
Robinson  :  "  The  books  of  corporations  for  many  purposes  are 
evidence,  not  only  as  between  the  corporation  and  its  members, 
and  between  members,  but  also  as  between  the  corporation  or 
its  members  and  strangers.  They  are  received  in  evidence  gen- 
erally to  prove  corporate  acts  of  a  corporation,  such  as  its  in- 
corporation, its  list  of  stockholders,  its  by-laws,  the  formal  pro- 
ceedings of  its  board  of  directors,  and  its  financial  condition 
when  its  solvency  comes  in  question." 4 


1  Jones  v.  Trustees  Florence  Univ., 
46  Ala.  626 ;  Dolan  v.  Wilkerson,  57 
Kan.  758. 

2Holden  v.  Hoyt,  134  Mass.  181. 
See  Parker  v.  Nickerson,  137  Mass. 
487.  The  reports  of  officers  of  the 
corporation  to  the  shareholders  or  to 
the  board  of  directors,  in  which  cer- 
tain claims  for  which  the  corporation 
is  not  bound  are  enumerated  among 
its  liabilities,  will  not  bind  the  cor- 
poration to  pay  such  claims,  or  pre- 
vent it  from  changing  its  purpose 
with  regard  to  them.  Hall  v.  Mobile, 
etc.,  Ry.  Co.,  58  Ala.  10. 

15 


3  Commonwealth  v.  Reading  Sav- 
ings Bank,  137  Mass,  431. 

4  126  N.  Y.  113,  117.  This  case 
held,  however,  that  the  books  were 
not  evidence  of  themselves  to  estab- 
lish a  claim  against  a  director  or 
shareholder,  in  an  action  brought  on 
behalf  of  the  corporation.  It  is  held 
in  Rhode  Island  that  parol  proof  of 
the  declaration  of  a  dividend  is  in- 
competent. The  remedy  of  a  stock- 
holder claiming  that  a  dividend  has 
been  declared,  where  the  books  do 
not  show  it,  is  mandamus  to  compel 
the  correction  of  the  records.  Dennis 
v.  Joslin  Mfg.  Co.,  19  R.  I.  666. 

225 


THE   LAW   OF   PRIVATE   CORPORATIONS.    [CHAP.  VII. 


PART  III. 
ACTS  BEYOND  THE  CORPORATE  POWERS. 


Questions  of  ultra  vires.  Three  ways 
of  solving  them,  §  264. 

The  analytical  method,  §  264a,  sqq. 

General  rule,  §  265. 

Subordinate  rules  denoted  by  it, 
§266. 

First  subordinate  rule,  §  267. 

Second  subordinate  rule,  §  268. 

Third  subordinate  rule,  §  269. 

Ratification  by  shareholders,  §  270. 

Not  always  sufficient,  §  271. 

Illustration,  §  272. 

Rights  of  creditors,  §§  273,  274. 

The  New  York  Rule.  Opinions  in 
Bissell  v.  Railroad  Cos.,  §  275. 

Party  contracting  with  corporation 
cannot  plead  ultra  vires  when  lat- 
ter has  performed,  §  276. 

Converse  of  this  proposition  involves 
a  fallacy,  §  277. 

Examination  of  certain  cases,  §§  279, 
280. 

Ultra  vires  cannot  be  pleaded  by 
persons  whose  rights  are  not  in- 
fringed, §§  281,  282. 

The  Federal  rule,  §  283. 

Qualification  to  the  general  rules, 
§284. 

Negotiable  instruments,  §  285. 

Further  application  of  the  qualifica- 
tion, §  286. 

The  illegality  of  ultra  vires  acts,  §§ 
287,  288. 

Public  policy,  §§  289,  290. 

English  view,  §  291. 

Classes  of  ultra  vires  acts  which  are 
also  illegal,  §  292. 

First  class.     Acts  contra  bonos  mores, 
§293. 
226 


Second    class.     Acts    forbidden    by 

statute,  §  294. 
General  prohibitions,  §  295. 
English  companies'  act,  §  296. 
Effect     of     statutory     prohibitions. 

Rule,  §  297. 
Illustrations.      Body    of     the    rule. 

Excessive  interest,  §  298. 
First  qualification,  §  299. 
Second  qualification,  §  300. 
Third  qualification.     Excessive  loans 

by  national  banks,  §  301. 
Prohibitions  by  implication,  §  302. 
Unauthorized    conveyances   of    real 

estate  to  corporations,  §  303. 
Third  class  of  illegal  ultra  vires  acts. 

Corporations  with    public  duties, 

§304. 
Transfer,  lease,  or  mortgage  of  fran- 
chises, §§  305-3056. 
Other  acts,  §  306. 
Traffic  arrangements,  §  307. 
Carriers'  contracts  to  carry  beyond 

their  lines,  §  308. 
Pooling  arrangements.     Grant  of  ex- 
clusive privileges,  §  309. 
"Trusts"  and  monopolies,  §§  309a- 

309c. 
The  "securities  company,"  §  309o\ 
Liability  of  corporations  to  account 

for  benefits  received  under  an  ultra 

vires  contract,  §  310. 
Special  chattels  must  be  returned. 

Money,  §  311. 
Basis  of  the  liability,  §  312. 
Illegal  ultra  vires  contracts,  §  313. 
Liability  of  other  party  to  account, 

§314. 
Municipal  corporations,  §§  315,  316. 


PART  III.]    ACTS    BEYOND   THE    CORPORATE   POWERS.       [§    264. 


Railway  aid  bonds,  §  317. 

Federal  decisions,  §  318. 

Municipality  has  no  inherent  power 
to  issue  railway  aid  bonds,    §319. 

Special  authority  requisite.  Holders 
charged  with  notice,  §  320. 

Constitutional  limitations,  §321. 

Railroad  not  yet  in  existence,   §  322. 

Effect  of  a  consolidation  of  the  rail- 
road company,  §§  323,  324. 

Municipal  bonds  may  be  validated, 
§325. 


Bonds  and  coupons  negotiable,  326. 

Holder  not  affected  with  notice  of  lis 
pendens,  §327. 

Presumptions,  §328. 

Effect  of  recitals,  §§329-331. 

Recitals.     Recent  decisions,  §  332. 

Power  of  municipal  corporations  to 
tax.     Mandamus,  §  333. 

Municipal  property  exempt  from  ex- 
ecution, §334. 


§  264.  So  far  as  to  responsibility  for  acts  within  the  scope  of 
the  corporate  powers.     Yery  different  questions  arise   Questions 
as  to  whether  acts  beyond  the  corporate  powers  are   °*?.gfm 
binding  and  on  whom. 

i 


vires. 


These  are  questions  of  ultra  three  ways 

1  of  solving 

them. 


xThe  term  ultra  vires,  like  most 
other  legal  terms,  has  been  used  in 
more  senses  than  one ;  and  objections 
have  been  taken  to  it  on  the  ground 
that  so-called  questions  of  ultra  vires 
— "beyond  the  powers" — are  not 
really  questions  of  the  power,  but  of 
the  legal  right  of  corporations  to  act. 
Lt  seems  proper,  however,  in  legal 
writing  to  use  words  in  a  legal  sense; 
and,  in  a  legal  sense,  the  term 
"  power"  signilies legal  competence, 
capacity,  or  right. 

The  term  ultra  vires  is  convenient, 
pretty  well  imbedded  in  the  law,  and 
may  be  used  to  advantage  if  care  is 
taken  to  apply  it  only  in  respect  of 
corporate  powers,  and  not  in  respect 
of  the  powers  of  corporate  officers. 
The  term,  moreover,  should  not  be 
used  in  the  sense  of  illegal.  See  the 
dissenting  opinion  of  Blackburn,  J., 
in  Taylor  v.  Chichester  and  Midhurst 
R'y  Co.,  L.  R.  2  Ex.  356.  As  Judge 
Allen  said,  in  Whitney  Arms  Co.  v. 
Barlow,  63  N.  Y.  62,  68:  "  When  acts 
of  corporations  are  spoken  of  as 
ultra  vires,  it  is  not  intended  that 
they  are  unlawful  or  even  such  as 


the  corporation  cannot  perform,  but 
merely  those  which  are  not  within 
the  powers  conferred  upon  the  cor- 
poration by  the  act  of  its  creation, 
and  are  in  violation  of  the  trust  re- 
posed in  the  managing  board  by  the 
shareholders,  that  the  affairs  shall 
be  managed,  and  the  funds  applied 
solely  for  carrying  out  the  objects 
for  which  the  corporation  was 
created."  See,  also,  Nat.  Pemberton 
Bank  v.  Porter,  125  Mass.  333,  335. 
A  different  view  is  taken  by  the  Su- 
preme Court  of  Illinois:  "  The  word 
'  unlawful '  as  applied  to  corpora- 
tions, is  not  used  exclusively  in  the 
sense  of  malum,  in  se  or  malum  pro- 
hibitum.  It  is  also  used  to  desig- 
nate powers  which  corporations  are 
not  authorized  to  exercise,  or  con- 
tracts which  they  are  not  authorized 
to  make,  or  acts  which  they  are  not 
authorized  to  do, — or,  in  other 
words,  such  acts,  powers,  and  con- 
tract as  are  ultra  vires.''''  People  ex 
rel.  v.  Chicago  Gas  Trust  Co.,  130 
111.  268,  292,  quoted  approvingly  in 
Nat.  Home  B'ld'g.  Ass'n  v.  Bank, 
181  111.  35,  41. 

227 


§  264rt.]      THE   LAW    OF    PRIVATE   CORPORATIONS.    [CHAP.  VII. 

This  subject  has  been  approached  in  three  ways;  in  its  con- 
sideration three  different  lines  of  reasoning  have  been  followed  ; 
and  three  doctrines  have  been  formulated  which  differ  in  prin- 
ciple, yet  offer  points  of  contact  and  accord.  (1)  The  rules  of 
ultra  vires  as  applicable  to  corporations  may  be  worked  out 
analytically,  and  questions  arising-  under  them  may  be  solved 
through  the  application  of  general  and  familiar  principles  of 
agency  and  estoppel.  (2)  Paramount  weight  ma}r  be  given  to 
the  demand  of  common  justice,  that  whoever,  in  reliance  on  a 
contract  has  to  his  cost  performed  his  side  of  it,  may  look  to 
the  other  party  to  perform.  Thus  the  question  is  regarded 
from  the  standpoint  of  the  just  rights  of  the  party  who  has 
performed  his  side ;  and  the  decisive  consideration  is  whether 
the  contract  be  still  executory  or  have  been  wholly  or  partly 
executed.  (3)  The  powers  of  a  corporation  may  be  regarded 
as  absolute  limits  which  it  cannot  pass;  every  attempt  on  its 
part  to  transcend  them  is  futile,  the  contract  or  other  transac- 
tion is  void,  and  whether  still  executory  or  already  executed  by 
the  corporation  or  by  the  other  party,  it  cannot  directly  and 
affirmatively  form  the  basis  of  an  action. 

The  preceding  paragraph  is  not  intended  as  a  definite  state- 
ment of  these  diverging  views,  but  solely  as  a  suggestion  of  the 
three  ways  of  approaching  the  subject  of  ultra  vires.  Fre- 
quently the  same  decision  would  be  reached  whichever  way 
the  matter  is  regarded.  For  example,  there  is  no  conflict  of 
decision  in  the  instances  where  the  contract  is  still  wholly  ex- 
ecutory on  both  sides. 

The  first,  which  may  be  termed  the  analytical  method,  has 
the  support  of  a  number  of  decisions;  the  second  is  supported 
by  the  courts  of  New  York  and  other  states  ;  the  third  finds 
in  the  United  States  Supreme  Court  its  chief  exponent.  We 
will  begin  with  the  first  view,  as  it  will  assist  to  a  due  appre- 
ciation of  the  two  others.  


§  264r«.  The  analytical  method  never  loses  sight  of   the  con- 
;>„,,  flicting  interests  and  legal  relations  which  may  com- 

/  J!^J?}  Tlie       anSr  1  •  •  »  7  •  I      •  1 

'yyy*'  lyticai  plicate  questions  of  ultra  vires ;  and  it  assumes  that 

!,&"&  these  questions  cannot  properly  be  solved  so  long  as 

the  conception  of  a  corporation  as  a  unit,  as  a  legal  person,  is 

retained  in  the  discussion  of  them.     The  first  prerequisite  to 

their  proper  solution  is  to  recognize  that  by  the  term  "corpo- 

228 


PART  III.]    ACTS    BEYOND   THE   CORPORATE    POWERS.      [§  264a. 


ration  "  is  denoted  a  mass  of  rights  and  liabilities  subsisting  as 
legal  relations  between  persons  whose  interests  in  the  corpo- 
rate enterprise  are  divergent  if  not  connecting,  and  whose  re- 
sponsibility for  any  given  ultra  vires  act  is  not  always  the 
same.1  "  In  applying  the  doctrine  of  ultra  vires,  in  a  particu- 
lar case,  regard  must  be  had  not  only  to  the  unauthorized 
agreement  or  transaction,  but  also  to  the  relation  which  the 
litigating  parties  sustain  to  it."  2  The  second  prerequisite  is 
the  recognition  of  the  principle  that  the  constitution  of  a  cor- 
poration, and,  consequently,  the  corporate  powers,  are  pre- 
sumed to  be  known  as  matters  of  law  to  all  persons  interested 
in  the  corporate  enterprise,  or  dealing  with  the  corporation.3 


iSee  Chap.  III. 

2  Ehrman  v.  Union  Central  Life 
Ins.  Co.,  35  Ohio  St.  324,  337.  In 
Miners'  Ditch  Co.  v.  Zellerbach,  37 
Cal.  543,  Sawyer,  C.  J.,  said,  giving 
the  opinion  of  the  court:  "In  con- 
sidering the  cases  in  which  the  law 
applicable  to  corporations  is  dis- 
cussed, it  must  be  always  borne  in 
mind  that  there  are  several  classes 
of  rights  to  which  they  apply,  and 
that  upon  the  same  general  state  of 
facts  the  legal  consequences  mi^ht 
be  different  with  reference  to  the 
different  classes  of  riglits.  Thus 
they  [there?]  are  corporate  rights — 
that  is  to  say,  rights  which  pertain 
to  corporations  as  such — the  artifi- 
cial legal  entity  created  by  the  act  of 
incorporation  considered  as  a  single 
distinct  person;  individual  rights  of 
the  stockholders  as  such,  and  rights 
of  the  creditors  of  the  corporation. 
The  riglits  of  strangers  dealing  with 
the  corporation  may  vary  as  they 
are  considered  with  reference  to  the 
corporation  itself,  the  stockholders, 
or  the  creditors  of  the  corporation." 
Compare  Bacon  v.  Robertson,  18 
How.  480. 

8 Davis  v.   Old   Colony   R.  R.,  131 


Mass.  258;  Relfe  v.  Rundle,  103  U. 
S.  222,  226;  Salt  Lake  City  v.  Hollis- 
ter,  118  U.  S.  256,  263;  Railway  Co.'s 
v.  Keokuk  Bridge  Co.,  131  U.  S.  371, 
384;  Central  Transp'n  Co.  v.  Pull- 
man's Palace  Car  Co.,  139  U.  S.  24; 
Bohmer  v.  City  Bank,  77  Va.  445; 
Leonard  v.  Ameri.  Ins.  Co.,  97  Ind. 
299  ;  Haden  v.  Farmers',  etc.,  Fire 
Ass'n,  80  Va.  683;  Spence  r.  Mobile, 
etc.,  Ry.  Co.,  79  Ala.  576;  Kraniger 
».  Build iug  Soc,  60  Minn.  94;  First 
Nat.  Bk.  v.  Kiefer  Co.,  95  Ky.  97; 
Senour  M'f'g  Co.  v.  Church,  etc., 
Co.,  81  Minn.  294.  This  is,  of  course, 
entirely  distinct  from  the  question 
whether  courts  will  take  judicial  no- 
tice of  the  powers  of  a  corporation, 
which  largely  depends  on  whether 
the  corporation  is  incorporated  by 
special  charter  or  under  a  general 
law.  For  courts  will  not  take  judi- 
cial notice  of  a  special  charter. 
Kelly  v.  A.  &  C.  R.  R.  Co.,  58  Ala. 
489.  "  Persons  dealing  with  the 
managers  of  a  corporation  must  take 
notice  of  the  limitations  imposed 
upon  their  authority  by  the  act  of 
incorporation."  Pearce  v.  Madison, 
etc.,  R.  R.  Co.,  21  How.  441,  443. 
See  §§  195  and  320. 

229 


§  267.]         THE   LAW    OF    PRIVATE   CORPORATIONS.    [CHAP.  VII. 

§  265.  The  following  proposition  may  now  be  submitted  : 
An  act  beyond  the  scope  of  the  corporate  powers,  if 
General  done  on  behalf  of  a  corporation,  or  if  done  by  the 
body  corporate  itself,  affects  the  rights  of  persons  in 
respect  of  the  corporate  enterprise  only  in  so  far  as  the  pos- 
sessors of  those  rights  by  their  own  acts  or  omissions  have 
estopped  themselves  from  asserting  their  rights ;  provided  the 
act  be  of  such  a  character  that  the  party  dealing  with  the  cor- 
poration' or  its  agents  could,  from  an  examination  of  the  charter, 
or  enabling  statute  and  articles  of  association,  have  ascertained 
that  the  act  was  ultra  vires} 

§  266.  The  truth  and  import  of  this  proposition  may  be  illus- 
trated by  three  series  of  cases,  the  three  series  re- 
nate°ruies  spectively  furnishing  authorities  for  the  three  folio  w- 
denoted  mg  propositions,  which,  taken  together,  have  the 
same  import  with  the  general  proposition  just  stated. 
(1)  An  act  beyond  the  corporate  powers,  if  done  by  any  corpo- 
rate agent,  does  not  bind  the  corporation.  (2)  Such  an  act  can- 
not be  executed  or  ratified  by  a  majority  vote  of  the  body  cor- 
porate so  as  to  bind  the  corporation.  (3)  But,  as  the  different 
classes  of  persons  interested  ratify  or  acquiesce  in  such  an  act 
they  become  estopped  from  alleging  that  it  was  not  authorized 
or  binding  on  the  corporation  and  their  interests  in  the  corpo- 
rate enterprise.  A  fourth  series  of  cases  will  illustrate  the 
proviso  or  qualification  to  the  general  proposition. 

§  267.  An  act  beyond  the  scope  of  the  corporate  powers,  if 
done  by  the  board  of  directors  or  any  other  corporate 
ordinate  agency,  is  not  binding  on  the  corporation  ;  for  per- 
rule'  sons  dealing  with  a  corporation  through  its  agents 

are  affected  with  notice  of  its  powers,  and  cannot  assume  that 
any  agent  has  authority  to  transact  business  which  the  corpo- 
ration was  not  authorized  to  engage  in.'  Accordingly,  it  has 
been  held  that  the  trustees  of  a  savings  bank,  when  to  the 
knowledge  of  persons  dealing  with  them  there  are  no  funds  in 
the  bank  for  investment,  cannot  bind  the  bank  by  a  contract  to 


1  This  proposition,  as  well  as  the 
reasoning  of  the  following  para- 
graphs, seems  fully  supported  by 
Lucas  v.  White  Line  Transfer  Co., 
70   Iowa,  541,  545-547.     See,  also,  In 

230 


re  National  Permanent  Building 
Society,  ex  parte  Williamson,  L.  R. 
5  Ch.  309  ;  Knoxville  ».  Knoxville, 
etc.,  R.  R.  Co.,  22  Fed.  Rep.  758. 

Franco-Texas  Land   Co.    v.   Mc- 


PART  in.]    ACTS   BEYOND   THE   CORPORATE   POWERS.        [§  269. 

take  shares  in  a  manufacturing  corporation.1  Neither  can  the 
board  of  directors  of  a  national  bank  bind  their  bank  by  guar- 
anteeing to  a  banking  house  issuing  a  letter  of  credit,  the  obli- 
gation of  the  person  receiving  the  letter.2  JSTor  can  the  direct- 
ors of  a  railroad  corporation,  or  of  a  corporation  organized  to 
manufacture  and  sell  musical  instruments,  bind  their  respective 
corporations  by  an  agreement  to  guarantee  the  expenses  of  a 
musical  festival.3 

§  268.  An  act  beyond  the  corporate  powers  cannot  validly  be 
done  by  the  body  corporate  acting  as  such  (i.  e., 
through  the  vote  of  a  majority  in  a  duly  assembled   ordinate 
meeting),  nor  can  it  be  thus  ratified.     For  the  major-  ru  e' 
ity  have  no  authority  by  such  an  act  or  ratification  to  bind 
absent  or  dissentient  shareholders ;  and  persons  dealing  with 
the  corporation  are  affected  with  knowledge  of   this.4     The 
majority  cannot  make  a  disposition  of  the  corporate  property 
unauthorized  by  the  constitution  of  the  corporation.3 

§  269.  As  the  different  classes  of  persons  interested  in  the 
corporate  enterprise  ratify  or  acquiesce  in  the  unau- 
thorized  act  they  estop  themselves  from  questioning   ordinate 
its  validity. 

An  ultra  vires  contract  is  invalid  because  enforcing'  it  would 


Cormick,  85  Tex.  417  ;  Alexander  v. 
Cauldwell,  83  N".  Y.  480;  Elevator  Co. 
v.  Memphis,  etc.,  R.  R.  Co.,  85  Tenn. 
703.  See  Downing  v.  Mount  "Wash- 
ington Road  Co.,  40  N.  H.  230  ;  City 
Elec.  St.  R'y  Co.  v.  First  Nat.  Bk., 
65  Ark.  543. 

1  Franklin  Co.  v.  Lewistonlnst.  for 
Savings,  68  Me.  43.  See  Wilbur  v. 
Stockholders,  18  Bankr.  Reg.  178. 
So  the  officers  of  a  corporation  au- 
thorized to  do  a  general  insurance 
agency,  commission,  and  brokerage 
business,  cannot  on  its  behalf  sub- 
scribe to  stock  in  a  savings  bank,  and 
the  bank  cannot  enforce  the  sub- 
scription. Mutual  Savings  Bank  v. 
Meriden  Agency  Co.,  24  Conn.  159. 

2  Seligman  v.  Charlottesville  Nat. 
Bk.,  3  Hughes  C.  Ct.  647.  See  John- 
ston v.  Same,  ib.  657. 


3  Davis  v.  Old  Colony  R.  R.,  131 
Mass.  258.  See,  also,  Lucas  v.  White 
Line  Transfer  Co.,  70  Iowa,  541. 

4  Bird  v.  Bird's  Patent,  etc.,  Co., 
L.  R.  9  Ch.  358  ;  Steiner  v.  Steiner 
Land  and  Lumber  Co.,  120  Ala.  128. 

5  Kean  v.  Johnson,  9  N.  J.  Eq.  401; 
Taylor  v.  Earle,  8  Hun,  1  ;  Forrester 
v.  B.  &  M.  Min.  Co.,  21  Mont.  544. 
A  single  dissenting  shareholder  may 
enjoin  the  majority  from  applying 
the  corporate  property  to  unauthor- 
ized purposes.  Natusch  v.  Irving, 
Gow  on  Part.  App.  ii.  ;  Lyde  v.  East- 
ern Bengal  Ry.  Co.,  36  Beav.  10.  See 
§§  556,  557.  A  shareholder  in  a  rail- 
road corporation  may  bring  suit  to 
set  aside  an  ultra  vires  lease  of  the 
road.  Board,  etc.,  Tippecanoe  Coun- 
ty v.  Lafayette,  etc.,  R.  R.  Co.,  50 
Ind.  85. 

231 


§  2G9.]        THE   LAW    OF    PRIVATE   CORPORATIONS.    [CHAP.  VII. 

injure  some  one's  rights.  If  the  persons  whose  rights  would 
have  been  injured  assent  to  the  contract,  it  thereupon  becomes 
valid,  since  thus  the  reasons  for  its  invalidity  cease.1  If,  how- 
ever, the  contract,  besides  being  ultra  vires,  is  also  illegal,  the 
rights  of  the  public  may  be  regarded  as  affected,  and  the  assent 
of  all  the  individuals  especially  interested  in  the  corporate 
enterprise  will  not  make  the  contract  valid.2  As  Judge  Folger 
said,  giving  the  opinion  of  the  New  York  Court  of  Appeals  in 
Kent  v.  Quicksilver  Mining  Co.,3  "In  the  application  of  the 
doctrine  of  ultra  vires,  it  is  to  be  borne  in  mind  that  it  has  two 
phases :  one  where  the  public  is  concerned ;  one  where  the 
question  is  between  the  corporate  body  and  the  stockholders  in 
it,  or  between  it  and  its  stockholders,  and  third  parties  dealing 
with  it  and  through  it  with  them.  When  the  public  is  con- 
cerned to  restrain  a  corporation  within  the  limits  of  the  power 
given  to  it  by  its  charter,  an  assent  by  all  the  stockholders  to  the 
use  of  unauthorized  power  by  the  corporate  body  will  be  of  no 
avail.  When  it  is  a  question  of  the  right  of  a  stockholder  to 
restrain  the  corporate  body  within  its  express  or  incidental 
powers,  the  stockholder  may  in  many  cases  be  denied  on  the 
ground  of  his  express  assent,  or  his  intelligent  though  tacit  con- 
sent to  the  corporate  action.  If  there  be  a  departure  from 
statutory  direction,  which  is  to  be  considered  merely  a  breach 
of  trust  to  be  restrained  by  a  stockholder,  it  is  pertinent  to  con- 
sider what  has  been  his  conduct  in  regard  thereto.  A  corpora- 
tion may  do  acts  which  affect  the  public  to  its  harm,  inasmuch 
as  they  are  per  se  illegal  or  are  malum  prohibitum.  Then  no 
assent  of  stockholders  can  validate  them.  It  may  do  acts  not 
thus  illegal,  though  there  is  want  of  power  to  do  them,  which 
affect  only  the  interest  of  the  stock-holders.  They  may  be  made 
good  by  the  assent  of  the  stockholders,  so  that  strangers  to  the 
stockholders,  dealing  in  good  faith  with  the  corporation,  will 
be  protected  in  a  reliance  on  those  acts."4 


1  The  act  of  incorporation  furnishes 
no  security  to  persons  assenting  to 
unauthorized  acts.  Kearny  v.  But- 
tles, 1  Ohio  St.  362.  Accordingly 
when  a  mortgage  is  executed  hy  the 
directors,  who  own  all  the  stock  of 
the  corporation,  the  corporation  can- 

232 


not   plead    ultra    vires.      Witter    v. 
Grand  Rapids,  etc.,  Co.,  78  Wis.  543. 

2  The  illegality  of   ultra  vires  acta 
is  discussed  in  §§  2S7  et  seq. 

3  78  N.  Y.  159,  185. 

4  Compare  Andrews  v.  Union  Mut. 
Fire  Ins.  Co.,  37  Me.  256.     "I  think 


PART  III.]  ACTS   BEYOND    THE    CORPORATE    POWERS.         [§  271. 

§270.  Accordingly,  if  all  the  shareholders  ratify  the  con- 
tract, or  impliedly  assent  to  it  by  not  dissenting  after 
they  know  of  it,  no  shareholder  can  object,  or  claim   t^nby3"" 
that  the  contract,  being  beyond  the  corporate  powers,   ^trs. 
does  not  bind  the  corporate  funds ;  for  he  can  make 
such  claim  only  in  so  far  as  his  interests  are  concerned,  and 
just  to  that  extent  is  he  estopped  by  his  own  action.1 

§  271.  It  does  not  follow,  however,  that  acquiescence  or 
ratification  by  all  the  shareholders  will,  under  all  cir-  Not  always 
cumstances,  validate  for  all  purposes  an  act  which,  sufficient, 
though  not  illegal,  is  ultra  vires.  Other  persons  besides  share- 
holders possess  direct  pecuniar}'  interests  in  the  corporate  enter- 
prise, or  at  least  in  the  continuing  solvency  of  the  corporation. 
These  are  corporate  creditors.  They  have  rights,  and  may  not 
have  waived  them. 


that  any  objection  made  only  on  the 
ground  that  it  affects  tbe  interests  of 
a  shareholder,  can  only  be  made  by  or 
on  behalf  of  the  sharebolders  .... 
The  seemingly  technical  point  .... 
raises  the  question  whether  the  small- 
est excess  of  authority  renders  the 
whole  contract  illegal,  and  so  enti- 
tles those  who  have  the  management 
of  the  corporation  (and  who,  there- 
fore, presumably  were,  as  individuals, 
consenting  parties  to  the  contract)  to 
repudiate  the  contract  in  the  name  of 
the  company,  however  long  it  has 
been  acquiesced  in,  and  however  se- 
riously the  position  of  the  plaintiff 
has  been  altered  in  consequence  of 
that  acquiescence,  or  whether  the 
objection  should  be  held  to  lie  only 
in  the  mouths  of  those  shareholders 
who  were  not  consenting  parties  to 
the  contract  sought  to  be  set  aside, 
or  have  not  by  laches  or  otherwise 
rendered  it  inequitable  in  them  to  set 
it  aside.  It  is  obvious  that  an  ad- 
herence to  this  distinction  will  pre- 
vent those  scandalous  cases  which 
have  rendered  the  word  repudiation 
a   term     of     opprobrium."      Black- 


burn, J.,  in  Taylor  v.  Chichester,  etc., 
Ry.  Co.,  L.  R.  2  Ex.  356,  380. 

1  Branch  v.  Jesup,  106  U.  S.  468; 
Tyrell  ».  Cairo,  etc.,  R.  R.  Co.,  7  Mo. 
App.  294;  Taylor  v.  S.  &  N.  A.  R. 
Co.,  13  Fed.  Rep.  152;  Benseic  v. 
Thomas,  27  IT.  S.  App.  765.  See 
Peoria  &  S.  R.  R.  Co.  r.  Thompson, 
103  111.  187;  Kelley  o.  Horse  R.  R., 
141  Mass.  496;  Burden  v.  Burden, 
169  N.  Y.  287;  Heironimus  v. 
Sweeney,  83  Md.  146.  Compare 
Zabriskie  v.  Cleveland,  etc.,  R.  R. 
Co.,  23  How.  381,  a  case  where 
(semble)  a  shareholder  could  have 
restrained  an  act  beyond  the  original 
powers  of  the  corporation,  but  au- 
thorized by  a  statute  passed  subse- 
quently to  the  charter.  The  proxy 
of  the  shareholder,  however,  had 
been  present  at  the  shareholders' 
meeting  which  ratified  the  act,  and 
did  not  vote,  when  his  vote  in  the 
negative  would  have  controlled.  It 
was  held  that  the  shareholder  could 
not  dispute  the  validity  of  the  act 
under  the  circumstances,  the  bonds 
havingbeen  issued  and  having  passed 
into  the  hands  of  outsiders. 

233 


Illus- 
tration 


§  273. J        THE   LAW    OF    PRIVATE   CORPORATIONS.    [CHAP.  VII. 

§  272.  Suppose,  for  example,  that  A.  has  made  a  contract 
with  a  corporation  which  was  beyond  its  powers ;  but 
the  contract  has  been  ratified  by  all  the  shareholders. 
It  may  also  be  assumed  that  A.  has  performed  his 
part,  so  that  all  that  remains  is  for  the  corporation  to  pay 
money,  or  otherwise  perform  on  its  side.  The  corporation  may 
be  insolvent,  and  there  ma}7  be  creditors  whose  claims  have 
arisen  from  transactions  clearly  within  the  corporate  powers. 
If  the  claim  of  A.  is  satisfied,  those  creditors  will  lose  part  or 
all  of  the  monev  due  them.  The  funds  of  the  corporation  are 
funds  to  be  applied  to  the  corporate  objects,  which  are  known 
to  all ;  and  every  one  contracts  and  is  entitled  to  do  so  on  the 
faith  that  these  funds  will  be  applied  exclusively  to  these  ob- 
jects. The  corporate  objects  include  the  discharge  of  liability 
properly  contracted  in  their  attainment ;  and  the  funds  of  the 
corporation  are  funds  set  apart  for  this  among  other  purposes. 
Under  such  circumstances,  who  has  the  better  claim  to  have 
his  debt  paid  from  the  corporate  funds  ?  A.,  who  contracted, 
knowing  that  the  objects  for  which  those  funds  were  set  apart 
excluded  the  payment  of  his  debt  %  or  the  other  creditors  who 
contracted,  knowing  that  the  objects  for  which  the  funds  were 
set  apart  included  the  payment  of  their  debts?  There  can  be 
no  doubt  that  the  other  creditors  have  a  far  clearer  right,  and 
that  by  an  appropriate  action  the  payment  of  any  money  to  A. 
may  be  restrained.1 

§  273.  Accordingly,  it  is  held  that  as  against  the  rights  of 
creditors  of  the  corporation  a  contract  not  within  the 
creditors,  corporate  powers  cannot  be  made  valid  by  the  assent 
of  all  the  shareholders,  nor  can  it,  by  partial  perform- 
ance on  the  side  of  the  person  contracting  with  the  corporation, 
become  the  foundation  of  a  right  of  action.2  And  when  a  cor- 
poration has  entered  into  an  ultra  vires  contract,  a  claim  founded 


1  As  between  creditors  of  an  insol- 
vent bank,  tbose  whose  debts  were 
created  under  lawful  power  given  by 
the  charter  must  be  preferred  to 
tbose  who  claim  under  a  contract 
which  the  bank  had  no  power  to 
make.  In  such  caseas^he  bank  is  not 
estopped   to  set  up  th»  illegality  or 

234 


want  of  power.  Bk.  of  Chtno'ga  v. 
Bk.  of  Memphis,  9  Heisk.  (Tenn.) 
408.  See  First  Nat.  Bk.  v.  Kiefer 
Co.,  95  Ky.  97. 

2  National  Trust  Co.  ».  Miller,  33 
N.  J.  Eq.  155;  Washington  Mill  Co. 
v.  Lumber  Co.,  19  Wash.  165. 


PART    III. J   ACTS    BEYOND   THE   CORPORATE    POWERS.       [§  275. 

thereon  will  be  disallowed  when  there  is  a  concourse  of  creditors 
and  the  corporation  is  insolvent  in  the  hands  of  a  receiver.1 

Since  the  only  interest  of  a  creditor  is  that  the  funds  of  the 
corporation  shall  suffice  for  the  payment  of  debts  due  him,  and 
as  his  only  right  in  respect  of  the  funds  is  that  they  shall  not 
be  used,  in  contravention  of  the  constitution  of  the  corporation, 
in  a  way  to  imperil  his  interests,  it  follows  that,  should  the 
corporation  be  clearly  solvent  and  the  debt  due  a  creditor 
claiming  under  an  ultra  vires  contract  but  small  in  comparison 
with  the  resources  of  the  corporation,  the  corporate  creditors 
would  have  no  rights  which  would  justify  the  disallowance  of 
the  debt  arising  from  the  ultra  vires  contract. 

§  27i.  Summing  up,  it  may  be  said  that  to  hold  that  a  con- 
tract ultra  vires  a  corporation  binds  or  affects  the  rights  of  per- 
sons who  neither  expressly  nor  impliedly  have  assented  to  it, 
is  to  hold  as  to  shareholders  that  funds  subscribed  for  a  cer- 
tain purpose,  in  pursuance  of  direct  authorization  from  the 
state,  may,  against  the  will  of  the  subscribers,  be  applied  to 
other  purposes ;  is  to  hold,  as  to  creditors,  that  funds  set  apart 
for  the  payment  of  their  claims,  on  the  faith  of  which  they 
contracted  and  were  invited  to  contract,  may  without  their 
assent  be  applied  to  purposes  other  than  the  satisfaction  of  their 
legal  claims.  Such  a  decision  disregards  vested  rights  and  im- 
pairs the  obligations  of  a  contract. — 


§  2t£.    We  now  pass  to  a  consideration  of  the  second  mode  of 
viewing  ultra  vires  transactions.     It  may  be  formu- 
lated in  this  rule :  When  a  corporation  has  made  a   York  rukT. 
contract  beyond  its  powers  {ultra  vires),  and  has  per-   Opinion  in 
formed  its  side  of  the  contract,  the  other  contracting-   Railroad 

Co 

party  cannot  plead  in  an  action  on  the  contract  that 
it  was  ultra  vires  the  corporation  ;  nor,  conversely,  if  the  other 
party  has  performed,  and  the  corporation  has  had  the  benefit  of 
his  performance,  may  the  corporation  plead  that  the  contract 
was  ultra  vires.     The  reasons  for  this  rule  lie  in  its  apparent 


1  lb.;  Abbott  v.  Balto.,  etc.,  St.  P. 
Co.,  1  Md.  Ch.  542.  See  First  Nat. 
Bk.  v.  Kiefer  Co.,  95  Ky.  97.  A  re- 
ceiver of  an  insolvent  corporation 
may  repudiate  a  transfer  of  mort- 
gages owned  by  the  corporation,  if 


the  transfer  was  made  to  secure  the 
obligations  of  the  corporation  arising 
from  an  ultra  vires  transaction.  Tal- 
mage  v.  Pell,  7  N.  Y.  328;  Bank  Com- 
missioners v.  St.  Lawrence,  ib.  513. 

235 


§  275.]        THE   LAW    OF    PRIVATE   CORPORATIONS.    [CHAP.  VII. 

justice  and  convenience  of  application.  The  authority  for  it 
would  seem  to  rest,  in  the  first  instance,  upon  dicta  contained 
in  the  leading  case  of  Bissell  y.  Michigan  Southern  and  North- 
ern Indiana  K.  II.  Cos.1  In  the  course  of  an  elaborate  opinion 
Judge  Comstock  said:3  "I  think  this  doctrine  of  theoretical 
perfection  in  corporations  would  convert  them  practically  into 
most  mischievous  monsters.  A  bank,  through  its  board  of  di- 
rectors, may  invest  its  funds  in  the  purchase  of  stock,  and  every 
holder  of  the  stock  may  acquiesce,  expecting  to  profit  by  the 
speculation.  If  the  enterprise  is  successful,  the  corporation  and 
the  shareholders  gain  by  the  result.  If  a  depression  occurs  in 
the  market  and  disaster  is  threatened,  the  doctrine  that  a  cor- 
poration can  never  act  outside  of  its  charter  enables  it  to  say, 
'this  is  not  our  dealing,'  and  the  money  used  in  the  adventure 
may  be  unconditionally  reclaimed  from  whatever  parties  have 
received  it  in  exchange  for  value ;  while  the  injured  dealer 
must  seek  his  remedy  against  agents,  perhaps  irresponsible  and 
unknown.  Corporations  may  thus  take  all  the  chances  of  gain 
without  incurring  the  hazards  of  loss." 

The  same  judge  said  on  the  same  page  :3  "  In  the  relations  of 
private  principal  and  agent,  the  adoption  of  an  agent's  unau- 
thorized dealing  is  equivalent  to  an  original  authority,  and  the 
adoption  is  perfect  when  the  principal  receives  the  proceeds  of 
the  dealing.  Corporations  may  practically  act  in  the  same 
manner."  Here  the  difficulty  is,  that  in  a  corporate  enterprise 
no  one  has  authority  to  ratify  ultra  vires  acts  so  as  to  bind  any 
one  else,  because  the  ratification  of  ultra  vires  acts  is  beyond 
the  scope  of  any  agency  in  the  directors  or  in  the  body  corpo- 


1  22  N.  Y.  258.  Approved  in  Buf- 
fet v.  Troy  &  Boston  R.  R.  Co.,  40 
N.  Y.  168. 

2  22  N.  Y.  264. 

3  Logically  these  statements  are 
open  to  criticism.  The  shareholders 
who  assent  certainly  should  not  be 
allowed  to  object  to  the  contract  ; 
but  suppose  that  the  bank  owes  a 
creditor  a  large  sum  of  money;  if 
the  bank  pays  the  losses  from  the 
stock  operations,  this  creditor  will  j 

236 


lose  part  of  his  claim.  He  has  a  bet- 
ter right  to  be  paid  than  the  creditors 
whose  claims  arise  from  transactions 
known  to  have  been  beyond  the  cor- 
porate powers.  The  inquiry  should 
be,  is  there  any  person  whose  rights 
would  be  impaired  by  carrying  out 
the  ultra  vires  contract  who  is  not 
estopped  fiom  claiming  the  contract 
to  have  been  ultra  vires  ?  It  is  right 
to  say,  however,  that  the  interests  of 
creditors  were  not  before  the  court. 


PART  III.]    ACTS   BEYOND   THE   CORPORATE   POWERS.        [§  276. 


rate ; l  and  that  such  ratification  is  beyond  the  scope  of  any 
agency  existing  in  respect  of  the  corporate  enterprise,  every 
one  dealing  with  the  corporation  is  held  to  know. 

The  only  point  actually  decided  in  this  celebrated  case  was 
that  two  corporations,  created  respectively  by  the  states  of 
Michigan  and  Indiana,  with  power  to  each  to  build  and  operate 
a  railroad  within  the  state  granting  the  charter,  having  united 
in  the  business  of  transporting  passengers  over  a  third  railroad 
in  the  state  of  Illinois,  beyond  the  limits  authorized  by  the 
charter  of  either,  are  jointly  liable  for  injuries  to  a  passenger 
resulting  from  the  negligence  of  their  employe's  occurring  in 
the  state  of  Illinois.  The  decision  is  unobjectionable,  for  the 
shareholders  must  have  known  of  the  operations  in  Illinois,  and, 
not  having  objected  to  them,  they  would  have  been  estopped 
from  objecting  to  the  results ;  and  no  suggestion  was  made  to 
the  court  that  the  payment  of  the  comparatively  small  sum  of 
twenty-five  hundred  dollars,  the  amount  of  damages  found  by 
the  jury,  would  prejudice  the  rights  of  creditors.2 

§  276.  The  rules  which  this  case  and  sundry  others  in  New 
York3  and  elsewhere  have  tended  to  establish  may   Partvcon. 
be  considered  here.    If  the  corporation  has  performed   feting 

,  •.•ill  ■  witn  corpo- 

the  contract   on  its  side,  the  other  contracting  party  ration  can- 

cannot  plead  that  the  corporation  was  not  authorized  uitmttres 

to  make  such  a  contract.     This  is  held  by  Whitney  hiTper-"61 

Arms  Co.  v.  Barlow,4  and  does  not  seem  open  to  ob-  f°rmed. 


1  The  notion  of  a  body  corporate 
ordinarily  implies  the  right  of  a  ma- 
jority to  act  for  all.  But  the  right 
of  a  majority  to  act  for  all  does  not 
extend  beyond  the  purposes  of  or- 
ganization. See  Pickering  v.  Ste- 
phenson, L.  R.  14  Eq.  322,  340. 

2  Similarly  it  was  held  correctly  in 
Magee  v.  Pacific  Imp.  Co.,  98  Cal. 
678,  that  a  corporation  which  engages 
in  the  business  of  iunkeeper  cannot 
plead  ultra  vires  when  sued  by  a  guest 
for  loss  of  his  property.  See,  also, 
Linkauf  v.  Lombard,  137  N.  Y.  417. 

3  E.  y.,  Parish  v.  Wheeler,  22  N.  Y. 
494. 

♦63  N.  Y.  62;  Ace.  National  Bank 


i:  Whitney,  103  U.  S.  99;  Linkauf  v. 
Lombard,  137  N.  Y.  417;  Bath  Gas 
Light  Co.  ».  Claffy,  151  N.  Y.  24; 
Union  Water  Co.  v.  Murphy's  Flat 
Pluming  Co.,  22  Cal.  G21;  Hall  M'f'g 
Co.  v.  American,  etc.,  Supply  Co., 
48  Mich.  331;  Franklin  Ave.  German 
SVgs  Inst.  v.  Board  of  Education, 
7">  Mo.  408;  Oil  Creek,  etc.,  R.  R.  Co. 
v.  Penna.  Trans'n  Co.,  83  Pa.  St.  160; 
Goundie  v.  Northampton  Water  Co., 
7  Pa.  St.  233;  Leazure  v.  Hillegas, 
7  S.  &  R.  313;  Leavitt  v.  Pell,  27 
Barb.  322;  Steam  Nav.  Co.  v.  Weed, 
17  Barb.  378;  Germantown  Farmers' 
Mut.  Ins.  Co.  v.  Dhein,  43  Wis.  420; 
Edwards  v.  Fairbanks,  27  La.  Ann. 


§  277.]         THE   LAW    OF   PRIVATE   CORPORATIONS.    [CHAP.  VII. 


jection.  "One  who  has  received  from  a  corporation  the  full 
consideration  of  his  engagement  to  pay  money  ....  cannot 
avail  himself  of  the  objection  that  the  contract  thus  fully  per- 
formed by  the  corporation  was  ultra  vires,  and  not  within  its 
chartered  privileges  and  powers."1  Such  a  person,  having 
himself  made  the  contract  and  received  its  benefit,  is  clearly 
estopped  from  making  any  such  allegation. 

This  rule  rests  on  the  corporation's  performance.  It  does 
not  apply  so  long  as  the  ultra  vires  contract  remains  executory 
on  both  sides.  While  that  is  the  case  neither  party  can  com- 
pel the  other  to  perform.2 

§  277.  The  converse  of  the  above  rule  is  also  held  to  be  law. 
If  the  other  contracting  pa rt y  lias  performed  his  side 
of  the  contract,  the  corporation  cannot  j?lead  that  its 
charter  gave  it  no  power  to  enter  into  the  contract; 
at  least  if  the  corporate  property  has  been  benefited 
by  the  performance?     It  is  submitted  in  the  way  of  logical 


Converse  of 
this  propo- 
sition in- 
volves a  fal- 
lacy. 


449;  Allen  o.  Freedman's  Savings  Co., 
14  Fla.  418;  Brown  v.  Mortgage  Co., 
110  111.  235;  Eckmau  v.  C.  B.  &  Q.  R. 
Co.,  169  111.  312;  Chicago  &  A.  Ry. 
Co.  ».  Derkes,  103  Ind.  520;  Chester 
Glass  Co.  v.  Dewey,  16  Mass.  94; 
Union  Nat.  Bk.  o.  Hunt,  76  Mo.  439; 
Bond  v.  Terrell  Mfg.  Co.,  82  Tex.  309. 
See  Goodin  v.  Evans,  18  Ohio  St.  150; 
Goodin  v.  Cincinnati,  etc.,  C.  Co.,  ib. 
169;  Kelly  v.  People's  Trans.  Co.,  3 
Oregon,  189;  Shewalter  v.  Pinter,  55 
Mo.  218;  Third  Avenue  Savings  Bk. 
v.  Dimock,  24  N.  J.  Eq.  26;  Dutchess 
Cotton  Manufactory  v.  Davis,  14 
Johns.  238,  245;  Reynolds  v.  Craw- 
fordsville  First  National  Bank,  112 
U.  S.  405,  413.  Contra,  Chambers  ». 
Falkner,  65  Ala.  449;  compare 
Screven  Hose  Co.  v.  Philpot,  53  Ga. 
625;  Mutual  Benefit  Life  Ins.  Co.  v. 
Davis,  12  N.  Y.  569;  North  River  Ins. 
Co.  v.  Lawrence,  3  Wend.  482;  Beach 
v.  Fulton  Bank,  3  Wend.  573. 

Regarding  contracts  forbidden  by 
statute,  see  §§  297  et  seq. 

1  Whitney  Arms  Co.   c.  Barlow,  63 

238 


N.  Y.  70;  Building  Ass'n  v.  Lamson, 
60  Minn.  422;  Bath  Gas  Co.  v.  Claffy, 
151  N.  Y.  24. 

2  Nassau  Bank  ».  Jones,  95  N.  Y. 
115;  Bosshardt  Co.  r.  Oil  Co.,  171  Pa. 
St.  109;  Wilkes  v.  Pacific  R.  R.  Co., 
79  Ala.  180;  First  Nat.  B'k  r.  Win- 
chester, 119  Ala.  168;  Day  i\  Spiral 
Springs  Buggy  Co.,  57  Mich.  146. 
See  Camden  &  A.  R.  R.  Co.  v.  May's 
Landing,  etc.,  R.  R.  Co.,  48  N.  J.  L. 
530,  561;  Simpson  v.  Bldg.  Ass'n,  38 
O.  St.  349.  Compare  R.  R.  Co.  v.  Tel. 
Co.,  ib.  31;  Jemison  v.  City's  Sav. 
B'k,  122  N.  Y.  135. 

3  Linkauf  v.  Lombard,  137  N.  Y. 
417  ;  Camden  &  Atl.  R.  R.  Co.  v. 
May's  Landing,  etc.  R.  R.  Co.,  48  N.  J. 
L.  530;  Chapman  v.  Iron  Clad  Co., 62 
N.  J.  L.  497  ;  Railroad  v.  Railroad, 
m  N.  H.  100,  127  ;  International  Tr. 
Co.  o.  Company,  70  N.  H.  118  ;  Denver 
Fire  Ins.  Co.  v.  McClelland,  9  Col.  11 ; 
Sherman  Center  Town  Co.  v.  Morris, 
43  Kan.  282  ;  He i ins  Brg.  Co.  o.  Flan- 
nery,  137  111.  309;  Towers,  etc.,  Co. 
v.   Inmau,    96    Ga.    506  ;    Pindleton 


PART  III.]    ACTS    BEYOXD   THE   CORPORATE   POWERS.        [§  277. 

criticism  that  this  last  proposition  involves  a  fallacy.  If  the 
other  contracting  party  had  contracted  through  an  agent  whose 
instructions  were  contained  in  a  written  instrument  which  the 
corporation  knew  to  contain  all  the  authority  which  the  agent 
possessed ;  and  if  the  contract  in  question  was  unauthorized  by 
this  instrument,  could  any  one  maintain  that  the  principal  would 
be  bound  because  the  corporation  had  performed  its  side  of  the 
contract  ? x  Yet,  in  reality,  it  is  in  analogy  with  this  to  hold  the 
corporation  bound  because  the  other  contracting  party  has  per- 
formed.2 


Hardware  Co.,  in  re,  24  Oreg.  330  ; 
Tootle  v.  Bank,  6  Wash.  181.  "  The 
rule  may  not  be  strictly  logical,  but  it 
prevents  a  great  deal  of  injustice.'1 
Seymour  ».  Chicago  Guaranty,  etc., 
Soc,  54  Minn.  147,  149. 

1  To  be  sure,  the  principal  could  not 
disavow  the  unauthorized  portion  of 
a  contract,  and  hold  the  other  con- 
tracting party  with  respect  to  the 
rest.  And  on  similar  principles, 
when  the  agent  of  a  corporation  has 
purchased  for  it  certain  chattels,  and 
given  back  a  purchase-money  mort- 
gage thereon,  the  enforcement  of  the 
mortgage  cannot  be  enjoined  on  the 
ground  that  the  mortgage  was  ultra 
vires.  Amerman  v.  Wiles,  24  X.  J. 
Eq.  13;  see  Parish  v.  Wheeler,  22 
N.  Y.  494;  Whitney  v.  Leominster 
Savings  Bank,  141  Mass.  85.  See 
§§310-312. 

2  To  illustrate,  let  us  imagine  that 

B.  is  a  landowner,  A.  his  agent,  and 

C.  a  manufacturer  of  fertilizers.  If 
C,  knowing  that  A.  has  no  authority 
from  B.  to  purchase  fertilizers,  sells 
a  large  amount  of  them  to  be  applied 
on  B.'s  lands,  and  they  are  so  applied, 
but  without  B.'s  knowledge,  C.  has 
executed  the  contract  on  his  side, 
and  B.'s  lands  have  had  the  benefit. 
Yet  it  is  clear  that  C.  has  no  valid 
claim  against  B.  Apply  this  to  the 
case  of  a  corporation.  Let  B.  be  the 
shareholders  and  creditors  ;  let  A.  be 


the  board  of  directors,  and  C.  the 
other  contracting  party.  A.  makes 
a  contract  with  C.  beyond  the  powers 
of  the  corporation — beyond  A.'s 
powers  to  represent  the  corporate 
interests.  In  legal  intendment  C. 
knows  this  contract  to  be  beyond  A.'s 
authority,  but  nevertheless  performs 
his  side  of  it,  and  the  results  of  his 
performance  are  applied  to  the  bene- 
fit of  the  corporate  enterprise,  but 
without  the  knowledge  of  the  share- 
holders or  creditors.  Here  the  inter- 
ests of  shareholders  and  creditors 
have  been  benefited  ;  but  through  no 
voluntary  action  or  acquiescence  on 
their  part,  and  through  acts  which 
C.  knew  they  had  not  authoi'ized. 
It  is  again  clear  that  C.  by  his  per- 
formance acquires  no  rights  which 
can  affect  the  interests  of  share- 
holders and  creditors.  And  the  same 
reasoning  would  apply  even  if  the 
corporation  by  a  vote  in  corporate 
meeting  ratified  the  contract  ;  the 
rights  of  absent  or  dissentient  share- 
holders would  not  thereby  be  affect- 
ed, provided  they  were  guilty  of  no 
laches  in  asserting  their  rights.  Un- 
doubtedly, if  the  shareholders  know 
that  ultra  vires  contracts  are  being 
entered  into  and  performed,  and  that 
the  proceeds  are  being  applied  to  the 
corporate  enterprise,  they  cannot 
with  honesty  stand  quietly  by,  but 
must  do  all  in  their  power  to  prevent 

239 


§  279.]         THE  LAW    OF    PRIVATE   CORPORATIONS.    [CHAP.  VII. 

§  279.  If  one  examines  with  care  the  cases  which  are  regarded 
Examina-  as  authority  for  this  rule  that  sounds  so  just — if  the 
tdonofcer-  other  contracting  party  has  performed,  and  by  his 
performance  benefited  the  property  of  the  corpora- 
tion, the  latter  cannot  plead  ultra  vires — it  will  appear  that  the 
recovery  of  the  other  party  often  does  not  rest  on  the  fact  that 
he  has  performed,  nor  on  the  fact  that  his  performance  has 
benefited  the  corporate  property  :  though  undoubtedly  he  would 
not  have  had  his  cause  of  action  had  he  not  performed ;  and 
that  corporate  interests  were  benefited  may  very  likely  have 
been  a  material  point  in  establishing  his  case.  It  is  submitted, 
that  in  these  cases  the  plaintiff's  recovery  rests  on  the  circum- 
stance that  all  the  persons  who  would  have  been  entitled  to 
object  to  the  contract  allowed  the  plaintiff  to  go  on  and  per- 
form under  the  reasonable  assumption  on  his  part  of  general 
acquiescence  in  the  contract.  To  be  sure,  shareholders  are  not 
generally  supposed  to  be  continually  exercising  an  active  super- 
vision over  the  affairs  of  the  corporation.  But  they  have  a 
right  to  inspect  its  books,  and,  if  they  choose,  may  keep  them- 
selves acquainted  with  what  is  being  done  by  the  corporate 
management.  At  any  rate,  unless  they  keep  a  watch  over  the 
course  of  the  corporate  affairs,  they  will  not  be  entitled  on  the 
plea  of  their  own  ignorance  to  come  forward  at  their  pleasure 
and  cause  the  repudiation  of  corporate  obligations.  Sharehold- 
ers wishing  to  prevent  illegal  or  ultra  vires  acts,  or  to  absolve 
the  corporation  from  responsibility  for  them,  must  be  vigilant 
and  swift.1 


such  application.  Therefore, through 
acquiescence  after  they  know,  or,  if 
they  had  heeu  at  all  observant  of 
corporate  affairs,  would  have  known 
of  the  contracts,  they  would  be  es- 
topped from  objecting.  And  so  per- 
haps might  creditors  estop  them- 
selves. 

The  preceding  argument  leads  to 
this  unavoidable  conclusion  :  the 
mere  facts  that  the  other  contracting 
party  has  executed  his  side  of  the 
ultra  vires  contract,  and  that  the  cor- 
porate property  has  thereby  been 
benefited,  do  not  affect  the  rights  of 

240 


persons  who  have  done  nothing  from 
which  assent  to  the  contract  can  in 
any  way  be  inferred.  This  reason- 
ing accords,  as  fully  as  the  proposi- 
tion controverted  disaccords,  with  a 
most  universal  principle  of  law  :  a 
person  cannot  by  his  own  act  acquire 
aright  against  another  ;  the  other 
must  in  some  way  have  bound  him- 
self. 

1  Thompson  v.  Lambert,  44  Iowa, 
239.  "  A  court  of  equity  may  refuse 
to  interfere  witli  a  corporation  at  the 
instance  of  a  stockholder,  in  respect 
to  an  unauthorized   contract  which 


PART  III.]    ACTS   BEYOND   THE    CORPORATE    POWERS.        [§  280. 


§  280.  Take,  for  instance,  the  leading  case  of  Bissell  v.  Rail- 
road Companies,1  on  which  this  alleged  rule  is  said  to  rest.  In 
the  first  place,  not  all  the  judges  who  concurred  in  the  result 
based  their  decision  on  that  rule  at  all ;  and  in  the  second  place, 
it  would  have  been  preposterous  not  to  assume  that  all  the  share- 
holders were  acquainted  with  the  fact  that  the  corporations  were 
running  a  railroad  where  their  charters  did  not  authorize  them 
to  run  one.  Or  take  the  leading  Illinois  case  often  referred  to 
as  establishing  this  rule,  Bradley  v.  Ballard.2  There  a  share- 
holder sought  to  restrain  the  prosecution  of  a  suit  against  the 
corporation  brought  to  recover  on  an  ultra  vires  contract,  which 
had  been  performed  by  the  plaintiff  in  the  suit  against  the  cor- 
poration. But  the  shareholder  seeking  the  injunction  was  also 
a  director,  and,  as  the  court  said,  had  been  willing  enough  that 
the  contracts  should  be  made  as  long  as  he  expected  profits  to 
arise  from  them.3  So  in  other  Illinois  cases  more  or  less  based 
on  Bradley  v.  Ballard,  but  in  which  the  corporation  itself  re- 
sisted the  suit  on  the  plea  of  ultra  vires,  it  is  evident  that  the 
decisions  proceed  on  the  assumption,  and  there  was  no  sugges- 
tion to  the  contrary,  that  the  contracts  sued  on,  and  the  trans- 


has  been  fully  executed,  when  if  the 
same  stockholder  had  applied  in 
season  for  an  order  to  restrain  the 
execution  of  the  contract,  equity 
might  have  felt  bound  to  grant  the 
relief  prayed  for.  Especially  is  this 
so  where  the  complainant  has  stood 
by  and  allowed  the  illegal  transac- 
tion to  be  consummated,  and  has 
allowed  and  induced  others  to  be- 
come interested  in  the  corporation 
on  the  supposition  that  the  existing 
state  of  things  is  legal  and  proper." 
Terry  v.  Eagle  Lock  Co.,  47  Conn. 
141,  161. 

In  St.  Louis,  etc.,  R.  R.  Co.  v. 
Terre  Haute,  etc.,  R.  R.  Co.,  145  U. 
S.  393,  the  court  refused  to  entertain 
a  bill  in  equity  to  set  aside  an  ultra 
vires  lease  of  a  railroad  after  it  had 
been  acted  on  for  seventeen  years. 

1§275.  See,  also,  Savings  Bank  v. 
Elevator  Co.,  90  Mich.  550. 

2  55  111.  413. 

16 


3  55  111.  419.  For  instance,  it  has 
been  held  that  the  holder  of  a  note 
for  value  may  enforce  it  against  the 
maker,  a  corporation,  although  it  was 
ultra  vires  the  corporation  to  pur- 
chase the  property  in  payment  for 
which  the  note  was  given,  and  the 
holder  knew  the  consideration  of  the 
note.  The  defendant  retained  the 
property,  and  did  not  offer  to  give  it 
up.  Wright  v.  Pipe  Line  Co.,  101 
Pa.  St.  204.  Compare  Union  Trust 
Co.  v.  Library  Hall  Co.,  189  Pa.  St. 
263.  See,  also,  Pittsburg  R.  R.  Co.  v. 
Altoona  Co.,  196  Pa.  St.  452.  The 
note  was  given  to  pay  for  stock  pur- 
chased by  defendant  in  contravention 
of  a  statutory  prohibition.  The  court 
said  this  was  a  matter  for  the  at- 
torney-general. See,  also,  Tajdor  v. 
North  Star  M'g  Co.,  79  Cal.  285; 
Woodcock  v.  Bank,  113  Mich.  236. 
But  see,  semble  contra,  Westinghouse 
I  Machine  Co.  v.  Wilkinson,  79  Ala.  312. 

241 


§  281.J         THE    LAW    OF    PRIVATE   CORPORATIONS.    [CHAP.  VII. 


actions  in  the  course  of  which  the  contracts  were  performed, 
had  been  generally  acquiesced  in.1 

Darst  v.  Gale2  is  another  case  frequently  cited  in  support  of 
the  alleged  rule — which  is  indeed  stated  in  so  many  words  in 
the  opinion  of  the  court — "  that  a  private  corporation  cannot 
avail  of  the  defence  of  ultra  vires  where  the  contract  has  been 
in  good  faith  fully  performed  by  the  other  party,  and  the  cor- 
poration has  had  the  benefit  of  the  contract  and  the  perform- 
ance.'' But  in  this  case  the  defence  was  not  set  up  by  or  on 
behalf  of  the  corporation,  nor  on  behalf  of  any  person  inter- 
ested in  it.  A  subsequent  grantee  of  premises  belonging  to  the 
corporation  attempted  to  have  a  prior  deed  of  trust  covering 
the  same  property  set  aside,  on  the  ground  that  such  deed  was 
ultra  vires  the  corporation  ;  he  having  bought  with  full  notice 
of  the  prior  deed.  The  ultra  vires  nature  of  the  prior  deed  had 
infringed  no  right  of  his ;  and,  consequently,  he  had  no  stand- 
ing in  court  to  interpose  the  plea  of  ultra  vires. 

§  281.  The  decision,  if  not  the  reasoning,  in  this  case  points 
to  an  important  principle  respecting  the  plea  of  ultra  vires. 
According  to  the  rules  under  discussion,  the  plea  cannot  be  in- 
terposed by  the  party  contracting  with  the  corpora- 
tion when  the  corporation  has  performed  : 3  and  the 
reason  for  this  lies  not  only  in  the  estoppel  with 
which,  under  the  circumstances,  such  a  person  is 
affected,  but  in  the  following  reason  as  well :  That 
the  transaction  was  ultra  vires  infringed  none  of  his 


Ultra  vires 
cannot  be 
pleaded  by 
a  person 
whose 
rights  are 
not  in- 
fringed. 


1  Peoria  and  Springfield  R.  R.  Co. 
v.  Thompson,  103  111.  187;  Ward ». 
Johnson,  95  111.  215.  It  is  thought 
that  the  foregoing  remarks  will  often 
apply  to  cases  relied  on  in  support  of 
this  alleged  rule,  in  some  of  which, 
indeed,  the  rule  is  stated  in  so  many 
words.  See  Oil  Creek,  etc.,  R.  R.  Co. 
v.  Penna.  Trans' n  Co.,  83  Pa.  St.  1G0; 
State  Brd.  of  Agriculture  v.  Citz.'s 
Street  R'y  Co.,  47  Ind.  407.  Compare 
Arnot  v.  Erie  R'y  Co.,  67  N.  Y.  S15; 
Zabriskie  v.  Cleveland,  etc.,  R.  II.  Co.. 
23  How.  381;  Main  v.  Casserly,  67 
Cal.  127;  Blood  v.  La  Serena,  L.  & 
W.  Co.,  134  Cal.  361. 
242 


2  83  111.  136.  Since  the  decision  in 
National  Home  B'ld'g  Ass'n  v.  Bank, 
181  111.  35,  the  cases  of  Darst  v.  Gale 
and  Bradley  v.  Ballard  cannot  be  con- 
sidered authority  for  this  proposi- 
tion in  support  of  which  they  have 
so  often  been  cited.  See  also  Kadiole 
v.  Loan  Ass'n,  151  111.  531.  Compare 
Grant  t>.  Henry  Clay  Coal  Co.,  80  Pa. 
St.  208.  And  for  the  validity  of  un- 
authorized conveyances  of  real  or  per- 
sonal property  to  a  corporation,  see 
§  303. 

3  §  276. 


PART  III.]    ACTS    BEYOND    THE   CORPORATE   POWERS.        [§  282. 

rights ;  be  cannot,  therefore,  interpose  the  defence.  There 
is  a  plain  principle  which  is  not  only  law,  but  common  sense. 
"\Yith  a  few  special  exceptions,  no  one  can  represent  another 
before  the  courts  or  elsewhere,  without  authority,  express  or 
implied,  to  do  so.  To  an  action  brought  against  himself,  a  man 
cannot  ordinarily  plead  that  the  rights  of  another,  whom  he  is 
not  authorized  to  represent,  will  be  affected  by  the  prosecution 
of  the  suit.  If  the  court  consider  that  hardship  and  injustice 
will  result  unless  the  interests  of  such  outside  person  are  re- 
garded, the  court — at  least  a  court  of  equity — may  require  him 
to  be  made  a  party  to  the  suit,  in  order  to  afford  him  oppor- 
tunity to  protect  his  interests.  Accordingly,  when  a  contract 
ultra  vires  a  corporation  is  entered  into,  it  is  not  competent  for 
persons  whose  rights  are  not  infringed,  any  more  than  for 
those  who  by  their  actions  have  estopped  themselves  from  com- 
plaining, to  restrain  the  fulfillment  of  the  contract  on  the  ground 
that  the  interests  of  others,  which  they  are  not  authorized  to 
represent,  will  be  injured.  It  may  therefore  be  stated  as  a 
rule,  that  a  person  whose  rights  are  in  no  way  infringed  b}r  the 
fact  that  a  given  act  is  ultra  vires  a  corporation,  can  found  no 
action  or  defence  on  that  fact.1 

§  282.  There  are  a  number  of  decisions  in  accord  with  this 
rule.  Thus,  a  corporation  incorporated  "  for  the  purpose  of 
manufacturing  fabrics  of  wool  and  worsted  or  of  a  mixture 
thereof  with  other  textile  materials,"  may  maintain  an  action 
against  the  purchaser  of  groceries  sold  by  a  person  who  was 
keeping  a  store  as  the  undisclosed  agent  of  the  corporation.2 
On  similar  principles  it  is  held  that  when  a  corporation  has,  in 
an  unauthorized   manner,  purchased  a  note,  its  title  thereto 


1  Belcher  Sugar  Ref  Co.  v.  Elevator 
Co.,  101  Mo.  192;  Baker  v.  Loan  Co., 
36  Minn.  185.  Compare  Wherry  v. 
Hale,  77  Mo.  20;  Farmers',  etc., 
Bank  v.  Detroit,  etc.,  R.  R.  Co.,  17 
Wis.  372;  St.  Louis  Drug  Co.  v.  Rob- 
inson, 81  Mo.  18;  XewEng.  R.  R.  Co. 
v.  Central  R'y  Co.,  69  Conn.  47; 
Beek  v.  No.  Neb.  F.  &  D.  P.  Ass'n, 
54  Neb.  226;  Butterworth  v.  Lowe, 
115  Mich.  1;  semblc  contra,  Salmon 
River  M'g  Co.  v.  Dunn,  2  Idaho,  30. 

A  release  executed  by  a  contract- 


ing party  to  a  corporation  (a  county) 
of  his  rights  relating  to  the  unful- 
filled portion  of  an  ultra  tires  con- 
tract, the  release  being  executed  at 
the  request  of  defendant,  who  had  a 
personal  interest  in  getting  the  con- 
tract discharged,  is  a  good  consider- 
ation to  support  a  promise  made  by 
the  defendant  to  the  party  executing 
the  release.  Wile  v.  Wilson,  93  N.  Y. 
255. 

2  Slater  Woolen    Co.  r.  Lamb,    143 
Mass.  420. 

243 


§  283.]        THE    LAW    OF    PRIVATE   CORPORATIONS.    [CHAP.  VII. 

cannot  be  questioned  by  the  promisor.1  Nor  can  irregularities 
in  a  mortgage  made  by  a  corporation  betaken  advantage  of  by 
a  subsequent  grantee  of  the  mortgaged  premises.2  Likewise, 
the  power  of  a  corporation  to  assign  a  chose  in  action  cannot 
be  questioned  in  an  action  thereon  by  the  assignee  ;3  and  although 
the  purchase  of  a  piece  of  land  may  have  been  ultra  vires  a  rail- 
road company,  still  when  the  railroad  company  sells  the  land 
the  title  of  its  vendee  is  good.4  Again,  when  both  plaintiff 
and  defendant  claim  under  a  common  source, — from  a  rail- 
road corporation, — the  plaintiff  by  conveyance  at  an  execution 
sale  of  its  property,  the  defendant  under  deeds  of  trust  exe- 
cuted by  it,  neither  can  set  up  that  the  acquisition  of  the 
property  was  ultra  vires  the  corporation.5  And,  finally,  where 
the  president  with  other  officers  of  a  corporation  bought  stock 
for  the  company,  and  subsequently  converted  it  unlawfully  to 
their  own  use,  they  cannot  plead  when  sued  for  the  conversion 

7/  that  the  original  purchase  made  by  them  on  behalf  of  the  cor- 

poration was  ultra  vires.6 

<*ret?%,e    §  283.  We  pass  now  to  the  third  view  taken  of  the  doctrine 

J-       The  °^  u^ra  vires,  which  is  held  by  the  Supreme  Court 

Federal        Qf  the  United  States.     According  to  this  view  a  cor- 

2,>V  poration    cannot   make   a  contract  be}~ond  its  pur- 

pose and  powers  as  defined  and  conferred  by  the  legislature 
creating  it.  Such  a  contract  is  a  nullity  ;  it  cannot  be  ratified, 
nor  can  it  through  performance  on  either  side,  or  by  the 
application  of  any  principles  of  estoppel,  become  the  foundation 
of  a  right  of  action  upon  the  contract. 

A  corporation  thus  is  viewed  as  a  creation  of  the  law ;  it 
derives  its  powers  from  the  charter  of  its  creation ;  in  the  eye 
of  the  law  it  has  no  other  or  further  powers,  and  its  attempted 
acts  outside  of  them  are  a  vain  beating  of  the  air.  This  doctrine 
was  primarily  formulated  by  the  Supreme  Court  with  respect 
to  corporations,  like  railroad  companies,  having  public  duties 


1  Ehrman  v.  Union  Cent.  Life  Ins. 
Co.,  35  Ohio  St.  324. 

2  Beecher  v.  Marquette,  etc.,  Mill 
Co.,  45  Mich.  10:);  Darstv.  Gale,  ante, 
§  280. 

3  Small  >■.  C.  R.  I.  and  P.  R.  R.  Co., 
55  Iowa,  582. 

244 


*  Walsh?).  Barton,  24  Ohio   St.  28; 
Ragan  v.  McElroy,  98  Mo.  349. 

5  Morgan  v.  Donovan,  58  Ala.  241. 

6  St.  Louis  Stoneware  Co.  v.  Part- 
ridge, 8  Mo.  App.  217. 


PART  III.]    ACTS   BEYOND   THE   CORPORATE   POWERS.        [§  283. 

to  perforin,  as  in  the  leading  case  of  Central  Transportation  Co. 
v.  Pullman's  Palace  Car  Co.1  and  other  cases  preceding  it.2  It 
has  since  been  extended  to  national  banks,  and  the  language  of 
the  court  warrants  the  assumption,  that  this  doctrine  applies  to 
all  private  corporations.  Nevertheless  at  least  a  portion  of  the 
reasons  on  which  the  court  has  based  its  doctrine  apply  with 
lessened  force  to  manufacturing  or  trading  corporations  which 
owe  no  definite  duties  to  the  public.  The  language  of  the  fol- 
lowing citations  from  the  opinion  of  the  court  through  Justice 
Gray  in  Central  Transportation  Co.  v.  Pullman's  Palace  Car 
Co.,  has  frequently  been  repeated  and  affirmed  by  the  Supreme 
Court.  It  is  authoritative,  and  will  also  show  how  this  rule 
was  formulated  with  a  view  to  corporations  affected  with  public 
duties. 

"  The  clear  result  of  these  decisions  may  be  summed  up  thus : 
The  charter  of  a  corporation,  read  in  the  light  of  any  general 
laws  which  are  applicable,  is  the  measure  of  its  powers,  and  the 
enumeration  of  those  powers  implies  the  exclusion  of  all  others 
not  fairly  incidental.  All  contracts  made  by  a  corporation 
beyond  the  scope  of  those  powers  are  unlawful  and  void,  and 
no  action  can  be  maintained  upon  them  in  the  courts,  and  this 
upon  three  distinct  grounds :  the  obligation  of  every  one  con- 
tracting with  a  corporation  to  take  notice  of  the  legal  limits  of 
its  powers;  the  interest  of  the  stockholders  not  to  be  subjected 
to  risks  which  they  had  never  undertaken ;  and,  above  all,  the 
interest  of  the  public  that  the  corporation  shall  not  transcend 
the  powers  conferred  upon  it  by  law.  A  corporation  cannot, 
without  the  assent  of  the  legislature,  transfer  its  franchise  to 
another  corporation,  and  abnegate  the  performance  of  the  duties 
to  the  public  imposed  upon  it  by  its  charter  as  the  consideration 
for  the  grant  of  the  franchise.  Neither  the  grant  of  a  franchise 
to  transport  passengers,  nor  a  general  authority  to  sell  and  dis- 
pose of  property,  empowers  the  grantee,  while  it  continues  to 
exist  as  a  corporation,  to  sell  or  to  lease  its  entire  property  and 
franchise  to  another  corporation.  These  principles  apply 
equally  to  companies  incorporated  by  special  charter  from  the 

1  139  U.  S.  24.  I  v.  St.  Louis,  etc.,  R.  R.  Co.,  118  U.  S. 

2  E.  g.,  Oregon  Ry.  Co.  i\  Oregonian  290  ;  Thomas  v.  R.  R.  Co.,  101  U.  S. 
Ry.  Co.,  130  U.  S.  1  ;  Pa.  R.  R.  Co.  I  71. 

245 


§  283.]         THE    LAW    OF   PRIVATE   CORPORATIONS.    [CHAP.  VII. 

legislature,  and  to  those  formed  by  articles  of  association  under 
general  laws.  .  .  . 

"The  plaintiff  was  not  an  ordinary  manufacturing  corpora- 
tion, such  as  might,  like  a  partnership  or  an  individual  engaged 
in  manufactures,  sell  or  lease  all  its  property  to  another  corpo- 
ration." [It  was  a  quasi  public  corporation  with  duties  to  the 
public]  "the  performance  of  which,  by  the  corporation  itself, 
was  the  remuneration  that  it  was  required  by  law  to  make  to 
the  public  in  return  for  its  franchise.  .  .  . 

"  The  contract  sued  on  being  clearly  beyond  the  powers  of 
the  plaintiff  corporation,  it  is  unnecessary  to  determine  whether 
it  is  also  ultra  vires  of  the  defendant,  because,  in  order  to  bind 
either  party,  it  must  be  within  the  corporate  powers  of  both. 

"  It  was  argued  in  behalf  of  the  plaintiff  that,  even  if  the 
contract  sued  on  was  void,  because  ultra  vires  and  against  pub- 
lic policy,  yet  that  having  been  fully  performed  on  the  part  of 
the  plaintiff,  and  the  benefits  of  it  received  by  the  defendant, 
for  the  period  covered  by  the  declaration,  the  defendant  was 
estopped  to  set  up  the  invalidity  of  the  contract  as  a  defence 
to  this  action  to  recover  the  compensation  agreed  on  for  that 
period. 

"  But  this  argument,  though  sustained  by  decisions  in  some  of 
the  states,  finds  no  support  in  the  judgments  of  this  court.  .  .  . 

"  The  view  which  this  court  has  taken  of  the  question  pre- 
sented by  this  branch  of  the  case,  and  the  only  view  which  ap- 
pears to  us  consistent  with  legal  principles,  is  as  follows: — 

"  A  contract  of  a  corporation  which  is  ultra  vires  in  the 
proper  sense,  that  is  to  say,  outside  the  object  of  its  creation  as 
defined  in  the  law  of  its  organization,  and  therefore  beyond  the 
powers  conferred  upon  it  by  the  legislature,  is  not  voidable 
only,  but  wholly  void  and  of  no  legal  effect.  The  objection  to 
the  contract  is  not  merely  that  the  corporation  ought  not  to 
have  made  it,  but  that  it  could  not  make  it.  The  contract  can- 
not be  ratified  by  either  party,  because  it  could  not  have  been 
authorized  by  either.  ISo  performance  on  either  side  can  give 
the  unlawful  contract  any  validity,  or  be  the  foundation  of  any 
right  of  action  upon  it."  ' 

As  already  said,  the  Supreme  Court  has  apparently  extended 

1  139   U.    S.   24,   48  sqq.     See   the  I  in  California  Bank  v.  Kennedy,  167 
reiteration  of  much  of  this  language  I  U.  S.  362. 
240 


PART  III.]    ACTS   BEYOND   THE    CORPORATE   POWERS.        [§  284. 


the  application  of  this  stringent  rule  to  private  corporations 
generally,  irrespective  of  whether  or  not  they  have  public 
duties  to  perform.  It  has  been  applied  in  all  its  strictness  to 
the  contracts  of  national  banks.  The  court  has  held,  for  ex- 
ample, that,  as  it  is  ultra  vires  a  national  bank  to  deal  in  the 
stocks  of  other  corporations,  the  shares  so  acquired  by  it  create 
no  liability  on  its  part  to  the  creditors  of  the  corporation  issu- 
ing them.  It  makes  no  difference  that  the  bank  has  received 
dividends ;  for  the  transaction  was  void,  and  not  merely  void- 
able and  capable  of  ratification.  The  principle  of  estoppel  can- 
not apply  ;  and  the  bank  may  plead  the  nullity  of  its  ultra 

vires  act.1  ____  —  .    .,   -,        —  ,- ^ 

§1284.  Thus,  in  regard  to  ultra  vires  contracts  which  have 
been  executed  by  the  party  dealing  with  the  corpora-  /&*■ 

tion,  the  rule  of  the  United  States  Supreme  Court  is   ^or^to  the     /£*-<^ 
opposed  to  the  rule  of  the  courts  of  New  York  and   general      ^      -? 

,  rules.  Cp<~.~4v^ 

certain  other  states.2     On  the  other  hand  there  is  no 
conflict  respecting  ultra  vires  contracts  which  neither  party  has 
executed ;  such  will  not  sustain  an  action  in  any  court.     More- 
over American  courts  are  in  accord  on  the  proposition  which 

1  California  Bank  v.  Kennedy,  167  I  The  same  rule  is  held  in  Nat. 
U.  S.  3*32;  Concord  First  Nat'l  Bk.  |  Home  B'ld'g  Ass'n  v.  Bank,  181  111. 
v.  Hawkins,  174  U.  S.  364;  followed  35;  Best  Brewing  Co.  v.  Klassen,  185 
in  Robinson  v.  Southern  Nat'l  Bk.  |  111.  37;  Fritze  v.  Equitable  B.  &  L. 
180  U.  S.  295,  in  which,  however,  Soc.,  186  111.  183;  Franklin  Nat.  Bank 
the  court  remarked  that  while  it  r.  Whitehead,  149  Ind.  560;  Chewacla 
was  "  not  disposed  as  at  present  ad-  Lime  Works  v.  Dismakes,  87  Ala. 
vised,  to  push  the  principle  of  these  344;  see  Penna.,  etc.,  Nav.  Co.  v. 
cases  so  far  as  to  exempt  such  banks  Dandridge,  8  Gill  &  J.  (Md.)  248. 
fx'om  liability  as  other  shareholders,  I  But  when  the  act  is  one  forbidden 
where  they  have  accepted  and  hold  i  by  a  state  statute,  and  the  highest 
stock  in  other  corporations  as  col-  court  of  the  state  has  held  that  such 
lateral  security  for  money  advanced  act  is  not  void  but  merely  voidable, 
(a  consideration  which  we  withhold    at  the  suit  of  the  state,  the  Federal 


from  discussion)  we  think  there  is  a 
presumption  in  such  cases  against 
any  intention  on  the  part  of  the 
lending  bank  to  become  the  owner 
of  the  collateral  shares."  See,  also, 
Louisville,  N.  A.  &  C.  Ry.  Co.  v. 
Louisville  Tr.  Co.,  174  U.  S.  552;  De 
la  Vergne  Co.  v.  Germ.  Sav.  Inst. 
175  IT.  S.  40;  Chemical  Nat.  Bank  v. 
Havemale,  120  Cal.  601. 


Supreme  Court  will  follow  that  de- 
cision. Sioux  City  R.  R.  Co.  v.  N. 
A.  Ti.  Co.,  173  U.  S.  99.  It  has  been 
held  in  a  state  court  that  a  national 
bauk  may  take  stock  in  another  cor- 
poration in  payment  of  a  debt. 
Tourtelet,  Rec'r,  v.  Whithed,  9  N. 
Dak.  467. 
'Ante,  §277. 

247 


§  284.]         THE    LAW    OF    PRIVATE   CORPORATIONS.    [CHAP.  VII. 

was  put  as  a  qualification  to  the  general  rules  as  stated  in  §§  205 
and  2G6.  The  principle  that  neither  the  officers  of  a  corpora- 
tion, nor  the  body  corporate  itself,  can  bind  dissenting  share- 
holders or  creditors  by  ultra  vires  contracts,  is  mainly  based  on 
the  fundamental  principle  of  corporation  law,  that  all  persons 
dealing  with  the  corporation  or  its  agents  are  affected  with 
notice  of  the  corporate  powers  as  indicated  by  the  corporate 
constitution.  It  is  accordingly  evident  that,  the  main  reason 
for  the  rule  failing,  this  principle  does  not  apply  to  contracts 
apparently  within  the  corporate  powers,  but  in  reality  ultra 
vires  on  account  of  extraneous  facts.  A  person  dealing  with 
a  corporation  may  assume  that  acts  done  on  its  behalf  are 
proper  ;  and  circumstances  especially  within  the  knowledge  of 
the  corporate  representative  will  not  ordinarily  affect  the  rights 
of  such  a  person  acting  in  good  faith.1  Accordingly,  if  an  act 
done  by  a  corporate  agent,  or  by  the  body  corporate,  be  appar- 
ently within  the  scope  of  the  corporate  powers,  the  rights  of  the 
party  dealing  with  the  corporation  or  its  agent  will  not  be  af- 
ected  by  the  circumstance  that  the  act  in  question  was  rendered 
ultra  vires  either  by  extraneous  facts,  or  by  the  secret  purpose 
of  the  corporation  or  its  agent  respecting  the  act ;  provided  the 
party  acted  in  good  faith  and  as  a  careful  man.2 

"  When  a  corporation  is  acting  within  the  general  scope  of 
the  powers  conferred  upon  it  by  the  legislature,  the  corporation 
as  well  as  persons  contracting  with  it  may  be  estopped  to  deny 
that  it  has  complied  with  the  legal  formalities  which  are  pre- 
requisites to  its  existence  or  to  its  action,  because  such  requisites 
might  in  fact  have  been  complied  with.  But  when  the  contract 
is  beyond  the  powers  conferred  upon  it  by  existing  laws,  neither 
the  corporation  nor  the  other  party  to  the  contract  can  be  es- 
topped, by  assenting  to  it,  or  by  acting  upon  it,  to  show  that  it 
was  prohibited  by  those  laws."3 

"  The  distinction  between  the  doing  by  a  corporation  of  an 
act  beyond  the  scope  of  the  powers  granted  to  it  by  law,  on  the 
one  side,  and  an  irregularity  in  the  exercise  of  the  granted 


1  §  203. 

2 See  Express  Co.  v.  R.  R.  Co.,  99 
U.  S.  191,  199;  Charleston,  etc.,  Turn- 
pike Co.  v.  Willey,  16  Ind.  34;  Ward- 
ner,  etc.,  Co.  v.  Jack,  82  Iowa,  435; 

248 


Luttrell  v.  Martin,  112  N.  C.  592; 
Kennedy  v.  Savings  Bk.,  101  Cal.  495. 
3  Opinion  of  court  per  Justice  Gray 
in  Central  Trans.  Co.  v.  Pullman's 
Pal.  Car  Co.,  139  U.  S.  24,  60. 


PART  III.]  ACTS   BEYOND   THE  CORPORATE  POWERS.        [§  286. 


powers,  on  the  other,  is  well  established  and  has  been  constantly 
recognized  by  this  court." 1 

§  285.  This  principle  is  particularly  applicable  to  negotiable 
instruments  issued  by  a  corporation.  A  negotiable  Neo.otiable 
corporate  security,  which  upon  its  face  appears  to  instm- 
have  been  duly  issued  in  conformity  with  the  cor- 
porate constitution,  is  valid  in  the  hands  of  a  bona  fide  holder 
for  value  without  notice,  although  the  security  was  in  fact  is- 
sued for  a  purpose  and  at  a  place  not  authorized  by  the  cor- 
porate constitution.2  If  the  agent  had  power  to  issue  a  cor- 
porate security  for  any  purpose,  anyone  receiving  it  in  the 
ordinary  course  of  business  is  justified  in  assuming  that  it  was 
properly  issued.3  Under  this  principle,  moreover,  accommoda- 
tion indorsements  and  certifications  of  banks,  which  may  be 
beyond  the  bank's  powers,  will  bind  the  bank  in  favor  of  any 
bona  fide  holder  for  value  without  notice  of  the  character  of 
the  indorsement  or  certification.4 

§  286.  The  application  of  this  principle,  however,  is  not  re- 
stricted to  negotiable  instruments.     If  a  corporation 
borrows  money  or  purchases  property,  having  the   pi^tioi^of 
power  to  do  so,  the  rights  of  the  lender  or  vendor   the.  quaiifi- 

r  '  °  cation. 

will  not  be  affected  by  the  circumstance,  unknown 

to  him,  that  the  money  is  borrowed  or  the  property  purchased 

for  an  unauthorized  purpose.5     Accordingly,  if  a  person  sells  to 


1  Opinion  of  the  court  per  Justice 
Gray  in  Louisville,  etc.,  Ii.  R.  Co.  v. 
Louisville  T.  Co.,  17-4  U.  S.  552,  570. 
See,  also,  e.  g.,  Nat.  Home  B'ld'g 
Ass'n  v.  Home  S'vgs  B'k,  187  111. 
35,  44. 

2  Stoney  v.  Ameri.  L.  Ins.  Co.,  11 
Paige,  635;  Galveston  R.  R.  v.  Cow- 
drey,  11  Wall.  459  ;  Alexander  v. 
Rollins,  84  Mo.  657;  Leh.  Val.  Coal 
Co.  o.  Agricul.  Works,  63  Wis.  45. 
See,  also,  Safford  v.  Wyckoff,  4  Hill, 
442;  Main  v.  Casserly,  67  Cal.  127; 
cf.  Steiner  ».  Steiner  Land  &  Lum- 
ber Co.,  120  Ala.  128;  §§  203,  204. 

3  Genesee  Savings  Bk.  v.  Michigan 
Baye  Co.,  52  Mich.  438.  Railroad 
companies  have  a  general  power  to 
make  contracts   and  borrow  money, 


and  persons  dealing  in  securities  is- 
sued by  them  may,  in  the  absence  of 
notice  to  the  contrary,  assume  that 
restrictions  upon  this  power  have 
not  been  violated.  Ellsworth  v. 
St.  Louis,  etc.,  R.  R.  Co.,  98  N.  Y. 
553.     See  §§  205,  328. 

4  National  Bank  v.  Young,  41  N.  J. 
Eq.  531;  Jacobs  Pharmacy  Co.  v. 
Trust  Co.,  97  Ga.  573.  See  §§  242- 
244. 

5  See  Thompson  v.  Lambert,  44 
Iowa,  239;  Oxford  Iron  Co.  o.  Sprad- 
ley,  51  Ala.  171;  Brewer  Brewing 
Co.  v.  Boddie,  181  111.  622;  and  §§ 
204-207. 

"  If  the  contract  is  ultra  vires  with 
the  knowledge  of  the  party  making 
it,  he  cannot  afterwards  enforce  it; 

249 


§  286.]         THE    LAW   OF   PRIVATE   CORPORATIONS.  [CHAP.  VII. 


a  corporation  such  property,  real  or  personal,  as  it  is  author- 
ized to  purchase,  he  is  under  no  obligation  to  inform  himself 
whether,  under  the  circumstances,  the  particular  purchase  was 
proper  for  the  corporation  to  make.1  Indeed,  it  is  held  that 
even  if  the  vendor  of  goods  or  the  lender  of  money  to  a  corpo- 
ration knows  that  the  goods  are  bought  or  the  money  bor- 
rowed to  be  used  for  some  unauthorized  or  even  illegal  pur- 
pose, he  may  still  recover  the  price  or  the  loan;  provided  it 
was  no  part  of  his  contract  that  the  goods  or  money  were  to 
be  used  for  that  purpose,  and  provided,  also,  that  he  has  done 
nothing  to  further  the  unlawful  design.2  The  principle  re- 
ferred to  also  covers  cases  where  a  corporation,  authorized  to 
borrow  money  to  a  certain  amount,  borrows  in  excess.  If  a 
person  lends  money  to  it  in  ignorance  that  the  limit  has  been 
already  reached,  he  will  be  entitled  to  recover.3  And,  finally, 
under  this  principle  arises  the  obvious  distinction  between  the 
exercise  by  a  corporation  of  a  power  not  possessed  by  it  and 
in  no  way  incidental  to  the  objects  of  its  incorporation,  as  set 
forth  in  its  constitution,  of  which  every  one  must  take  notice, 
and  the  abuse  of  a  general  power  possessed  by  the  corporation, 
or  the  failure  to  comply  with  prescribed  formalities  in  exercis- 
ing its  powers,  when  such  abuse  or  failure  is  not  known  to  the 
other  contracting  party.4 


but  if  he  has  no  such  knowledge,  it 
would  be  binding  in  his  favor." 
Eastern  Counties  Railway  Co.  v. 
Hawkes,  5  H.  L.  C.  331,  338,  per  Lord 
Campbell. 

1  Eastern  Counties  Railway  Co.  v. 
Hawkes,  5  H.  L.  C.  331.  See  Cowell 
v.  Springs  Co.,  100  U.  S.  55;  Natoma 
Water  and  Mfg.  Co.  v.  Clarkin,  14 
Cal.  544,  552;  Moss  u.  Rossie  Lead 
Mfg.  Co.,  5  Hill,  137. 

2  Tracy  v.  Talmadge,  14  N.  Y.  162; 
and  see  cases  in  the  last  note,  and 
§  293.  This  last  proposition  may  be 
questionable.  Very  likely  it  would 
and  should  hold  when  goods  are  sold 
directly  to  a  principal,  the  vendor 
knowing  that  they  will  be  put  to 
some  illegal  use.  But  suppose  the 
vendor    knows     that    an    agent,    to 

250 


whom  he  is  selling  the  goods,  is  go- 
ing to  use  them  in  some  way  not  au- 
thorized by  the  principal,  or  is  go- 
ing to  embezzle  them:  should  the 
vendor  then  be  allowed  to  recover 
against  the  principal,  e.  g.,  a  corpora- 
tion ? 

3  Humphrey  v.  Patrons'  Mercantile 
Ass'n,  50  Iowa,  607;  Aueibach  v. 
Le  Sueur  Mill  Co.,  28  Minn.  291;  Os- 
sipee  Mfg.  Co.  v.  Canney,  54  N.  H. 
295;  Connecticut  River  Savings  Bk. 
v.  Fiske,  60  N.  H.  363;  (a  suit  against 
a  shareholder. )  Beach  &  Weld  v. 
Wakefield,  107  Iowa,  567.  See  §§  127 
and  205.  But  the  lender  is  affected 
with  notice  when  his  loan  by  itself 
exceeds  the  charter  limitation.  First 
Nat.  Bk.  v.  Kiefer  Co.,  95  Ky.  97. 

*  See  Davis  v.  Old  Colony  Railroad, 


PART  III.]     ACTS   BEYOND   THE   CORPORATE    POWERS.       [§  288. 


§  287.  The  discussion  has  so  far  ignored  the  question  of  the 
illegality  of  ultra  vires  contracts,  proceeding  rather 
on  the  assumption  that  a  contract  is  not  illegal  in  T^tm^ 
any  proper  sense  of  that  term  merely  because  made  ultra  vires 
by  or  on  behalf  of  a  corporation  not  authorized  to 
make  it.1  An  invalid  contract  is  one  which  does  not  bring  the 
parties  to  it  within  the  operation  of  the  contemplated  rules  of 
law,  and  so  fails  to  occasion  the  desired  legal  relations.  An 
illegal  contract  is  an  invalid  contract  which  is  such  because 
some  rule  of  law  forbids  it  to  be  made.  Invalid  contracts,  which 
are  not  illegal,  can  usually  be  validated ;  but  illegal  contracts 
cannot  ordinarily  be  validated.  If  A.  orders  a  set  of  tools  of 
B.  at  a  price  exceeding  fifty  dollars,  and  no  money  is  paid  down 
and  no  note  or  memorandum  in  writing  made,  the  contract  will 
be  invalid  under  the  Statute  of  Frauds;  but  will  be  capable  of 
subsequent  validation  on  complying  with  the  terms  of  that  stat- 
ute. On  the  other  hand,  if  the  tools  happen  to  be  counterfeiters' 
dies,  the  contract  is  illegal  and  incapable  of  subsequent  vali- 
dation, because  of  the  law  against  possessing  or  manufacturing 
such  instruments.  Again,  if  a  contract  is  made  on  behalf  of  A. 
by  B.,  who  has  no  authority  to  represent  him,  the  contract  will 
not  bring  A.  within  the  operation  of  rules  of  law  which  will 
manifest  themselves  in  liabilities  on  his  part ;  that  is  to  say,  the 
contract  will  uot  bind  him,  and  in  that  respect  will  be  invalid ; 
but  no  one  would  call  such  a  contract  illegal. 

§  288.  We  have  seen  that  corporate  funds  are  set  apart  for 
certain  purposes  from  which  no  one  has  authority  to  divert  them 


131  Mass.  258,  260;  Central  Trans- 
portation Co.  v.  Pullman's  Palace 
Car  Co.,  139  U.  S.  24,  60;  Zabriskie 
v.  Cleveland,  etc.,  R.  R.  Co.,  23  How. 
381,  398;  Haynes  p.  Covington,  21 
Miss.  408;  City  Fire  Ins.  Co.  v.  Car- 
rugi,  41  Ga.  660,  673;  Screven  Hose 
Co.  v.  Philpot,  53  Ga.  625.  A  corpo- 
ration authorized  to  loan  for  one 
year  on  bond  and  mortgage  may  fore- 
close a  mortgage  given  to  secure  a 
note  for  a  debt  running  two  years. 
Germantown  Farmers'  Mut.  Ins.  Co. 
v.  Dhein,  43  Wis.  420. 


1  "  The  words  ultra  vires  and  ille- 
gality represent  totally  different  and 
distinct  ideas."  Comstock,  C.  J.,  in 
Bissell  v.  Mich.  S.  and  N.  I.  Railroad 
Cos.,  22  N.  Y.  258,  269.  "  There  is 
a  manifest  distinction  between  cases 
arising  under  contracts  which  are 
contrary  to  public  policy  or  )iiala  in 
seor  mala  prohibita,  and  those  which 
are  claimed  to  be  ultra  vires  alone." 
Woodruff  v.  Erie  Railway  Co.,  93 
X.  Y.  609,  618.  Opin.  of  Ct.  per  Ru- 
ger,  C.  J.     See  §  264,  note. 

251 


§  289.]         THE   LAW    OF    PRIVATE   CORPORATIONS.    [CHAP.  VII. 

so  as  to  impair  the  legally  protected  interests  of  an}'  person.1 
Accordingly,  if  the  persons  having  the  management  of  these 
funds  make  a  contract  respecting  them,  whereby  they  would 
be  diverted  from  the  objects  for  which  they  are  set  apart,  such 
contract  would  be  invalid  in  this  respect,  that  it  would  not  bind 
the  rights  of  dissenting  shareholders  or  creditors.  These  re- 
strictions, however,  on  the  powers  of  the  managers  of  these 
funds,  on  the  powers,  that  is  to  say,  of  the  corporate  agents 
and  of  the  body  corporate  itself,  exist  mainly  for  the  security 
of  the  subscribers  of  the  funds  and  of  those  who  may  deal  with 
the  corporation  on  the  credit  of  them.  If,  then,  the  persons 
for  whose  security  these  restrictions  exist  authorize  or  acquiesce 
in  a  diversion  of  the  funds  from  the  objects  to  which  they  are 
restricted,  no  one  remains  who  can  object  to  transactions  in 
disregard  of  these  restrictions.  Such  transactions  are  not  il- 
legal, for  illegal  means  unlawful  or  forbidden  by  law  ;  these 
transactions  were  merely  unauthorized  in  that  certain  persons 
could  have  restrained  the  corporation  from  engaging  in  them.2 

§  289.  This  reasoning  accords  with  the  general  rules  relating 
Public  to  ultra  vires  transactions  as  deduced  through  the 

policy.  analytical  method,3  and  also   with  the  New  York 

rule.4  Whether  it  accords  with  the  Federal  rule  is  more  ques- 
tionable. Also  the  point  may  be  raised,  that  to  restrain  cor- 
porations within  the  scope  of  the  purposes  of  incorporation  is 
clearly  defined  public  policy  ;  that  any  contract  contrary  to 
public  policy  is  illegal ;  therefore,  contracts  ultra  vires  a  cor- 
poration are  illegal.     This  requires  consideration. 

An  argument  based  on  public  policy  is  at  best  vague  and 
unsatisfactory.  If  the  courts  are  to  give  weight  to  such  argu- 
ments, in  many  cases  they  will  have  to  determine  for  them- 
selves what  public  policy  is  in  regard  to  the  question  before 
them  ;  and,  to  some  extent,  they  will  have  to  base  their  decision 
on  their  notion  of  what  public  policy  should  be.5  Consequently, 
in  their  deliberations  they  will  have  to  weigh  the  same  con- 
siderations that  a  legislative  body  weighs  in  considering  the 


1  §§  32,  33. 

2  See  Kent  ».  Quicksilver  M'g  Co., 
78  N.  Y.  159,  §269;  and  Vermont 
&  C.  R.  R.  Co.  v.  Vermont  Central 
R.  It.  Co.,  34  Vt.  2,  47. 

252 


3  Ante,  §§  264a— 274. 

4  Ante,  §§  275  sqq. 

5  For  ex  hypothese,  as  it  were,  pub- 
lic policy  is  what  it  should  be. 


PART    HI.]     ACTS   BEYOND   THE   CORPORATE   POWERS.     [§  290. 


advisability  of  a  law,  and  their  decision  will  likely  amount  to 
the  creation  of  a  new  legal  proposition.  To  determine  what 
public  policy  is,  is  the  province  of  the  legislature  ;*  and  if  acts, 
which  would  have  been  unobjectionable  if  done  by  individuals 
on  their  own  behalf,  are  done  by  or  on  behalf  of  a  corporation, 
are  courts  to  declare  such  acts  illegal  merely  because  unau- 
thorized by  the  constitution  of  the  corporation,  when  the  state 
in  its  discretion  may  at  any  time  interfere  and  restrain  their 
commission  or  forfeit  the  franchises  of  the  corporation  ?  Shall 
the  court  of  its  own  motion,  or  at  the  suggestion  of  an  individ- 
ual, declare  illegal  and  void  as  against  public  policy  the  very 
act  which  the  exponent  of  public  policy  at  any  time  may  have 
annulled,  and  yet  refrains  from  interfering  with?2  By  refrain- 
ing from  bringing  an  action  to  restrain  the  commission  of  such 
acts,  or  to  forfeit  the  franchises  of  the  corporation  as  a  penalty 
for  their  commission,  the  state  seems  impliedly  to  admit  that 
they  are  not  illegal  as  against  public  policy. 

§  290.  In  a  case  referred  to  before,  Bissell  v.  Railroad  Com- 
panies, Chief  Judge  Comstock  said  : 3  "  But  is  it  true  that  all 
contracts  of  corporations,  for  purposes  not  embraced  in  their 
charters,  are  illegal  in  the  appropriate  sense  of  that  term  ? 
This  proposition  I  must  deny.  Undoubtedly  such  engagements 
may  have  the  vices  which  sometimes  infect  the  contracts  of 
individuals.  They  may  involve  a  malum,  in  se  or  a  malum 
prohibitum,  and  may  be  void  for  any  cause  which  would  avoid 
the  contract  of  a  natural  person.  But  where  no  such  vices 
exist,  the  only  defect  is  one  of  power, 4  the  contract  cannot  be 
void  because  it  is  illegal  or  immoral. 

"  So  a  church  corporation  may  deal  in  exchange.  This,  al- 
though ultra  vires,  is  not  illegal,  because  dealing  in  exchange 
is,  in  itself,  a  lawful  business,  and  there  is  no  state  policy  in 


1  "  This  court  can  know  nothing 
of  public  policy,  except  from  the 
constitution  and  the  laws,  and  the 
course  of  administration  and  deci- 
sion. It  has  no  legislative  power. 
It  cannot  amend  or  modify  any  legis- 
lative act.  It  cannot  examine  ques- 
tions as  expedient  or  inexpedient, 
as  politic  or  impolitic.  Considera- 
tions of  that  sort  must,  in  general, 


be  addressed  to  the  legislature." 
Chase,  C.  J.,  in  License  Tax  Cases, 
5  Wall.  462,  469. 

2  See  §  457. 

3  22  N.  Y.    269-270. 

4  Quaere,  whether  the  use  of  this 
word  here  is  consistent  with  the  re- 
marks of  the  same  learned  judge 
on  the  distinction  between  "  power" 
and  "  right."    22  N.  Y.  264. 

253 


§  291.]        THE   LAW   OF   PRIVATE   CORPORATIONS.    [CHAP.  VII. 


restraint  of  that  business."  It  must  be  admitted  that  the  last 
statement  of  the  learned  judge  contains  a  petitio  jprincipii  ;  for 
the  question  is  not  whether  the  business  of  exchange  is  lawful, 
but  whether  it  is  lawful  for  a  church  corporation  to  carry  it 
on.  Again,  the  learned  judge  says  :  "  The  illegality  of  an  act 
is  determined  in  its  quality,  and  does  not  depend  on  the  person 
or  being  which  performs  it."  This  seems  rather  a  hasty  gen- 
eralization, for  assuredly  it  would  not  be  legal  for  an  unauthor- 
ized person  to  execute  the  sentence  of  the  law  on  a  condemned 
felon,  even  at  the  time,  place,  and  in  the  manner  ordered  for 
the  hanging.  Moreover,  in  the  same  case,  Judge  Selden  makes 
a  remark  not  in  accordance  with  the  expressions  of  the  chief 
judge :  "  Although  the  authorized  contract  may  be  neither 
malum  in  se  nor  malum  prohibitum,  but,  on  the  contrary,  may 
be  for  some  benevolent  or  worthy  object,  as  to  build  an 
almshouse  or  a  college  ....  yet,  if  it  is  a  violation  of  public 
policy  for  corporations  to  exercise  powers  which  have  never 

t—        been  granted   to  them,  such  contracts,  notwithstanding  their 

—        praiseworthy  nature,  are  illegal  and  void."1 

§  291.  A  leading  English  case,  in  regard  to  the  illegality  of 

y  .    /  ultra  vires  acts,  is  East  Anglian  Rail  way  Company  v. 

English        Eastern  Counties  Railway  Company;2  a  case  which 

is  still  law  in  England,  though  parts  of  the  opinion 

'fY  of  the  court  have  been  unfavorably  commented  on.  The  fol- 
lowing passages  are  from  the  opinion  of  Jervis,  C.  J. :  "  It  is 
clear  that  the  defendants  have  a  limited  authority  only,  and 
are  a  corporation  only  for  the  purpose  of  making  and  main- 
taining the  railway  sanctioned  by  the  act ;  and  that  their  funds 
can  only  be  applied  for  the  purposes  directed  by  the  statute. 
....  Every  proprietor,  when  he  takes  shares,  has  a  right  to 
expect  that  the  conditions  upon  which  the  act  was  obtained  will 
be  performed,  and  it  is  no  sufficient  answer  to  a  shareholder  ex- 
pecting his  dividend,  that  the  money  has  been  expended  upon 
an   undertaking   which,  at   some  remote  period,   may  prove 


1  N.  Y.  285.  Just  as  Judge  Corn- 
stock  bad  done,  Judge  Selden  de- 
cided in  favor  of  the  plaintiff,  but 
on  a  different  ground.  He  held  that 
as  the  contract  for  transportation 
was  ultra  vires,  no  action  would  lie 

254 


on  it;    but  that  the  plaintiff  could 
recover  on  the  ground  of  tort.     See 
§§335ef  seq.,  as  to  liability  for  the 
torts  of  corporations. 
2  11  C.  B.  775. 


PART  III.]     ACTS    BEYOND    THE   CORPORATE   POWERS.       [§  291. 

highly  beneficial  to  the  line.  The  public  also  has  an  interest  in 
the  proper  administration  of  the  powers  conferred  by  the  act. 
....  If  the  contract  is  illegal,  as  being  contrary  to  the  act  of 
parliament,  it  is  unnecessary  to  consider  the  effect  of  dissentient 
shareholders,  for  if  the  company  is  a  corporation  only  for  a 
limited  purpose,  and  a  contract  like  that  under  discussion  is  not 
within  their  authority,  the  assent  of  all  the  shareholders  to  such 
a  contract,  though  it  may  make  them  all  personally  liable  to 
perform  such  contract,  would  not  bind  them  in  their  corporate 
capacity,  or  render  liable  their  corporate  funds." 

It  is  submitted,  however,  that  the  law  is  not  as  clearly  stated  in 
this  case  as  in  some  of  the  following  citations,  and  that  passages 
in  the  opinion  of  the  court  may  be  open  to  the  following  criti- 
cism in  a  remark  of  Justice  Blackburn  in  Taylor  v.  Chichester 
and  Midhurst  Railway  Company : l  "  I  think  it  very  unfortunate 
that  the  same  phrase  of  '  ultra  vires'1  has  been  used  to  express 
both  an  excess  of  authority  as  against  the  shareholders,  and 
the  doing  of  an  act  illegal  as  being  malum  prohibitum,  for  the 
two  things  are  substantially  different,  and  I  think  the  use  of 
the  same  phrase  for  both  has  produced  confusion." 2 

From  the  following  citations  it  would  seem  to  be  the  better 
opinion  in  England  that  an  act  which  is  ultra  vires  in  the  sense 
of  unauthorized,  is  not  necessarily  illegal ;  but  that  to  render  it 
so  it  must  be  ultra  vires,  meaning  by  the  term  that  which  is 
forbidden  expressly  or  by  implication.3 

"  Where  a  corporation  is  created  by  an  act  of  parliament  for 
particular  purposes,  with  special  powers  ....  their  deed, 
though  under  their  corporate  seal,  does  not  bind  them  if  it  ap- 
pear by  the  express  provisions  of  the  statute  creating  the  corpo- 
ration, or  by  necessary  or  reasonable  inference  from  its  enact- 
ments, that  the  deed  was  ultra  vires,  that  is,  that  the  legislature 
meant  that  such  a  deed  should  not  be  made." 4  As  used  by 
Baron  Parke,  the  phrase  ultra  vires  means  forbidden  at  least  by 
implication,  as  is  shown  by  the  last  line  in  the  citation  just  made, 


1  L.  R.  2  Ex.  356,  379. 

2  See  remark  of  Vice-Chancellor 
Kindersley,  in  Shrewsbury  v.  North 
Staffordshire  R'y  Co.,  35  L.  J.  Ch. 
156,  172. 

3  This  last  meaning  is  not  the  one 


in  which  ultra  vires  is  used  by  the 
present  writer,  §  264,  note. 

4  Baron  Parke  in  South  Yorkshire 
Ry.  Co.  v.  Great  Northern  Ry.  Co.,  9 
Ex.  55,  84. 

255 


§  292. J         THE   LAW    OF   PRIVATE   CORPORATIONS.    [CHAP.  VII. 


as  well  as  by  the  following  citation  from  the  opinion  of  the  same 
learned  judge  when  Lord  Wensleydale,  in  Scottish  North  East- 
ern Railway  Co.  v.  Stewart:1  "There  can  be  no  doubt  that  a 
corporation  is  fully  capable  of  binding  itself  by  any  contract 
under  its  common  seal  in  England,  without  it  in  Scotland,  ex- 
cept when  the  statute  by  which  it  is  created  or  regulated  ex- 
pressly or  b}r  necessary  implication  prohibits  such  contract 
between  the  parties.  Prima  facie  all  its  contracts  are  valid,  and 
it  lies  on  those  who  impeach  any  contract  to  make  out  that  it  is 
avoided.  This  is  the  doctrine  of  ultra  vires,  and  is  no  doubt 
sound  law,  though  the  application  of  it  to  the  points  of  each 
particular  case  has  not  always  been  satisfactory  to  my  mind." 
Within  its  scope  the  following  is  also  a  satisfactory  statement 
of  the  law  :  "  If  a  contract  made  by  a  company  incorporated 
by  act  of  parliament  for  defined  and  limited  objects,  discloses 
on  the  face  of  it  a  covenant  which,  if  enforced,  would  cause  the 
funds  to  be  appropriated  to  purposes  other  than  those  to  which 
the  act  says  they  shall  '  only '  be  applied,  such  an  agreement 
cannot  be  made  the  foundation  of  an  action.  In  the  case  of 
railway  companies  it  is  necessary  not  only  for  the  shareholders, 
but  for  the  public,  that  this  should  be  so." 2 

§  292.  In  our  American  jurisprudence  lines  of  distinction 
may  be  drawn  between  acts  of  corporations  which 
are  merely  ultra  vires,  and  acts  which,  besides  be- 
ing ultra  vires,  are  for  some  reason  unlawful.  The 
latter  may  be  divided  into  three  classes :  First,  acts 
immoral  in  themselves,  as  contra  honos  mores;  secondly,  acts 
which  corporations  are  forbidden  to  do  by  some  statutory  pro- 
vision ;  and,  thirdly,  acts  which  on  grounds  of  public  policy 
corporations  intrusted  with  the  performance  of  a  public  trust 
or  duty  are  held  prohibited  from  doing. 


Classes  of 
ultra  vires 
acts  which 
are  also 
illegal. 


1  3  Macqueen,  382,  415. 

2  Montague  Smith,  J.,  in  Taylor  v. 
Chichester,  etc.,  Ry.  Co.,  L.  R.  2  Ex. 
356,  370.  This  case  will  repay  care- 
ful reading,  not  omitting  the  dissent- 
ing opinion  of  Judge  Blackburn.  It 
was  reversed  in  the  House  of  Lords, 
L.  R.  4  H.   L.  628.     See  also    espe- 

256 


cially  the  later  authoritative  exposi- 
tion of  the  doctrine  of  ultra  vires  in 
Ashbury  Railway  Carriage,  etc.,  Co. 
v.  Riche,  L.  R.  7  H.  L.  653;  §296; 
and  compare  Yorkshire  Railway 
Wagon  Co.  v.  Maclure,  21  Ch.  Div. 
309. 


PART  HI.]    ACTS   BEYOND   THE   CORPORATE    POWERS.       [§  293. 

§  293.  Acts  of  the  first  class,  by  common  law  principles,  are 
branded  as  mala  in  se  ;  or  are  prohibited  by  statute,  First  class, 
and  thereby  become  mala  prohibita.  To  them  applies  ^Oc^scontra 
the  maxim,  Ex  turpecausa  non  oritur  actio.  Accord-  mores. 
ingly,  a  contract  containing  an  immoral  object,  or  a  contract 
of  which  the  consideration  is  immoral,  is  illegal,  and  may  be 
avoided  by  either  party.  Such  a  contract  a  court  will  never 
lend  itself  to  enforce.  Thus,  an  agreement  to  pay  a  certain 
sum  for  obtaining  the  passage  of  a  law  in  a  state  legislature  is 
void  ; x  as  is  an  agreement  for  contingent  compensation  for  pro- 
curing a  contract  to  furnish  supplies  to  the  government.2  So  a 
bill  of  exchange  drawn  in  one  state  upon  a  party  in  another, 
the  known  and  common  purpose  of  both  parties  being  to  carry 
on  a  business  of  private  banking,  declared  unlawful  by  a  statute 
of  the  first  state,  is  void  in  the  hands  of  a  party  to  the  bill  with 
notice  of  its  true  character.3 

It  is  essential,  however,  that  the  illegality  should  inhere  in 
the  very  act  or  contract  sought  to  be  declared  illegal.4  Accord- 
ingly, it  is  no  defence  to  a  suit  for  a  debt,  that  it  arose  from  the 
receipt  of  the  bills  of  a  bank  illegally  chartered  for  fraudulent 
purposes,  and  that  the  bills  were  void  in  law,  and  finally  proved 
worthless  in  fact.3  Moreover,  it  is  held  that  the  mere  knowl- 
edge of  the  one  party  that  the  other  is  going  to  use  the  proceeds 
of  the  contract  for  some  illegal  purpose,  will  not  render  the 
contract  void,  as  against  the  party  who  does  not  himself  par- 
ticipate in  the  illegal  undertaking.6  Thus,  knowledge  on  the 
part  of  a  bank  lending  money  that  it  is  to  be  used  to  carry  out 
a  contract  to  supply  arms  to  the  Confederate  government,  will 
not  prevent  the  bank  from  recovering  the  loan.7 


1  Marshall  v.  Baltimore  and  Ohio 
R.  R.  Co.,  16  How.  314. 

2  Tool  Co.  v.  Norris,  2  Wall.  45. 

8  Davidson  v.  Lanier,  4  Wall.  448. 
Compare  People  v.  Utica  Ins.  Co.,  15 
Johus.  (N.  Y.)  358. 

4  See  Nat.  Pemberton  Bk.  v.  Porter, 
125  Mass.  333;  Atlas  Nat.  Bk.  v. 
Savery,  127  Mass.  75;  Attleborough 
Nat.  Bk.  v.  Rogers,  125  Mass.  339. 

5  Orchard  v.   Hughes,   1   Wall.  73. 

17 


The  bills  themselves  were  actually 
current  at  the  time  when  the  defend- 
ant received  them,  and  did  not  prove 
worthless  in  his  hands;  nor  had  he 
been  forced  to  take  them  back  from 
persons  to  whom  he  had  paid  them. 

e  Tracy  v.  Talmage,  14  N.  Y.  162; 
§286. 

7  Jones  v.  Planters'  Bank,  9  Heisk. 
(Tenn.)  455;  Bank  of  Tennessee  V. 
Cummings,  ib.  465. 

257 


&~* 


§  296.]        THE   LAW    OF   PRIVATE   CORPORATIONS.    [CHAP.  VII. 

§  294.  Secondly,  as  to  the  effect  of  a  statutory  prohibition, 

Second         forbidding  the  doing  of  certain  acts  by  corpora- 
class.    Acts  t^no 
forbidden        L1«I1!5- 

by  statute.  g  295.  To  general  prohibitions  against  the  doing 
General  by  corporations  of  acts  beyond  the  scope  of  the  cor- 
tions!  ~  porate  powers  courts  appear  to  give  little  effect. 
And.  this  perhaps  on  account  of  the  hardship  that  might 
arise  from  giving  full  effect  to  such  statutes.  There  exists 
in  New  York,  for  instance,  the  following  statute:  "In  addi- 
tion to  the  powers  enumerated  in  the  first  section  of  this 
title,  and  to  those  expressly  given  in  its  charter,  or  in  the  act 
under  which  it  is  or  shall  be  incorporated,  no  corporation  shall 
possess  or  exercise  any  corporate  powers,  except  such  as  shall 
be  necessary  to  the  exercise  of  powers  so  enumerated  and 
given." *  To  this  statute  the  New  York  courts  give  little  ef- 
fect, construing  it  as  merely  declarator)'  of  the  common  law.2 
The  New  Jersey  courts,  however,  have  held  a  very  similar 
statute,  which  they  regard  as  declaring  the  public  policy  of 
that  state,  to  render  illegal  and  void  any  contract  beyond  the 
scope  of*  the  corporate  powers.3 

§  296.  The  English  companies'  act  of  1862 4  contains  the  fol- 
lowing provision  :  "  Any  company  limited  by  shares 
"  compa-  may  so  far  modify  the  conditions  contained  in  its 
mes  ac  '  memorandum  of  association,  if  authorized,  to  do  so 
by  its  regulations  as  originally  framed,  or  as  altered  by  special 
resolution  in  manner  hereinafter  mentioned,  as  to  increase  its 
capital  by  the  issue  of  new  shares  of  such  amount  as  it  thinks 
expedient,  or  to  consolidate  and  divide  its  capital  into  shares  of 
larger  amount  than  its  existing  shares,  or  to  convert  its  paid-up 
shares  into  stock ;  but,  save  as  aforesaid,  and  save  as  hereinafter 
provided  in  the  case  of  a  change  of  name,  no  alteration  shall  be 
made  by  any  company  in  the  conditions  contained  in  its  mem- 
orandum of  association." 5     One  of  the  conditions  required  by 


i  3  N.  Y.  Rev.  Stat.,  8th  ed.,  1723; 
cf.  N.  Y.  Laws  of  1892,  ch.  687, 
§10. 

2  See  Curtis  v.  Leavitt,  15  N.  Y.  9, 
54;  Halsted  v.  Mayor,  etc.,  of  New 
York,  3  N.  Y.  430,  433;  Bond  v. 
Terrell  M'f'g  Co.,  82  Tex.  309. 

8  Morris   and   Essex   R.    R.    Co.  ». 

258 


Sussex  R.  R.  Co.,  20  N.  J.  Eq.  542; 
cf.  Steiner  v.  Steiner  L.  &  L.  Co. 
120  Ala.  128;  So.  B.  &  L.  Assn.  v. 
Casa  Grande  Stable  Co.,  128  Ala. 
624. 

4  25  and  26  Vict.,  c.  89. 

5  §12. 


PART  HI.]     ACTS    BEYOND    THE   CORPORATE   POWERS.       [§  298. 

this  act  to  be  stated  is  "  the  objects  for  which  the  proposed 
company  is  to  be  established."1  In  view  of  these  statutory 
provisions,  it  was  held  in  Ashbury  Railway  Carriage  and  Iron 
Co.  v.  Riche,2  that  a  contract  not  included  in  the  memorandum 
of  association  could  not  be  enforced  against  the  company,  even 
if  the  whole  body  of  shareholders  had  assented  to  it.3 

§  297.  To  formulate  a  rule  by  which  may  be  determined 
the  effect  of  a  statutory  prohibition  contained  in  the   Effect  of 
constitution  of  a  corporation,  on  the  validity  of  acts   statutory 

proliibi- 

thereby  forbidden  is  most  difficult.  Undoubtedly  tions. 
the  intention  of  the  legislature  is  to  be  followed  by 
the  courts  : 4  but  how  determine  that  intention  ?  With  diffi- 
dence the  following  rule  is  submitted:5  If  a  statute  expressly 
forbids  a  corporation  to  make  a  certain  contract,  the  contract 
is  void,  even  though  not  expressly  declared  to  be  so,  and  is  in- 
capable of  ratification  ;  and  that  the  contract  is  void  as  unlaw- 
ful, may  be  pleaded  by  any  one  to  an  action  founded  directly 
and  exclusively  on  the  contract ;  unless  (1)  the  statute  expressly 
states  what  the  consequences  of  violating  it  shall  be,  and  those 
consequences  are  other  than  that  the  contract  is  void  ;  or  (2)  the 
statutory  prohibition  was  evidently  imposed  for  the  protection 
of  a  certain  class  of  persons  who  alone  may  take  advantage 
of  it ;  or  (3)  to  adjudge  the  contract  void  and  incapable  of  form- 
ing the  basis  of  a  right  of  action  would  clearly  frustrate  the  evi- 
dent purposes  of  the  prohibition  itself. 

§  298.  The  rule  just  stated  may  be  illustrated  by  decisions. 
First,  as  to  the  body  of  the  rule;  the  prohibited  con-   niustra- 
tract  is  void,  and  its  illegality  may  be  pleaded  by  any    oTthe  rail. 
one  to  an  action  founded  directlv  and  exclusivelv  on    Excessive 

•     .         rate  of  rn- 

the  contract  itself.6     If  the  charter  of  a  bank  forbids   terest. 


i§8. 

2  L.  R.  7  H.  L.  653. 

8  Lord  Cairns  said  he  did  not  wish 
to  consider  such  a  contract  illegal, 
but  "  extra  vires  and  wholly  null  and 
void,"  and  incapable  of  ratification. 
(L.  R.  7  H.  L.  673).  But  whether  or 
not  the  contract  should  be  called 
illegal,  the  court  certainly  construed 


the  statute  as  prohibiting  it;  and, 
consequently,  the  contract  was  con- 
trary to  law. 

4  See  Harris  v.  Runnels,  12  How. 
79. 

5  Forbidden  acts  will  of  course  be 
ultra  vires  the  corporation;  and  in 
that  respect  their  validity  will  de- 
pend on  principles  heretofore  stated. 


6  For  note  6  see  p.  260. 


259 


§  298.]        THE   LAW    OF    PRIVATE   CORPORATIONS.    [CHAP.  VII. 

the  bank  to  take  more  than  a  certain  rate  of  interest,  a  note 
taken  by  it  in  violation  of  this  prohibition  is  void ;  even 
though  the  statute  does  not  expressly  declare  void  contracts  in 
which  a  rate  of  interest  greater  than  allowed  is  stipulated  for.1 
So  if  a  statute  prohibits  banks  from  issuing  or  circulating  any 
bill  or  note  that  is  not  payable  on  demand  without  interest, 
notes  issued  in  contravention  of  it  are  illegal  and  void,  even  in 
the  hands  of  a  bona  fide  purchaser  for  value.2     And  when  a  cor- 


Here  this  is  not  the  point  under  con- 
sideration; but  whether,  and  in 
what  respect,  the  illegality  of  the 
act  may  be  taken  advantage  of  even 
by  those  persons  who,  had  the  act 
not  been  forbidden,  might  not  have 
been  iu  a  position  to  complain  of  it. 

6  Barton  v.  Port  Jackson,  etc., 
Plauk  Road  Co.,  17  Barb.  397;  Sibell 
v.  Renisen,  33  N.  Y.  95;  Franklin 
Bank  o.  Commercial  Bank,  36  Ohio 
St.  350;  McCormick  v.  Nat.  Bank, 
102  111.  100.  The  Roman  law  states  the 
principle  thus:  "Nullum  enim  pac- 
tum, nullam  conventionem,  nullum 
contractual  inter  eos  videri  volumus 
subsecutnm,  qui  contrahunt  lege 
contrahere  prohibente."  Codex,  I. 
14,  lex  5.  A  person  cannot  recover 
from  a  corporation  for  services  in 
negotiating  on  its  behalf  a  contract 
which  it  was  forbidden  by  statute  to 
make.  Gibbs  v.  Bait.  Gas  Co.,  130 
U.  S.  396. 

1  Bank  of  U.  S.  v.  Owens,  2  Pet. 
527;  Bank  of  Salina  v.  Alvord,  31 
N.  Y.  473;  Bank  of  Chillicothe  v. 
Swayne,  8  Ohio,  257;  Kilbreth  v. 
Bates,  38  Ohio  St.  187;  Miami  Ex- 
porting Co.  o.  Clark,  13  Ohio,  1;  Orr 
v.  Lacey,  2  Dougl.  (Mich.)  230.  Sue 
Hitchcock's  Heirs  v.  United  States 
Bank,  7  Ala.  386,  434.  If,  however, 
the  usury  laws  of  the  state  do  not 
render  usurious  contracts  void, 
courts,  in  construing  provisions  in 
the  constitution  of  a  corporation 
which    prohibit  taking  more  than  a 

260 


given  rate  of  interest,  may  follow  the 
analogy  of  the  construction  put  on 
the  usury  laws.  Philadelphia  Loan 
Co.  v.  Towner,  13  Conn.  249;  Com- 
mercial Bank  v.  Nolan,  8  Miss.  508; 
Planters'  Bank  v.  Sharp,  12  Miss.  75; 
Grand  Gulf  Bank  v.  Archer,  16  Miss. 
151;  Larwell  v.  Hanover  Savings 
Fund  Society,  40  Ohio  St.  244.  In 
the  absence  of  special  legislative  ex- 
ception, corporations  are  embraced 
in  usury  statutes  just  as  persons, 
and  may  plead  usury.  Commission- 
ers of  Craven  v.  Atlantic  &  N.  C.  R. 
R.  Co.,  77  N.  C.  289.  The  penalties 
of  the  usury  laws  apply  to  the  acta 
of  corporations  done  without  the 
state;  e.  r/.,  when  suit  is  brought 
within  the  home  state  on  a  note  taken 
by  the  corporation  outside  of  the 
home  state,  and  this  although  the 
laws  of  the  state  where  the  contract 
was  made  authorized  the  rate  of  in- 
terest stipulated  for.  Ewing  v.  To- 
ledo S'v'gs  Bk.,  43  Ohio  St.  31.  See 
Farmers  and  Traders'  Bank  v.  Har- 
rison, 57  Mo.  503;  Perkins  v.  Watson, 
2  Baxt.  (Tenn.)  173.  Compare  Buk- 
ingham  v.  McLean,  13  How.  151; 
Bank  of  United  States  v.  Waggener, 
9  Pet.  378. 

2  Leavitt  v.  Palmer,  3  N.  Y.  19, 
Root  v.  Godard,  3  McLean,  102;  Hay- 
den  v.  Davis,  ib.  276;  Weed  v.  Snow, 
ib.  265 ;  Root  v.  Wallace,  4  McLean, 
8;  Davis  v.  Bank  of  River  Raisin, 
ib.  387.  See  Western  Bank  v.  Mills, 
7  Cush.  539;   Mills  v.  Western  Bank, 


PART  III.]     ACTS    BEYOND    THE   CORPORATE   POWERS.       [§  300. 


poration  without  banking  powers  discounts  a  note  in  direct  vio- 
lation of  a  statute,  it  cannot  recover  on  the  note.1 

§  299.  Next,  as  to  the  first  qualification  of  the  general  rule: 
the  forbidden  contract  will  not  be  void  if  the  statute 
which  the  contract  violates  specifies  the  consequences  fication. 
of  its  violation,  and  those  consequences  are  other 
than  that  the  contract  is  void  and  incapable  of  forming  the 
basis  of  an  action.  As  was  said  in  Pratt  v.  Short:2  "  A  pro- 
hibitory statute  may  itself  point  out  the  consequences  of  its 
violation,  and  if,  on  a  consideration  of  the  whole  statute,  it  ap- 
pears that  the  legislature  intended  to  define  such  consequences, 
and  to  exclude  any  other  penalty  or  forfeiture  than  such  as  is 
declared  in  the  statute  itself,  no  other  will  be  enforced,  and  if 
an  action  can  be  maintained  on  the  transaction  of  which  the 
prohibited  transaction  was  a  part  without  sanctioning  the  ille- 
gality, such  action  will  be  entertained." 3  In  this  case  the 
statute  declared  that  "  no  incorporated  company  without  being 
authorized  by  law,  shall  employ  any  part  of  its  effects,  or  be 
in  any  way  interested  in  any  fund  that  shall  be  employed  for 
the  purpose  of  receiving  deposits,  making  discounts  or  issuing 
notes,  or  other  evidences  of  debt,  to  be  loaned  or  put  in  circu- 
lation as  money.'1  And  it  further  declared  that  all  notes  or 
other  securities  for  the  payment  of  money  "  made  or  given  to 
secure  the  payment  of  any  money  loaned  or  discounted  by  any 
incorporated  company  contrary  to  the  provisions  of  the  [statute], 
shall  be  void."  The  court  held  the  notes  or  securities  so  taken 
to  be  void,  but  that  the  money  loaned  on  them  could  be  recov- 
ered.4 

§  300.  The  second  qualification  to  the  general  rule  is  that  the 
contract  will  not  be  absolutely  void  when  the  pro-   g       , 
hibition  exists  plainly  for  the  protection  of  a  certain   quaiifica- 
class  of  persons,  who  alone  may  take  advantage  of  it. 

3  See  Robinson  ».  Bland,  2  Burr. 
1077;  Lister  v.  Howard  Bank,  33 
Md.  558. 

4  See,  also,  Utica  Ins.  Co.  v.  Kip, 
8  Cow.  20;  Same  v.  Cadwell,  3  Wend. 
290;  Underhill  ».  Santa  Barbara  Land 
Co..  93  Cal.  300,  311.  Compare  Life, 
etc..  Ins.  Co.  v.  Mecb.  Fire  Ins.  Co., 
7  Wend.   31;    New   Hope  Delaware 

261 


10  Cush.  22;  compare  Faneuil  Hall 
Bank  v.  Bank  of  Brighton,  16  Cray, 
534. 

1  New  York  State  Loan  and  Trust 
Co.  v.  Helmer,  77  N.  Y.  64;  In  re 
Jaycox,  12  Blatcbf.  209;  Utica  Ins. 
Co.  v.  Scott,  19  Johns.  1.  See  Pratt 
v.  Short,  79  N.  Y.  437. 

2  79  N.  Y.  437,  445. 


§  301.]         THE   LAW    OF    PRIVATE   CORPORATIONS.    [CHAP.  VH. 


As  Judge  Cooley  said,  in  Beeeher  v.  Marquette  and  Pacific 
Rolling  Mill  Co.,1  "  Courts  often  speak  of  acts  and  contracts 
as  void,  when  they  mean  no  more  than  that  some  party  con- 
cerned has  a  right  to  avoid  them.  Legislators  sometimes  use 
language  with  equal  want  of  exact  accuracy  ;  and  when  they 
say  that  some  act  or  contract  shall  not  be  of  any  force  or  effect, 
mean  perhaps  no  more  than  this  :  that  at  the  option  of  those 
for  whose  benefit  the  provision  was  made  it  shall  be  voidable, 
and  have  no  force  or  effect  as  against  his  interests.2  ....  If 
it  is  apparent  that  an  act  is  prohibited  and  declared  void  on 
grounds  of  general  policy,  we  must  suppose  the  legislative 
intent  to  be  that  it  shall  be  void  to  all  intents;  while  if  the 
manifest  intent  is  to  give  protection  to  determinate  individuals 
who  are  mi  juris,  the  purpose  is  sufficiently  accomplished  if 
they  are  given  the  liberty  of  avoiding  it."3 

§  301.  Finally,  as  to  the  third  qualification,  the  contract  will 
not  be  held  void  and  incapable  of  constituting  the 
basis  of  an  action,  if  to  do  so  would  frustrate  the 
manifest  intent  of  the  statute.  The  National  Bank- 
ing Act  provides  that  "  the  total  liabilities  to  any 
association  of  any  person  ....  shall  at  no  time 
exceed  one-tenth  of  the  amount  of  the  capital  stock  of  such 
association  actually  paid  in."  In  view  of  this  section  the 
Supreme  Court  of  the  United  States  holds  that  a  defendant 
sued  by  a  national  bank  for  moneys  loaned  him  cannot  plead 
that  in  making  him  the  loan  the  bank  violated  this  provision.4 
"  We  do  not  think  that  public  policy  requires,  or  that  Congress 
intended  that  an  excess  of  loans  be}rond  the  proportion  specified 
should  enable  the  borrower  to  avoid  the  payment  of  the  money 
actually  received  by  him.  This  would  be  to  injure  the  interests 
of  creditors,  stockholders,  and  all  who  have  an  interest  in  the 
safety  and  prosperity  of  the  bank." 5 


Third  qual 

ification. 

Excessive 

loans  by 

national 

banks. 


Bridge  Co.  v.  Poughkeepsie  Silk  Co., 
25  Wend.  648;  Tracy  v.  Talmage,  14 
X.  Y.  162,  189;  Curtis  v.  Leavitt,  15 
N.  Y.  98. 

1  45  Mich.  103,  108;  Ace.  Ricsterer 
v.  Land  &  Lumber  Co.,  160  Mo.  141. 

2  See  Green  v.  Kemp,  13  Mass.  515. 
8  Compare  Johnson   v.    Underbill, 

52  N.  Y.  203;  Greenpoint  Sugar  Co. 

262 


v.  Whitin,  69  N.  Y.  328;  Paulding  v. 
Chrome  Steel  Co.,  94  N.  Y.  334;  An- 
derson v.  Bullock  County  Bank,  122 
Ala.  275;  §  185. 

4  Gold  Mining  Co.  v.  National 
Bank,  96  U.  S.  640. 

5  96  U.  S.  642,  followed  in  Dun- 
comb  v.  New  York,  H.  and  N.  R.  R. 
Co.,  84  N.  Y.  190.     See  Union  Gold 


PART    III.]     ACTS    BEYOND   THE   CORPORATE   POWERS.     [§  302. 


In  another  instance  where  a  statute  provided  that  savings 
banks  should  make  no  loans  on  the  security  of  names  alone,  it 
was  held  that  the  statute  should  not  be  construed  so  as  to  defeat 
its  own  purpose,  and  that  a  loan  made  by  a  savings  bank  in 
contravention  of  it  could  be  recovered,  and  the  security  given 
(a  note)  enforced.1  Again,  a  provision  in  the  charter  of  a  bank 
prohibiting  any  director  or  other  officer,  under  penalty  of  fine 
or  imprisonment,  from  borrowing  money  from  the  bank,  does 
not  exempt  a  director  from  liability  for  money  loaned  to  him 
in  violation  of  the  prohibition ; 2  and  a  corporation  can  retain 
negotiable  securities  given  at  the  time  to  secure  the  repayment 
of  such  a  loan,  but  belonging  to  an  innocent  cestui  que  trust  for 
whom  the  borrower  was  trustee;  the  corporation  having  no 
notice  of  the  trust.3 

§  302.  The  last-mentioned  qualification,  that  an  act  will  not 
be  held  void  when  to  hold  it  so  would  frustrate  the 
intention  of  the  statutory  prohibition,  is  of  common   ^onslay 
application  where  the  prohibition  is  not  express,  but   ippiica- 
arises  by  clear  implication  from  the  language  of  the 
charter  or  enabling  statute  of  the  corporation.     Here  the  lead- 
ing authority  is  National  Bank  v.  Matthews,4  which  decided 
that  real  estate  security  taken  by  a  national  bank  for  a  loan 
made  at  the  time  is  not  void,  although  by  implication  national 
banks  are  clearly  forbidden  to  loan  money  on  such  security.    As 
Justice  Swayne  said,  giving  the  opinion  of  the  court :  u  The 
object  of  the  restrictions  was  obviously  threefold.     It  was  to 
keep  the  capital  of  the  banks  flowing  in  the  daily  channels  of 
commerce,  to  deter  them  from  embarking  in  hazardous  real 
estate  speculations,  and  to  prevent  the  accumulation  of  large 
masses  of  such  property  in  their  hands,  to  be  held,  as  it  were, 
in  mortmain.     The  intent,  not  the  letter,  of  the  statute  consti- 


M'g  Co.  v.  Rocky  Mt.  Nat.  Bank,  2 
Col.  248;  Allen  v.  First  Nat.  Bank, 
23  Ohio  St.  97. 

1Farmington  Savings  Bank  v.  Fall, 
71  Me.  49.  A  corporation  authorized 
to  loan  on  bond  and  mortgage  may  re- 
cover a  debt  secured  by  a  promissory 
note  and  mortgage.  National  Bank 
v.  Insurance  Co.,  41  O.  St.  1. 


2  Lester  v.  Howard  Bank,  33  Md. 
558;  Bowditch  v.  New  England  Life 
Ins.  Co.,  141  Mass.  292;  see  Richmond 
Bank  v.  Robinson,  42  Me.  589. 

3  Bowditch  v.  New  England  Life 
Ins.  Co.,  141  Mass.  292. 

498U.  S.  621. 


263 


§  302.]         THE    LAW   OF    PRIVATE   COBPORATIONS.   [CHAP.  VII. 

tutes  the  law.  A  court  of  equity  is  always  reluctant  in  the  last 
degree  to  make  a  decree  which  will  affect  a  forfeiture."1 

" .  .  .  .  The  statute  does  not  declare  such  a  security  void. 
It  is  silent  upon  the  subject.  If  Congress  so  meant,  it  would 
have  been  easy  to  say  so,  and  it  is  hardly  to  be  believed  that 
this  would  not  have  been  done,  instead  of  leaving  the  question 
to  be  settled  by  the  uncertain  result  of  litigation  and  judicial 
decision.  Where  usurious  interest  is  contracted  for,  a  forfeiture 
is  prescribed  and  explicitly  defined." 2 

"  .  .  .  .  We  cannot  believe  it  was  meant  that  stockholders, 
and  perhaps  depositors  and  other  creditors,  should  be  punished 
and  the  borrower  rewarded,  by  giving  success  to  this  defence 
wherever  the  offensive  fact  shall  occur.  The  impending  danger 
of  judgment  of  ouster  and  dissolution  was,  we  think,  the  check, 
and  none  other  contemplated  by  Congress." 3  Accordingly,  a 
national  bank  may  enforce  against  a  mortgagee,  and  parties 
claiming  under  him  with  notice,  a  mortgage  of  lands  executed 
to  it  as  collateral  security  for  his  then  existing  as  well  as  his 
future  indebtedness.  An  objection  to  taking  such  a  mortgage 
as  security  for  future  advances  can  be  urged  only  by  the  United 
States.4 


198  U.  S.  626. 

2  lb.  627. 

3  lb.  629.  This  case  was  followed 
in  Graham  o.  National  Bauk,  32  N.  J. 
Eq.  804  ;  Thornton  v.  Nat.  Exch.  Bk., 
71  Mo.  221  ;  Winton  v.  Little,  94  Pa. 
St.  64  (overruling  previous  Pennsyl- 
vania decisions)  ;  Oldham  v.  First 
Nat.  Bk.,  85  N.  C.  240.  Compare 
Silver  Lake  Bauk  v.  North,  4  Johns. 
Oh.  370. 

*  National  Bank  v.  Whitney,  103 
U.  S.  99  ;  Ace.  Fortier  i\  New  Or- 
leans Nat.  B'k  112  U.  S.  439,  fol- 
lowed in  Simons  r.  First  Nat.  Bk.,  93 
N.  Y.  269  ;  Myers  v.  Campbell,  Col- 
lector, 64  N.  J.  L.  186.  See  Reynolds 
r.  Crawfordsville  First  Nat.  Bk.,  112 
U.  S.  405  ;  Fiitts  v.  Palmer,  132  U. 
S.  282  ;  Thompson  v.  St.  Nicholas 
Xat.  Bk.,  146  lT.  S.  240;  Cheffee  c. 
Middlesex    R.    R.     14(3    Mass.    224; 

264 


Wherry  v.  Hale,  77  Mo.  20  ;  Fifth 
Nat'l  B'k,  v.  Pierce,  117  Mich.  376  ; 
Batty  v.  Eureka  Bank,  62  Kas.  384. 
The  following  cases,  in  so  far  as  in- 
consistent with  Nat.  Bk.  v.  Mat- 
thews, and  Nat.  Bk.  v.  Whitney,  are 
not  authority.  Crocker  v.  Whitney, 
71  N.  Y.  161  (reversed  in  Nat.  Bk.  v. 
Whitney)  ;  Fridley  v.  Bowen,  87  111. 
151. 

A  note  secured  by  mortgage  on 
real  estate  was  assigned  by  a  state 
bank  to  the  national  bank  organized 
as  its  successor  :  held,  that  the  na- 
tional bank  could  foreclose  the  mort- 
gage. Scofield  v.  State  Nat.  Bk.,  9 
Neb.  316.  A  national  bauk  which 
purchases  a  promissory  note  from 
an  indorsee  may  maintain  an  action 
thereon  against  a  prior  party  thereto, 
without  regard  to  whether  the  pur- 
chase was  one  the  national  bank  was 


PART  III.]     ACTS   BEYOND    THE   CORPORATE   POWERS.       [§  304. 


§  303.  It  is  in  accordance  with  this  reasoning  that  a  deed  of 
real  estate  to  a  national  bank,  or  other  corporation, 
rendered  incompetent  by  its  charter  or  enabling  act   ized  con- 
to  hold  the  real  estate  conveyed,  is  not  void,  but  void-   Je^estate* 
able  only  at  the  suit  of  the  government ;  for  to  make   tf0£srpora" 
such  conveyances  void  would  work  the  greatest  hard- 
ship and  uncertainty  of  title  in  subsequent  purchasers,  and  all 
purposes  of  public  policy  are  amply  subserved  by  holding  the 
deed  voidable  at  the  suit  of  the  government.1     The  same  ap- 
plies to  unauthorized  conveyances  of  personal  property  to  a 
corporation.2 

§  304.  We  proceed  now  to  consider  the  third  of  the  three 
general  classes  into  which  ultra  vires  acts  which  are 
also  illegal  were  divided;3  i.  e.,  those  acts  which, 
though  neither  immoral  in  themselves,  nor  forbidden 
by  statute,  certain  corporations  cannot  do  for  reasons 
of  public  policy. 


Third  class 
of  illegal 
ultra  vires 
acts.     Cor- 
porations 
with  public 
duties. 


authorized  to  make.  Nat.  Pember- 
ton  Bk.  ».  Porter,  125  Mass.  333  ; 
Atlas  Nat.  Bk.  v.  Savery,  127  Mass. 
75  ;  see  Attleborough  Nat.  Bk.  v. 
Rogers,  125  Mass.  339  ;  Merchants' 
Nat.  Bk.  v.  Hanson,  33  Minn.  40, 
overruling  First  Nat.  Bk.  v.  Pierson, 
24  Minn.  140. 

1  National  Bank  v.  Matthews,  98 
U.  S.  621,  628;  Mapes  v.  Scott,  94  111. 
379;  Warner  v.  De  Witt  County  Nat. 
Bank,  4  111.  App.  305;  Leazure  v. 
Hillegas,  7  S.  &  R.  313;  Goundie  v. 
Northampton  Water  Co.,  7  Pa.  St. 
233;  Runyan  ».  Coster,  14  Pet.  122; 
The  Banks  b.  Poitiaux,  3  Rand.(  Va. ) 
136;  Litchfield  ».  Preston,  98  Va. 
530;  Kelly  v.  People's  Trans'n  Co., 
3  Oreg.  189;  C.  B.  and  Q.  R.  Co.  v. 
Lewis,  53  Iowa,  101 ;  Barrow  v.  Nash- 
ville, etc.,  T.  C,  9  Humph.  (Tenn.) 
304;  Mallett  o.  Simpson,  94  N.  C.  37; 
Barnes  v.  Suddard,  117  111.  237;  Long 
v.  Georgia  Pac.  Ry.  Co..  91  Ala.  519; 
Raganv.  McElroy,  98  Mo.  349;  S.  & 


N.  Ala.  R.  R.  Co.  v.  Highland  Ave. 

6  Belt  R.  R.  Co.,  119  Ala.  105;  Big- 
bee,  etc.,  P.  Co.  v.  Moore,  121  Ala. 
379;  First  Nat.  B'k  of  Sutton  v. 
Grosshaus,  61  Neb.  575.  See  Grant 
v.  Henry  Clay  Coal  Co.,  80  Pa.  St. 
208;  Burden  v.  Burden,  159  N.  Y. 
287;  Voltz  v.  Nat.  Bk.,  158  111.  532; 
Watts  v.  Gantt,  42  Neb.  869;  Land 
Co.  v.  R.  R.  Co.,  93  Va.  274;  Cooney 
o.  Pack'g  Co.,  169  111.  370.  Compare 
Fairfax's  Devisee  v.  Hunter's  Lessee, 

7  Crancb,  604;  Madison  Ave.  Bap. 
Chr.  v.  Oliver  St.  Bap.  Church,  73 
N.  Y.  82.  Contra,  Theveatt  ».  Bank, 
81  Ky.  1;  Gas,  etc.,  Co.  r.  Dairy  Co., 
60  Oh.  St.  96;  Water  Supply,  etc., 
Co.  v.  Tenney,  24  Colo.  344;  Hall  ». 
Bank,  145  Mo.  418;  George  v.  Somer- 
ville,  153  Mo.  7. 

After  a  corporation  that  has  the 
power  to  hold  land  has  made  a  pur- 
chase, the  collateral  question 
whether  it  was  a  violation  of  the 
charter  for  it  to  receive  the  convey- 


2  For  note  2 

3  For  note  3 


see  p.  266. 
see  p.  266. 


265 


§  304.]  THE    LAW    OF    PRIVATE   CORPORATIONS.  [CHAP.  VII. 

When,  in  order  to  accomplish  objects  in  which  the  welfare 
of  the  public  is  concerned,  a  corporation  is  organized  and 
powers  and  privileges  are  granted  to  it  "which  would  be  un- 
constitutional for  the  state  to  grant  for  private  objects,  any 
act  of  a  contractual  nature  that  the  corporation  attempts  to  do, 
which,  if  done,  would  render  the  corporation  incapable  of  ful- 
filling the  purposes  of  its  incorporation,  as  contemplated  in  its 
constitution,  is  illegal  and  void.1  Such  acts  are  void  because 
repugnant  to  the  public  welfare,  and  therefore  against  public 
policy.  Under  such  circumstances  public  polic\'  is  pretty  clearly 
defined,  and  in  order  to  determine  it  a  court  will  hardly  have 
to  deliberate  as  a  legislative  assembly.  It  is  a  public  policy 
already  pointed  out  by  the  legislature.  For  instance,  certain 
persons  are  incorporated  to  build  and  operate  a  railroad,  and 
the  right  to  take  land  b}7,  compulsory  process  is  given  them ;  a 
right  which  it  would  be  unconstitutional  to  grant  for  a  private 
purpose.  By  such  an  act  of  incorporation  the  legislature  plainly 
indicates  its  view  that  the  welfare  of  the  public  demands  the 
building  and  operation  of  such  a  railroad  as  directed  in  the 
charter,  and  impliedly  asserts  that  any  act,  as  a  transfer  of  the 
road,  which  wrould  render  impracticable  the  carrying  out  of 
the  provisions  in  the  charter  in  the  manner  prescribed,  is  con- 
trary to  public  policy. 


ance,  cannot  be  raised  in  a  suit  in 
ejectment  by  the  corporation.  Shew- 
alter  v.  Pirner,  55  Mo.  218;  Land  v. 
Coffrnan,  50  Mo.  243;  Chambers  v. 
St.  Louis,  29  Mo.  576.  Compare  Cole- 
man v.  San  Rafael  Turnpike  Co.,  49 
Cal.  517;  City  of  Natchez  v.  Mallery, 
54  Miss.  499;  see  §  276. 

2  Edwards  v.  Fairbanks,  27  La. 
Ann.  449;  compare  Parish  v.  Wheeler, 
22  N.  Y.  494. 

8  §  292. 

1  Gulf,  etc.,  R'y  Co.  v.  Morris,  67 
Tex.  692;  Chicago  Cas  Light  Co.  v. 
People's  Gas  Light  Co.,  121  111.  530; 
Visalia  Gas  Co.  v.  Sims,  104  Cal.  320. 
A  contract  whereby  a  street  railroad 
company  transfers  to  an  individual 

266 


for  his  private  use  the  practically  ex- 
clusive use  of  its  tracks  is  void  as 
against  public  policy.  The  right  to 
construct  and  operate  a  street  rail- 
road is  a  franchise  which  must  have 
its  source  in  the  sovereign  power; 
and  it  is  a  franchise  which  the  legis- 
lature can  grant  only  for  the  public 
benefit,  and  not  for  private  use. 
Fanning  v.  Osborn,  102  N.  Y.  441. 
In  Sapp  v.  Northern  Central  Ry.  Co., 
51  Md.  115,  it  was  held  that  an  ease- 
ment of  a  private  right  of  way  could 
not  be  acquired  against  a  railroad 
company  by  prescription;  for  pre- 
scription presupposes  a  grant,  and  a 
railroad  company  could  not  grant 
such  an  easement. 


PART    III.]  ACTS    BEYOND    THE    CORPORATE    POWERS.       [§  305. 


§  305.  The  grounds  on  which  acts  of  this  nature  are  held 
illegal  and  void  are  clearly  stated  by  Justice  Miller 
in  Thomas  v.  The  Railroad  Company  : l  "  AVhen  a  cor-  ^n^kises* 
poration,  like  a  railroad  company,  has  granted  to  it  by 
charter  a  franchise  intended  in  large  measure  to  be  exercised  for 
the  public  good,  the  due  performance  of  those  functions  being 
the  consideration  of  the  public  grant,  any  contract  which  dis- 
ables the  corporation  from  performing  those  functions,  which 
undertakes,  without  the  consent  of  the  state  to  transfer  to 
others  the  rights  and  powers  conferred  by  the  charter,  and  to 
relieve  the  grantees  of  the  burdens  which  it  imposes,  is  a  viola- 
tion of  the  contract  with  the  State,  and  is  void  as  against  public 
policy.'' 2  Accordingly,  in  the  absence  of  express  authority,  a 
corporation  like  a  railroad  or  canal  company,  with  public  duties 
to  perform,  cannot  lease  or  transfer  its  franchises  to  another 
corporation  or  an  individual;3  nor  mortgage  its  franchises;4 
nor  consolidate  with  another  corporation.5 


1 101  u.  S.  71. 

2  See,  also,  Driscoll  v.  Norwich, 
etc.,  R.  R.  Co.,  65  Conn.  230;  Union 
Pac.  Ry.  Co.  v.  Ry.  Co.,  163  U.  S. 
564;  Peoria  and  Rock  I.  Ry.  Co.  v. 
Coal  Valley  Mg.  Co.,  68  111.  489;  New 
Orleans,  etc.,  R.  R.  Co.  v.  Delaniure, 
34  La.  Ann.  1225;  Pierce  v.  Emery, 
32  N.  H.  484;  Singleton  v.  South- 
western R.  R.,  70  Ga.  464;  McGregor 
v.  Dover  and  Deal  Ry.,  17  Jur.  21; 
Chambers  v.  Manchester,  etc.,  Ry. 
Co.,  5  Best  &  Sm.  588;  In  re  Nat. 
Permanent  Bldg.  Soc,  ex  parte  Wil- 
liamson, L.  R.  5  Ch.  309;  London, 
Brighton,  etc.,  Ry.  Co.  v.  Lond.  and 
S.  \V.  Ry.  Co.,  5  Jur.  N.  S.  801;  also, 
East  Anglian  Railway  Co.  v.  Eastern 
Counties  Railway  Co.,  §  291. 

8  Thomas  v.  R.  R.  Co.,  101  U.  S. 
71;  Oregon  Ry.  Co.  v.  Oregonian  Ry. 
Co.,  130  U.  S.  1;  Van  Steuben  v.  Cen- 
tral R.  R.  Co.,  178  Pa.  St.  367;  Mem- 
phis, etc.,  R.  R.  Co.  v.  Grayson,  88 
Ala.  572;  State   v.   Atchison   and  N. 


R.  R.  Co.,  24  Neb.  143;  Brunswick 
Gas  Light  Co.  v.  United  Gas,  etc., 
Co.,  85  Me.  532;  Black  v.  Delaware 
and  Raritan  Canal  Co.,  24  N.  J.  Eq. 
456;  Middlesex  R.  R.  Co.  v.  Boston, 
etc.,  R.  R.  Co.,  115  Mass.  347;  Abbott 
e,  Johnstown,  etc.,  Horse  R.  R.  Co., 
80  N.  Y.  21;  Troy  and  Boston  R.  R. 
Co.  y.  Boston,  Hoosac  Tunnel,  etc., 
R.  R.  Co.,  86  N.  Y.  107;  Stewart's 
Appeal,  56  Pa.  St.  413;  Wood  v.  Bed- 
ford, etc.,  R.  R.  Co.,  8  Phi  la.  94; 
Board,  etc.,  Tippecanoe  County  v. 
Lafayette  M.  and  B.  R.  R.  Co.,  50 
Ind.  85;  Eel  River  R.  R.  Co.  v.  State, 
155  Ind.  433;  Amer.  Union  Tel.  Co. 
v.  Union  Pac.  Ry.  Co.,  1  McCrary, 
188;  Pittsburgh  and  C.  R.  R.  Co.  v. 
Bedford,  etc.,  R.  R.  Co.,  81*  Pa.  St. 
104;  Archer  v.  Terre  Haute,  etc.,  R. 
R.  Co.,  102  111.  493,  502;  State  v.  Con- 
solidation Coal  Co.,  46  Md.  1;  Winch 
v.  Birkenhead,  etc.,  Ry.  Co.,  5  De  G. 
&  Sm.  562:  Dow  v.  Northern  R.  R. 
Co.,  67  N.  H.  1. 


*  For  note  4  see  p.  268. 
5  For  note  5  see  p.  268. 


267 


§  305a.]      THE    LAW    OK    PRIVATE   CORPORATIONS.    [CHAP.   VII. 

§  305a.  In  accordance  with  its  previous  decisions,1  the  Su- 
preme Court  of  the  United  States  recently  held  that  a  corpora- 
tion having  public  duties  to  perform,  as,  for  example,  organized 
to  transport  passengers  in  its  cars,  cannot  lease  its  entire  prop- 
erty ;  such  a  lease  is  ultra  vires  and  void,  and  the  lessor  corpo- 
ration can  sustain  no  suit  upon  it  even  for  rent  due  at  the  time 
of  bringing  suit,  although  the  lessee  has  had  the  benefit  of  the 
lease.2 


Authority  to  consolidate  and  con- 
nect with  a  road  of  a  foreign  corpo- 
ration is  not  authority  to  lease  to 
that  corporation.  Archer  v.  Terre 
Haute  and  I.  R.  R.  Co.,  102  111.  493. 
Authority  given  by  statute  to  one 
railroad  company  to  buy  the  road  of 
another,  is  authority  to  the  latter 
company  to  sell.  New  York  and  N. 
E.  R.  R.  Co.  v.  N.  T.,  etc.,  R.  R.  Co., 
52  Conn.  274.  Compare  State  v.  Con- 
solidation Coal.  Co.,  46  Md.  1.  See 
§420. 

Authority  in  the  charter  of  a  tele- 
graph company  to  lease  its  line,  fix- 
tures, and  apparatus,  does  not  au- 
thorize a  lease  of  its  franchises,  and 
a  lease  of  its  franchises  is  void. 
Philadelphia  o.  Western  Union  Tel. 
Co.,  11  Phila.  327. 

A  railroad  company  cannot  escape 
the  performance  of  any  duty  or  obli- 
gation imposed  by  its  charter  or  the 
general  law,  by  a  voluntary  surrender 
of  its  road  into  the  hands  of  lessees; 
and  the  corporation  remains  liable 
for  injuries  occurring  when  its  road 
is  being  run  jointly  by  its  receiver 
and  its  lessees.  Railroad  Co.  v. 
Brown,  17  Wall.  445;  Whitney  v.  At- 
lantic, etc.,  R.  R.  Co.,  44  Me.  362; 
Wyman  v.  Penobscot,  etc.,  R.  R.  Co., 
46  Me.  162;  York  and  Maryland  Line 
R.  R.  Co.  v.  Winans,  17  How.  30; 
Ricketts  r.  Birmingham  Street  Ry. 
Co.,  85  Ala.  600;  Van  Steuben  v.  Cen- 
tral R.  R.  Co.,  178  Pa.  St.  367.  In 
Parr  r.  Railroad  Co.,  43  S.  C.  197,  a  j 
268 


railroad  company  was  held  liable  for 
an  injury  occurring  while  its  road  was 
being  operated  by  the  receiver  of  its 
lessees.     See  §§  131,  132,  170. 

4  Richardson  v.  Sibley,  11  Allen,  65; 
Commonwealth  v.  Smith,  10  Allen, 
448;  Daniels  v.  Hart,  118  Mass.  543. 
See  Richards  v.  Merrimack,  etc.,  R. 
R.  Co.,  44  N.  H.  127;  see  State  v. 
Sherman,  22  Ohio  St.  411,  428.  Au- 
thority to  a  railroad  company  to 
mortgage  its  "  road,  income,  and 
other  property "  does  not  authorize 
a  mortgage  of  its  franchises.  Pullan 
v.  Cincinnati,  etc.,  Air  Line  R.  R. 
Co.,  4  Biss.  35.  As  to  what  has  been 
construed  as  authority  to  a  railroad 
company  to  sell  or  mortgage  its  road, 
see  Branch  v.  Jesup,  106  U.  S.  468. 

It  has  been  held  that  a  railroad 
company,  expressly  authorized  to 
borrow,  has  implied  power  to  mort- 
gage its  road  and  its  right  to  build 
and  use  the  same;  though  the  court 
said  it  "could  not  (they  supposed) 
mortgage  its  corporate  existence  or 
any  other  prerogative  franchise." 
Bardstown  &  L.  R.  R.  Co.  v.  Metcalf, 
4  Mete.  (Ky.)  199. 

5  Pearce  v.  Madison,  etc.,  R.  R. 
Co.,  21  How.  441;  Adams  v.  R.  R. 
Co.,  77  Miss.  194;  Topeka  Paper  Co. 
0.  Oklahoma  Pub.  Co.,  7  Okl.  ^20. 

1  Oregon  Ry.  Co.  r.  Oregonian  Ry, 
Co.,  130  U.  S.  1;  Pa.  R.  R.  Co.  v.  St. 
Louis,  etc.,  R.  R.  Co.,  118  U.  S.  290. 

2  Central  Transportation  Co.  v. 
Pullman's  Palace  Car  Co.,  139  U.  S. 


PART    III.]  ACTS    BEYOND   THE   CORPORATE   POWERS.     [§  3056. 

§  3055.  Such  are  the  decisions.  Nevertheless  in  the  United 
States  it  would  be  difficult  to  find  a  railroad  company  that  has 
not  mortgaged  its  road  and  franchises,  and  in  most  instances 
under  express  legislative  authority.  And  perhaps  the  majority 
of  railroad  companies  either  lease  their  own  roads  or  hold 
leases  of  the  roads  of  other  companies.  The  words  of  Chief 
Justice  Ruger,  giving  the  opinion  of  the  New  York  Court  of 
Appeals  in  Woodruff  v.  Erie  Railway  Co.,  seem  more  in  accord 
with  present  railroad  customs  and  the  tendency  of  legislation : 
"  Whatever  may  be  the  rule  in  other  states  or  in  England,  the 
public  policy  of  this  state,  as  manifested  by  numerous  acts  of 
the  legislature,  has  always  been,  not  only  to  afford  the  fullest 
scope  for  the  consolidation  and  reorganization  of  non-coin peting 
railroads  and  railroad  corporations,  but  also  for  the  transfer  of 
the  use  of  such  roads  and  their  franchises  by  one  corporation 
to  another." x 

In  regard  to  corporations  with  public  duties  to  perform,  ques- 
tions of  ultra  vires  and  illegality  are  apt  to  run  into  each  other. 
In  chartering  a  corporation  of  this  character,  the  legislature 
may  be  presumed  to  have  in  view  mainly  the  interests  of  the 
public ;  and  may  further  be  presumed  to  express  in  the  charter 
or  enabling  act  the  legislative  conception  of  what  is  and  what 
is  not  conducive  to  the  public  interests.  Accordingly,  an  act 
done  by  such  a  corporation  which  is  plainly  unauthorized  by  its 
constitution  may  readily  be  held  by  the  courts  to  be  illegal  and 
void  as  against  public  policy."     Nevertheless,  corporations  with 


24.  See  Jacksonville,  etc.,  Ry.  ». 
Hooper,  160  U.  S.  514;  and  ante 
§283. 

1  93  N.  Y.  609,  618.  Accord  with 
this  remark,  Vermont  &  C.  R.  R.  Co. 
v.  Vermont  Central  R.  R.  Co.,  34  Vt. 
2,  49;  Shepley  v.  Atlantic,  etc.,  R.  R. 
Co.,  55  Me.  395,  407.  The  point  de- 
cided in  Woodruff  v.  Erie  Railway 
Co.  was  that  the  lessee  of  a  railroad 
could  not  plead  that  the  lease  was 
ultra  vires  the  lessor  company.  It 
was  held  in  Camden  &  A.  R.  R.  Co. 
v.  May's  Landing,  etc.,  R.  R.  Co.,  48 
N.  J.  L.  530,  that  the  lessee  could  not 
plead  to  an  action  for  rent  due  under 


a  lease  that  the  lease  was  beyond  its 
powers. 

2 It  is  not,  however,  against  public 
policy  for  a  railroad  corporation  to 
agree  to  do  what  it  possesses  no 
power  to  do,  provided  the  agreement 
be  conditioned  on  its  receiving  the 
requisite  authority  from  the  legisla- 
ture. Thus,  it  has  been  held  that  a 
corporation  may  agree  to  extend  its 
road  provided  certain  outsiders,  rep- 
resenting business  interests  along  the 
line  of  such  proposed  extension,  will 
secure  the  requisite  authority  from 
the  legislature.  "  It  was  in  sub- 
stance an  agreement  to  do  something 

269 


§  307. J  THE    LAW    OF   PRIVATE   CORPORATIONS.   [CHAP.  VII. 

public  duties  to  discharge,  like  other  corporations,  have  un- 
doubtedly all  powers  and  capacities  necessary  or  incidental  to 
the  accomplishment  of  the  objects  of  their  incorporation  and 
the  successful  carrying  out  of  their  business. 

§  30G.  That  such  corporations  can  do  no  act  which  does  or 
may  disable  them  from  serving  the  public  as  it  was 

Other  acts 

intended  they  should  serve  it,  and  that,  therefore, 
they  cannot  without  special  authority  transfer  or  mortgage 
their  franchises,  or  the  property  which  is  necessary  to  enable 
them  to  use  their  franchises,  seems  settled.  But  in  regard  to 
many  contracts  and  arrangements  made  by  railroad  companies, 
the  rights  of  the  public  are  to  be  considered  ;  and,  while  the 
vague  statement  may  be  made,  that  if  any  such  contract  in- 
fringes the  rights  of  the  public  it  will  be  void  as  against  public 
policy,  every  one  knows  that  public  rights  and  public  policy 
are  not  easily  ascertainable;  and  just  what  view  a  court  will 
take  of  any  given  contract,  counsel  may  find  difficult  to  prog- 
nosticate. 

§  307.  The  various  traffic  and  business  arrangements  of  rail- 
roads may  now   be  considered  ;   but,   beforehand,  a 

Traffic 

arrange-  general  rule  may  be  submitted  that  seems  fairly  de- 
ducible  from  the  decisions  and  sound  as  far  as  it  goes. 
A  business  or  traffic  arrangement  or  contract  entered  into  by  a 
railroad  or  other  corporation  charged  with  the  performance  of 
public  duties,  which  is  fairly  necessary,  incidental,  or  ancillary  to 
the  carrying  out  of  its  purposes  of  incorporation,  will  be  valid 
(assuming  the  contract  to  be  entered  into  in  the  proper  manner), 
provided  the  contract  is  not  injurious  to  the  public  (1)  by 
necessarily  or  potentially  rendering  the  corporation  incapable 
of  performing  its  public  duties  or  enabling  it  to  shirk  its  public 
obligations,  or  (2)  by  creating  a  monopoly  in  the  contracting 
parties,  through  the  stifling  of  competition  or  in  other  ways, 

not  at  that  time  legal,  but  which  the 
passing  of  an  expected  statute  would 
render  legal;  and  both  parties  must 
have  understood  that,  if  the  sanction 
of  the  legislature  should  be  withheld, 
the  contract  would  not  go  into  effect. 
The  contract  does  not  import  that 
plaintiffs  bound  themselves  to  con- 

270 


struct  the  road  at  all  events  and  with- 
out legislative  authority."  New 
Haven  and  Northampton  Co.  v.  Hay- 
den,  107  Mass.  522.  See,  also,  Super- 
visors v.  Wisconsin  Central  R.  R.,  121 
Mass.  460;  and  compare  Burbank  v. 
Jefferson  City  Gas  Light  Co.,  35  La. 
Ann.  444.     See  §  162  a. 


PART    III.]   ACTS   BEYOND   THE   CORPORATE   POWERS.       [§  308. 


contracts 
to  carry 
beyond 
their  lines. 


or  (3)  by  giving  exclusive  or  unfair  advantages  to  certain  in- 
dividuals over  the  general  public. 

§  308.  It  is  in  accordance  with  this  rule,  and  is  generally  ac- 
cepted law,  that  railroad  companies  may  make  con-  Carriers. 
tracts  with  passengers  and  shippers  for  carriage  be- 
yond their  own  lines ; l  and  in  order  to  fulfill  such 
contracts  may  make  suitable  arrangements  with 
connecting  railroad  and  steamboat  lines,2  including  contracts 
whereby  passenger  fares  and  freights  are  divided  between  the 
connecting  companies  in  certain  proportions.3  When  a  rail- 
road company  does  more  than  make  an  ordinary  contract  with 
a  connecting  line  for  the  transportation  of  passengers  and  mer- 
chandise and  a  division  of  receipts,  and  contracts  to  give  the 
other  company  control  or  extensive  running  powers  over  its 
road,  such  contract  may  be  of  questionable  validity  in  view  of 
the  rule  forbidding  railroad  companies  to  transfer  their  fran- 
chises or  put  it  out  of  their  power  to  serve  the  public  as  it  was 
intended  they  should  serve  it ;  namely,  through  their  own  cor- 
porate management,  and  not  by  handing  their  property  and 
franchises  over  to  another  corporation.4     Accordingly,  it  would 


1  For  authorities,  see  §  362. 

2  Stewart  v.  Erie  and  Western 
Trans'n  Co.,  17  Minn.  372;  Wiggins 
Ferry  Co.  v.  Chicago  and  Alton  R.  R. 
Co.,  73  Mo.  389;  Munhall  v.  Penn- 
sylvania R.  R.  Co.,  92  Pa.  St.  150. 
See  Green  Bay  and  Minn.  R.  R.  Co. 
v.  Union  Steamboat  Co.,  107  U.  S. 
98;  Railway  Companies  v.  Keokuk 
Bridge  Co.,  131  U.  S.  371;  Aruot  v. 
Erie  R'y  Co.,  5  Hun,  608;  Buffet  v. 
Troy  and  B.  R.  R.  Co.,  40  X.  Y. 
168;  Parish  v.  Wheeler,  22  X.  Y. 
494;   Wheeler  v.  San  Francisco  and 

A.  R.   Co.,  31   Cal.  46;    Rutland  and 

B.  R.  R.  Co.  v.  Proctor,  29  Vt.  93; 
Shawmut  Bank  v.  Plattsburgh,  etc., 
R.  R.  Co.,  31  Vt.  491;  Olcott  v. 
Tioga  R.  R.  Co.,  27  N.  Y.  546; 
South  Wales   R.  Co.  v.   Redmond,  10 

C.  B.  N.  S.  675;  Bartlette  v.  Nor- 
wich and  Worcester  R.  R.  Co.,  33 
Conn.  560.  Compare  Fitch  v.  New 
Haven,  etc.,  R.  R.  Co.,  30  Conn.  38. 


Or  may  purchase  a  steamboat.  Shaw- 
mut Bank  v.  Plattsburgh,  etc.,  R.  R. 
Co.,  31  Vt.  491.  But  see  Hoagland 
v.  Hannibal  &  St.  Jo.  R.  R.  Co.,  39 
Mo.  451;  Central  R.  R.,  etc.,  Co.  v. 
Smith,  76  Ala.  572. 

3  Elkins  v.  Camden  and  Atlantic  R. 
R.  Co.,  36  N.  J.  Eq.  241;  Sussex  R. 
R.  Co.  v.  Morris  and  Essex  R.  R.  Co., 
19  N.  J.  Eq.  13;  S.  C,  20  N.  J.  Eq. 
542;  Hare  y.  London  and  Northwest- 
ern R'y  Co.,  2  Johns.  &  Hem.  80. 
See  Hartford  and  N.  H.  R.  R.  Co.  v. 
New  York  and  N.  H.  R.  R.  Co.,  3 
Rob.  (N.  Y.)  411;  Columbus.  P.  and 
I.  R.  R.  Co.  v.  Indianapolis  and  B.  R. 
R.  Co.,  5  McLean,  450;  Androscog- 
gin, etc.,  R.  R.  Co.  v.  Androscog- 
gin R.  R.  Co.,  52  Me.  417;  Chicngo, 
P.  &  St.  L.  Ry.  Co.  o.  Ayres,  14  111. 
644. 

4  See  Johnson  v.  Shrewsbury,  etc., 
R'y  Co.,  3  De  G.  M.  &  G.  914;  Gard- 
ner v.   London,  Chatham,  etc.,   R'y 

271 


§  309.]         THE   LAW    OF   PRIVATE   CORPORATIONS.   [CHAP.  VII. 


seem  that  a  contract  whereby  one  railroad  company  gives  up 
all  practical  control  over  its  own  road,  and  in  effect  leases  it  to 
the  other  company,  would  be  void.1  Besides,  the  other  com- 
pany might  on  its  side  have  no  power  thus  to  extend  its  busi- 
ness.2 

§  309.  Different  considerations  arise  regarding  the  validity 
of  pooling  arrangements  or  other  contracts,  the  object 
of  which  is  to  prevent  competition  between  parallel 
and,  in  the  natural  order  of  things,  competing  roads. 
In  the  absence  of  special  authority,  such  contracts 
are  ultra  vires,  and  on  grounds  of  public  policy 
are  illegal  and  void.3  Thus,  it  is  ultra  vires  and  illegal  for  one 
railroad  company  to  purchase  the  stock  of  another  with  a  view 
to  obtain  a  controlling  interest  in  the  latter,  and  thus  prevent 
competition  between  itself  and  the  other  company.4  So  a  con- 
tract whereby  a  railroad  company' agrees  to  give  an  express 
company  exclusive  privileges  on  its  road  is  void  ;  and  the  rail- 
road company  may  be  enjoined  from  carrying  it  out ; "'  and 


Pooling  ar- 
range- 
ments. 
Grants  of 
exclusive 
privileges. 


Co.,  L.  R.  2  Ch.  212;  State  v.  Hart- 
ford and  N.  H.  R.  R.  Co.,  29  Conn. 
538. 

1  It  was  so  held  in  Ohio  and  Missis- 
sippi R.  R.  Co.  v.  Indianapolis,  etc., 
R.  R.  Co.  (Superior  Ct.  of  Cin.),  5 
Am.  Law  Reg.  N.  S.  733.  See  Simp- 
son ».  Denison,  10  Hare,  51.  Com- 
pare Midland  R'y  Co.  v.  Great  West- 
ern R'y  Co.,  L.  R.  8  Ch.  841 ;  Attorney- 
General  o.  Great  Eastern  R'y  Co.,  L. 
R.  11  Ch.  D.  449. 

2  See  cases  in  last  note,  also  Nau- 
gatuck  R.  R.  Co.  v.  Waterbury  Button 
Co.,  24  Conn.  468,  482. 

a  Hartford  and  N.  H.  R.  R.  Co.  v. 
New  York  and  N.  H.  R.  R.  Co.,  3 
Rob.  (X.  Y.)  411;  Stewart  v.  Erie 
and  Western  Trans'n  Co.,  17  Minn. 
372;  Gulf,  etc.,  Ry.  Co.  v.  State,  72 
Tex.  404;  Charlton  v.  "Newcastle  and 
Carlisle  R'y  Co.,  5  Jur.  N.  S.  1096. 

4  Central  R.  R.  Co.  v.  Collins,  40 
Ga.  582;  Hazlehurst  v.  Savannah, 
etc.,  R.  R.  Co.,  43  Ga.  13;  Elkins  o. 
Camden  and  Atlantic  R.  R.  Co.,  36 

272 


N.  J.  Eq.  5;  Pearson  v.  Concord  R. 
R.  Co.,  62  N.  H.  537;  Buckeye 
Marble,  etc.,  Co.  v.  Harvey,  20  S.  W. 
Rep.  (Tenn.)  427.  See,  De  La 
Vergne  Co.  v.  German  Sav.  Inst., 
175  U.  S.  40. 

5Sandford  v.  Railroad  Co.,  24  Pa. 
St.  378;  New  England  Express  Co.  v. 
Maine  Central  R.  R.  Co.,  57  Me.  188. 
See  Cumberland  Valley  R.  R.  Co.'s 
Appeal,  62  Pa.  St.  218. 

A  common  carrier  is  as  much  bound 
to  carry  for  other  carriers  as  for  other 
persons.  Dinsmore  v.  Louisville  C. 
and  L.  R'y  Co.,  2  Flippen,  672.  See 
Atchison,  T.  and  S.  F.  R.  R.  Co.  r. 
Denver  and  N.  O.  R.  R.  Co.,  110  U. 
S.  667.  And  cannot  discriminate 
against  an  express  company.  South- 
ern Express  Co.  v.  Memphis,  etc.,  R. 
R.  Cos.,  2  McCrary,  570;  see  Express 
Cos.  v.  Railway  Cos.,  3  McCrary,  147. 
But  a  contract  whereby  a  railroad 
company  agreed  with  a  telegraph 
company  to  allow  no  other  telegraph 
line  to  be  constructed  along  the  line 


PART    III.]  ACTS   BEYOND   THE    CORPORATE    POWERS.       [§  309. 

equally  void  is  a  contract  giving  exclusive  advantages  to  certain 
shippers  over  all  others. 1  "  Every  common  carrier  must  carry 
for  all  to  the  extent  of  his  capacity,  without  undue  or  unreason- 
able discrimination  either  in  charges  or  facilities."  2 


of  its  railroad  was  held  valid;  there 
oeing  several  other  lines  of  railroads 
between  the  important  points  on  the 
road,  and  no  necessity  for  construct- 
ing a  telegraph  line  along  it.  West- 
ern Union  Tel.  Co.  v.  Atlantic  and 
Pac.  Tel.  Co.,  7  Biss.  367;  see,  also, 
Western  Union  Tel.  Co.  v.  Chicago, 
etc.,  R.  R.  Co.,  86  111.  246.  Contra, 
Western  Union  Tel.  v.  Burlington, 
etc.,  R'y  Co.,  3  McCrary,  130.  See 
Atlantic  and  Pac.  Tel.  Co.  v.  Union 
Pac.  R.  R.  Co.,  1  McCrary,  541. 
Compare  Wright  v.  Ryder,  36  Cal. 
342;  Morris  Run  Coal  Co.  v.  Barclay 
Coal  Co.,  68  Pa.  St.  173. 

1  Messenger  v.  Pennsylvania  R.  R. 
Co.,  37  N.  J.  L.  531;  S.  C,  36  N.  J. 
L.  407;  Chicago  and  A.  R.  R.  Co.  v. 
Suffern,  129  111.  274.  The  contract 
of  a  common  carrier  to  allow  draw- 
backs on  freight  to  a  party,  and  not 
to  allow  them  to  any  other  person, 
is  against  public  policy  and  void. 
Stewart  v.  Lehigh  Valley  R.  R.  Co., 
38  N.J.  L.  505.  An  injunction  can 
be  had  to  restrain  a  railroad  com- 
pany from  agreeing  not  to  transport 
goods  at  rates  fixed  by  law.  Rogers' 
Locomotive  Works  v.  Erie  R'y  Co., 
20  N.  J.  Eq.  379.  But,  though  it 
seems  a  common  carrier  can  in  no 
event  charge  more  than  a  reasonable 
price,  it  is  held  that  he  may  charge 
less  to  one  person  than  to  another: 
Fitchburg  R.  R.  Co.  v.  Gage,  12  Gray 
(Mass.),  393;  Johnson  v.  Pensacola, 
etc.,  R.  R.  Co.,  16  Fla.  623,  667;  Ra- 
gan  v.  Aiken,  9  Lea  (Tenn.),  609; 
Munhall  v.  Pennsylvania  R.  R.  Co., 
92  Pa.  St.  150;  Ex  parte  Benson,  18 
S.  C.  38;  Houston,  etc.,  R'y  Co.  v. 
Rust,  58  Tex.  98.  See  Atchison,  T. 
18 


and  S.  F.  R.  R.  Co.  v.  Denver  and  N. 
O.  R.  R.  Co.,  110  U.  S.  667.  A  rail- 
road company  is  under  a  duty  to 
transport  merchandise  on  equal 
terms  for  all  parties,  where  the  carry- 
ing for  some  shippers  at  a  lower 
price  than  for  others  will  create 
monopoly  or  destroy  the  business  of 
those  less  favored.  Scofield  v.  R'y 
Co.,  43  Ohio  St.  571;  Brundred  v. 
Rice,  49  Ohio  St.  640. 

So  a  contract  to  grant  privileges 
for  the  withdrawal  of  opposition, 
based  on  public  grounds,  to  proposed 
legislation  concerning  a  railroad,  is 
void.  Pingry  v.  Washburn,  1  Aiken 
(Vt. ),  264.  Otherwise  if  the  opposi- 
tion rests  on  private  grounds.  Low 
v.  Conn.  P.  R.  R.  Co.,  46  N.  H.  284. 
As  to  contracts  to  locate  stations, 
see  §  162. 

2  Atchison,  T.  and  S.  F.  R.  R.  Co. 
v.  Denver  and  N.  O.  R.  R.  Co.,  110 
U.  S.  667,  674.  Ace.  Root  v.  L.  I.  R. 
Co.,  114  U.  S.  300;  Indian  River  S. 
Co.  v.  East  Coast  Trans.  Co.,  28  Fla. 
387,  435;  State  v.  C.  N.  O.,  etc.,  R. 
R.  Co.,  47  Ohio  St.  130.  Contracts 
between  railroad  and  telegraph  com- 
panies, vesting  in  the  latter  the  ex- 
clusive right  to  use  the  railroad's 
right  of  way  for  telegraph  poles,  etc., 
are  void,  as  against  public  policy, 
being  in  restraint  of  trade  and  tend- 
ing to  create  monopolies.  Railroad 
companies  cannot  convey  to  another 
company  for  its  exclusive  interests, 
and  in  antagonism  to  the  public  in- 
terests, property  acquired  by  the 
railroad  company  through  its  right 
of  eminent  domain.  Western  Union 
Tel.  Co.  v.  American  Union  Tel.  Co., 
65  Ga.  160.  See  §  350  ami  notes. 
273 


§  300rt.]      THE    LAW    OF    PRIVATE   CORPORATIONS.    [CHAP.  VII. 

In  1889,  the  Supreme  Court  of  New  Hampshire  rendered  a 
decision  holding  that  a  contract  between  competing  railway 
companies,  made  to  prevent  competition,  but  not  for  the  purpose 
of  raising  prices  of  transportation  above  a  reasonable  standard, 
is  not  void  as  against  public  policy.1  "  While,  without  doubt, 
contracts  which  have  a  direct  tendency  to  prevent  a  healthy 
competition  are  detrimental  to  the  public,  and  consequently 
against  public  policy,  it  is  equally  free  from  doubt  that  when 
such  contracts  prevent  an  unhealthy  competition,  and  yet  fur- 
nish the  public  with  adequate  facilities  at  fixed  and  reasonable 
rates,  they  are  beneficial  and  in  accord  with  sound  principles  of 
public  policy.  For  the  lessons  of  experience  ....  demon- 
strate that  the  public  interest  is  not  subserved  by  competition 
which  reduces  the  rate  of  transportation  below  the  standard  of 
fair  compensation  ;  and  the  theory  which  formerly  obtained, 
that  the  public  is  benefited  by  unrestricted  competition  between 
railroads,  has  been  so  emphatically  disproved  by  the  results 
which  have  generally  followed  its  adoption  in  practice,  that  the 
hope  of  any  permanent  relief  from  excessive  rates  through  the 
competition  of  a  parallel  or  rival  road  may,  as  a  rule,  be  justly 
characterized  as  illusory  and  fallacious."2 

§  309a.  Notwithstanding  the  force  of  its  reasoning,  this  de- 
" Trusts"  cision  of  the  New  Hampshire  court  is  out  of  accord 
oiiesm°nop"  w*tn  tne  trend  of  decisions  throughout  the  United 
States.  Many  of  these  are  based  upon  recent  stat- 
utes forbidding  all  contracts  which  prevent  competition  and 
create  combinations  or  monopolies.3  The  Act  of  Congress  of 
July  2,  1890,  is  of  this  character.  It  is  entitled  "An  act  to  pro- 
tect trade  and  commerce  against  unlawful  restraints  and  mo- 
nopolies." By  this  act  "  every  contract,  combination,  in  the 
form  of  trust  or  otherwise,  or  conspiracy,  in  restraint  of  trade 


1  Railroad  v.  Railroad,  66  N.  H.  100. 

2  Railroad  v.  Railroad,  66  N.  H. 
100,  127.  Opinion  of  Court  per  Blod- 
gett,  J. 

8  The  Illinois  statute  was  held  un- 
constitutional, because  it  exempted 
combinations  of  farmers,  and  so  de- 
nied the  equal  protection  of  the  laws. 
Connolly  v.  Union  Sewer  Pipe  Co., 
184  U.  S.  540.     The  Tennessee  statute 

274 


was  sustained  in  People  exrel.  Astor 
v.  Schlitz  Brew.  Co.,  104  Tenn.  715, 
but  the  decision  is  inconsistent  with 
the  Connolly  case.  The  New  York 
statute  was  construed  in  Matter  of 
Davies,  168  N.  Y.  89.  As  to  Missouri 
statute,  see  State  ex  rel.  Crow  v.  Fire- 
men's Fund  Ins.  Co.,  152  Mo.  1;  State 
ex  rel.  Star  Pub.  Co.  v.  Associated 
Press,  159  Mo.  410. 


i 


PART    III.]  ACTS   BEYOND    THE   CORPORATE    POWERS.     [§  309a, 

or  commerce  among  the  several  states  or  with  foreign  nations, 
is  hereby  declared  to  be  illegal."  This  provision  is  held  to  ap- 
ply to  common  carriers  by  railroad,  and  to  prohibit  a  contract 
between  them  in  restraint  of  interstate  trade ;  even  though  such 
contract  is  entered  into  between  competing  lines,  and  only  for 
the  purpose  of  affecting  rates  of  transportation.  It  renders 
illegal  all  such  agreements,  making  no  exception  in  favor  of 
those  the  terms  of  which  may  be  reasonable,  and  which  estab- 
lish only  reasonable  rates.  It  need  not  be  shown  that  the  agree- 
ment was  entered  into  for  the  purpose  of  restraining  trade,  if 
such  restraint  is  its  necessary  effect.1 

The  general  principle  may  be  regarded  as  established  that 
corporations  cannot,  in  a  manner  calculated  to  stifle  competition 
and  create  a  monopoly,  combine  their  properties  and  interests, 
except  by  means  of  competently  authorized  and  regularly  car- 
ried out  consolidation.  This  principle  applies  not  only  to  cor- 
porations having  public  duties  to  perform,  or  in  whose  enter- 
prises the  public  has  a  tangible  interest ;  it  also  applies  to  any 
combination  of  corporations  of  any  kind  when  the  result  would 
be  a  monopoly  in  any  branch  of  business.2  That  is  to  say,  in 
popular  language,  corporations  may  not  form  a  "  trust,"  for  a 
"trust"  is  ultra  vires,  illegal,  and  void,  and  a  ground  of  for- 
feiture of  corporate  franchises,  whether  the  agreement  be  en- 
tered into  by  formal  corporate  action,  the  corporations  appear- 
ing as  the  contracting  parties,  or  whether  it  be  entered  into  bv 
the  shareholders  of  the  several  corporations  in  their  individual 
capacity  as  shareholders,  but  with  a  view  of  bringing  under  one 
management  the  interests  and  properties  of  the  several  corpora- 
tions. 


1  U.  S.  v.  Freight  Ass'n,  166  U.  S. 
290,  White,  Field,  Gray,  Shiras,  JJ., 
dissenting,  followed  in  U.  S.  v. 
Joint  Traffic  Assn.,  171  U.  S.  505. 
See  U.  S.  v.  Pipe  Co.,  85  Fed.  Rep. 
271.  But  this  act  does  not  prohibit 
a  monopoly  in  the  manufacture  of  a 
commodity.  U.  S.  v.  Knight  Co., 
156  U.  S.  1.  Compare  Dueber  Watch 
Case  Mfg.  Co.  v.  Howard  Co.,  35  U. 
8.  App.  16.  Nor  has  it  any  applica- 
tion to  a  combination  among  commis- 


sion merchants  dealing  in  live  stock, 
such  combination  having  only  an  in- 
direct influence  on  interstate  com- 
merce. Hopkins  v.  U.  S.,  171  U.  S. 
578.  See,  also,  Anderson  v.  IT.  S.,  171 
IT.  S.  604.  In  Addyston  Pipe  &  Steel 
Co.  v.  U.  S.,  175  U.  S.  211,  the  statute 
was  held  applicable  as  interstate 
commerce  was  affected. 

2  Bailey  v.  Master  Plumbers,  103 
Tenn.  90;  State  ex  rel.  Crow  v.  Fire- 
men's  Fund   Ins.    Co.,    152     Mo.    1; 

275 


§  3096.]       THE   LAW    OF   PRIVATE   CORPORATIONS.   [CHAP.  VII. 

§  30%.  These  principles  were  discussed  and  exemplified  in 
the  cases  of  People  /\  North  River  Sugar  Refining  Co., 1  and 
State  v.  Standard  Oil  Co.2  In  the  former  of  these  cases  it  was 
held  that  the  corporations  who  entered  the  "  Sugar  Trust " 
thereby  rendered  themselves  liable  to  forfeiture  of  franchises 
and  that  judgment  of  forfeiture  and  dissolution  was  properly 
given  by  the  court  below;  and  further,  that  it  was  immaterial 
how  the  improper  combination  was  effected,  whether  by  formal 
corporate  action  of  the  several  corporations,  or  by  action  nom- 
inally taken  by  the  holders  of  all  the  stock :  there  can  be  "  no 
partnership  of  separate  and  independent  corporations,  whether 
directly  or  indirectly  through  the  medium  of  a  trust ;  no  sub- 
stantial consolidations  which  avoid  and  disregard  the  statutory 
permissions  and  restraints,  ....  manufacturing  corporations 
must  be  and  remain  several,  as  they  were  created,  or  one,  under 
the  statute."  3 

In  the  latter  case,  of  the  Standard  Oil  Trust,  the  same  prin- 
ciples were  decided  under  similar  circumstances.  The  case  is 
authority  for  the  two  following  propositions,  taken  respectively 
from  the  judge's  headnote  and  from  the  opinion  of  the  court : 

"  An  agreement  by  which  all  or  a  majority  of  the  stockholders 
of  a  corporation  transfer  their  stock  to  certain  trustees,  in  con- 
sideration of  the  agreement  of  the  stockholders  of  other  com- 
panies and  of  members  of  limited  partnerships,  engaged  in  the 
same  business,  to  do  likewise ;  and  by  which  all  are  to  receive 
in  lieu  of  their  stocks  and  interests,  so  transferred,  trust  certifi- 
cates to  be  issued  by  the  trustees,  equal  at  par  to  the  par  value 
of  their  stocks  and  interests ;  and  by  which  the  trustees  are  em- 
powered as  apparent  owners  of  the  stock  to  elect  directors  of  the 
several  companies,  and  thereby  control  their  affairs  in  the  inter- 
ests of  the  trust  so  created ;  and  are  to  receive  all  dividends 
made  by  the  several  companies  and  limited  partnerships,  from 
which,  as  a  common  fund,  dividends  are  to  be  made  by  the  trus- 


Tuscaloosa  Ice  Mfg.  Co.  v.  Williams, 
127  Ala.  110.  But  that  a  corporation 
is  party  to  a  monopoly  is  no  defence 
to  an  action  brought  by  it  for  goods 
sold.  Connolly  v.  Union  Sewer  Pipe 
Co.,  184  U.  S.  540.     See,  also,  Att'y- 

276 


Gen'l  v.  American  Tobacco  Co.,  55 
N.  J.  Eq.  3o2;  56  N.  J.  Eq.  847. 

1  121  N.  Y.  582  (Sugar  Trust). 

2  49   Ohio   St.    137    (Standard   Oil 
Trust). 

a  121  N.   Y.  582,  626.     Opinion  of 
the  Court  per  Finch,  J. 


PART    III.]  ACTS    WITHIN   THE   CORPORATE   POWERS.       [§  3096'. 

tees  to  the  holders  of  the  trust  certificates,  tends  to  the  creation 
of  a  monopoly  to  control  production  as  well  as  prices,  and  is 
against  public  policy." 

"  Where  all,  or  a  majority,  of  the  stockholders  comprising  a 
corporation,  do  an  act  which  is  designed  to  affect  the  property 
and  business  of  the  company,  and  which,  through  the  control 
their  numbers  give  them  over  the  selection  and  conduct  of  the 
corporate  agencies,  does  affect  the  property  and  business  of  the 
company  in  the  same  manner  as  if  it  had  been  a  formal  resolu- 
tion of  its  board  of  directors ;  and  the  act  so  done  is  ultra  vires 
of  the  corporation  and  against  public  policy,  and  was  done  by 
them  in  their  individual  capacity  for  the  purpose  of  concealing 
their  real  purpose  and  object,  the  act  should  be  regarded  as  the 
act  of  the  corporation  ;  and  to  prevent  the  abuse  of  corporate 
power,  may  be  challenged  as  such  by  the  state  in  a  proceeding 
in  quo  warranto" l 

§  309<2.  These  matters  took  different  forms  in  other  cases; 
but  the  principle  applied  was  the  same,  i.  e.,  that  monopolies 
are  against  public  policy.  Thus  the  agreement  of  two  gas  com- 
panies doing  business  in  Chicago  to  divide  the  territory  of  the 
city  between  them,  surrender  their  respective  gas-mains  to  each 
other  within  the  district  mutually  abandoned,  and  bind  them- 
selves not  to  sell  gas  within  ea.ch  other's  districts,  is  void  be- 
cause creating  a  monopoly.2  Subsequently  the  Supreme  Court 
of  Illinois,  laying  down  the  broad  principle  that  whatever  tends 
to  create  a  monopoly  or  prevent  competition  between  those 
engaged  in  a  business  of  a  public  character  is  unlawful,  held  it 
to  be  against  public  policy  and  unlawful  to  form  a  corporation 
for  the  purpose  of  controlling  all  the  corporations  engaged  in 
the  same  kind  of  business ;  the  court  sustained  a  quo  warranto 
against  a  corporation  formed  to  buy  up  the  stock  of  and  control 
the  gas  companies  of  Chicago.3     And  it  is  held  in  New  York, 


1  State  v.  Standard  Oil  Co.,  49  O. 
St.  137,  184. 

2  Chicago  Gas  Light  Co.  v.  People's 
Gas  Light  Co.,  121  111.  530.  See, 
also,  State  v.  Portland  Natural  Gas 
Co.,  153  Ind.  483. 

8  People  v.  Chicago  Gas  Trust  Co., 
130  111.   268.     See,  also,   Harding  ». 


v.  Nebraska  Distilling  Co.,  29  Neb. 
700;  and  compare  Scranton  Electric 
Co.'s  Appeal,  122  Pa.  St.  154  ;  Bruns- 
wick Gas  Light  Co.  v.  United  Gas, 
etc.,  Co.,  85  Me.  532;  Buckeye  Mar- 
ble, etc.,  Co.  v.  Harvey,  20  S.  W. 
Rep.  (Tenn. )  427;  Stater.  American 
Cotton    Oil    Trust,    40   La.  Ann.    8; 


Am.  Glucose  Co.,  182  111.  551;  State  I  Richardson  v.  Ruhl  (Diamond  Match 

277 


§  309'?.]       THE    LAW    OF   PRIVATE   CORPORATIONS.  [CHAP.  VII. 


as  well  as  in  Illinois,  that  a  corporation  formed  for  the  purpose 
of  controlling  within  a  city  the  prices  of  important  commodi- 
ties like  milk  or  coal,  is  formed  for  an  illegal  purpose,  being 
contrary  to  public  policy,  which  is  to  allow  free  competition  : 
and  it  need  not  be  shown  that  the  prices  were  excessive.1 

§  309d.  The  term  "  trust "  has  continued  in  popular  use  to 
express  the  idea  of  a  very  large  and  wide  reaching  enterprise. 
But  after  the  decisions  in  People  v.  North  River  Sugar  Refin- 
ing Co.  and  State  v.  Standard  Oil  Co.,  and  other  cases  men- 
tioned in  the  two  last  sections,  corporation  lawyers  acquiesced 
in  the  view  that  "trusts'1  were  illegal  and  could  not  be  sus- 
tained as  a  means  of  effecting  corporate  consolidation.  In 
order,  however,  to  bring  about  a  like  result  in  a  legal  manner, 
corporation  lawyers,  as  it  were,  went  back  and  resorted  to  the 


Trust),  77  Mich.  632;  Cum  tilings  v. 
Union  Blue  Stone  Co.,  164  N.  Y.  401; 
Cohen  ».  Berlin-Jones  Co.,  166  X.  Y. 
292;  Trenton  Potteries  Co.  o.  Oli- 
phant,  56  N.  J.  Eq.  680. 

1  People  v.  Milk  Exchange,  145 
N.  Y.  267;  People  v.  Sheldon,  139 
N.  Y.  251;  Judd  v.  Harrington,  ib. 
105;  Harrow  Co.  v.  Bement,  21  N.  Y. 
App.  290;  Ford  v.  Chicago  Milk 
Shippers'  Ass'n,  155  111.  166;  Dis- 
tilling Co.  v.  People,  156  111.  448. 
Compare  Bishop  v.  American,  etc., 
Co.,  157  111.  284;  U.  S.  V.  Co.  v. 
Schlegel,  143  N.  Y.  537;  Same  v. 
Foehrenbach,  148  N.  Y.  58.  These 
decisions  are  rendered  with  more  or 
less  direct  reference  to  statutes  for- 
bidding monopolies. 

There  are  a  number  of  cases  in  the 
Texas  courts  construing  the  Texas 
statute  against  trusts  and  combina- 
tions. A  contract  was  held  illegal, 
under  this  statute,  whereby  a  coal 
company  gave  exclusive  privileges 
to  a  liquor  dealer  on  its  premises, 
and  agreed  to  pay  its  employes  in 
time-checks  redeemable  weekly  by 
him  on  his  premises,  he  agreeing  to 
pay  the  coal  company  as  rent  two- 
thirds   of   the  profits  of  his  saloon 

278 


business,  and  to  make  monthly  re- 
turns. Texas  &  Pac.  Coal  Co.  o, 
Lawson,  89  Tex.  394.  See,  also, 
Welch  v.  Mill  Co.,  89  Tex.  653;  Gates 
v.  Hooper,  90  Tex.  563;  Brewing  Co. 
v.  Templeman,  ib.  277;  Fuqua  v. 
Brewing  Co.,  ib.  298;  Insurance  Co. 
».  State,  86  Tex.  250.  Exclusive 
privileges  granted  by  a  city  to  lay 
water  piping  were  held  void.  Bren- 
ham  ».  Water  Co.,  67  Tex.  542;  Ed- 
wards Co.  v.  Jennings,  89  Tex.  618. 
But  see  Laredo  v.  Bridge  Co.,  30 
U.  S.  App.  110. 

On  the  other  hand,  the  Rhode 
Island  court  has  declared  that  not 
all  contracts  in  restraint  of  trade  are 
void;  and  it  upheld  one  where  par- 
ties, including  a  corporation,  pooled 
their  oleomargarine  plants,  and 
agreed  not  to  carry  on  a  like  busi- 
ness for  five  years.  Oakdale  Mfg. 
Co.  v.  Garst,  18  R.  I.  484.  Coin  pare 
Williams  v.  Montgomery,  148  N.  Y. 
519.  And  it  is  held  in  California 
that  a  contract  making  a  water  com- 
pany the  sole  agent  of  a  flume  com- 
pany for  the  distribution  of  water 
in  a  city,  is  not  illegal,  as  creating  a 
monopoly.  San  Diego  Water  Co.  v. 
Flume  Co.,  108  Cal.  549. 


PART  III.]  ACTS   BEYOND   THE   CORPORATE   POWERS.         [§  310. 

plan  of  a  single  corporation  with  enormous  issues  of  stock  and 
bonds.  Usually  they  organized  such  corporations  in  the  State 
of  New  Jersey.  Soon  it  was  found  that  this  method  might  be  in- 
convenient because  of  the  severity  of  the  statutes  in  many  states 
relating  to  foreign  corporations.1  Some  states  even  required 
them  to  take  out  charters  and  become  domestic  corporations  sub- 
ject to  taxes  and  other  burdens  like  ordinary  domestic  corpora- 
tions. To  obviate  these  difficulties  the  scheme  of  the  so-called 
"  Securities  Company  "  has  now  been  devised.  Its  legality  with 
respect  to  the  Federal  statute  referred  to  in  §  309a  and  similar 
state  statutes  is  still  subjudice.  Here  the  plan  is  to  organize  a 
corporation  with  comparatively  low  capitalization,  which  shall, 
however,  hold  enough  stock  in  the  various  operating  corpora- 
tions to  make  it  the  majority  stockholder  in  them  all.  The 
funds  to  carry  this  out  are  sometimes  raised  by  a  large  issue  of 
bonds  by  the  "  Securities  Company,"  which  are  often  secured 
by  the  pledge  of  the  stocks  of  the  operating  corporations ;  or, 
again,  those  stocks  may  be  pledged  to  other  parties  than  the 
bondholders  for  a  like  purpose  of  raising  necessary  funds. 
Thus,  as  majority  stockholder,  a  "  Securities  Company  "  may 
control  and  manage  a  number  of  operating  corporations  of  vast 
capitalization.  Whether  such  an  organization  will  be  held  legal 
is  likely  to  depend  in  each  instance  on  whether  the  court  regards 
it  as  a  cloak  under  which  a  prohibited  combination  is  achieved, 
— or  takessomeother  blinder  view.3 

"""  §"£ iloTThis  examination  of  Ihe^egarreTatTonslmsing   LiabintjTof " 
from  ultra  vires  transactions  may  be  closed  with  an   corpora- 

•;  tions  to  ac- 

inquiry  into  the  liability  of  a  corporation  to  account   count  for 
for  benefits  which  it  has  received  under  an  ultra  vires   ceived  un- 
contract  when  it  is  seeking  to  repudiate  the  obliga-   vfreTncon- 
tions  thereof.  tract- 

Some  years  ago  the  New  Hampshire  court  stated  the  general 
principle :  "  However  the  contractual  power  of  the  defendants 
may  be  limited  under  their  charter,  there  is  no  limitation  of 
their  power  to  make  restitution  to  the  other  party  whose  money 
or  property  they  have  obtained  through  an  unauthorized  con- 

1  Cf.  post,  §§  400  et  seq.  I  ney  in  the  Yale  Law  Journal,  June, 

2  See  a  paper  by  Edward  B.  Whit- 1  1902. 

279 


§  310.]        THE   LAW    OF   PRIVATE   CORPORATIONS.   [CHAP.  VII. 


tract,"  1  The  words  of  the  court  here  recognize  a  right  on  the 
part  of  the  other  contracting  party,  not  to  compel  the  corpora- 
tion to  perform,  but  to  compel  it  to  make  restitution  of  what  it 
has  received.  Certainly,  if  the  corporation  refuses  to  perform 
its  side  of  the  contract,  property  may  have  come  into  its  pos- 
session to  which  it  has  no  right ;  and  it  is  not  ultra  vires  a  cor- 
poration to  restore  that  which  it  has  no  legal  right  to  keep. 
And  often  the  performance  on  the  part  of  the  other  party  will 
be  the  measure  of  the  restitution  to  which  he  is  entitled  from 
the  corporation.2 

Accordingly,  some  courts  state  the  following  rule  :  The  fact 
that  an  ultra  vires  contract  has  been  executed  by  the  other  con- 
tracting party  and  that  the  corporation  has  received  the  benefit 
will  not  sustain  a  suit  against  the  corporation  on  the  contract ; 
the  remedy  is  a  suit  in  disaffirmance  and  for  an  accounting  for 
benefits  received  ;  in  which  case  the  plaintiff's  right  rests  on  an 
implied  contract  on  the  part  of  the  corporation  to  return  prop- 
erty received  or  make  compensation  for  what  it  is  not  entitled 
gratuitously  to  retain.3 

There  is  nothing  in  these  propositions  repugnant  to  the  gen- 
eral doctrine  of  the  Federal  Supreme  Court  upon  the  subject 
of  ultra  vires.  Indeed  in  the  case  of  the  Central  Transporta- 
tion Co.  v.  Pullman's  Palace  Car  Co.,  the  court,  through  Jus- 
tice Gray,  intimated  that  the  court  would  permit  property  to 
be  recovered  back  :  "  In  such  case,  however,  the  action  is  not 
maintained  upon  the  unlawful  contract,  nor  according  to  its 
terms  :  but  on  an  implied  contract  of  the  defendant  to  return, 
or,  failing  to  do  that,  to  make  compensation  for,  property  or 
money  which  it  has  no  right  to  retain.  To  maintain  such  an 
action  is  not  to  affirm,  but  to  disaffirm,  the  unlawful  contract."4 
And  in  a  subsequent  suit  in  equitj7  between  the  same  parties, 


1  Railroad  v.  Railroad,  66  N.  H. 
100,  129;  see  also  International  Tr. 
Co.  v.  Company,  70  N.  II.  118. 

2Tliere  may  be  cases  where  no  res- 
titution can  be  made.  For  instance, 
in  a  recent  Massachusetts  case,  the 
plaintiff  agreed  to  procure  a  cus- 
tomer for  a  national  bank,  and  in  re- 
turn was  to  have  certain  business  put 
into  bis  bands.     Tbe  court  held  that 

280 


the  contract  was  ultra  vires,  and 
could  not  be  enforced.  The  plaintiff 
had  performed.  Dresser  v.  Traders1 
Nat.  Bank,  165  Mass.  120. 

3  Miller  v.  American,  etc.,  Ins.  Co., 
21  S.  W.  Rep.  39  (Tenn.);  Brunswick 
G.  L.  Co.  v.  United  G.,  etc.,  Co.,  85 
Me.  532;  Railway  Co.'s  v.  Keokuk 
Bridge  Co.,  131  U.  S.  371,  389. 

4  139  U.  S.  60. 


PART    III.]  ACTS    BEYOND   THE   CORPORATE    POWERS.       [§  310. 

the  action  was  brought  by  the  lessee  to  cancel  the  ultra  vires 
lease,  and  the  court  held  that  relief  would  be  granted  upon  its 
returning  the  property  or  paying  the  value  of  what  it  could 
not  return.1  The  court  said,  however,  with  reference  to  a  line 
of  cases  which  it  cited  approvingly  :  "  They  are  substantially 
unanimous  in  expressing  the  view  that  in  no  way  and  through 
no  channels,  directly  or  indirectly,  will  courts  allow  an  action 
to  be  maintained  for  the  recovery  of  property  delivered  under 
an  illegal  contract  where,  in  order  to  maintain  such  recovery, 
it  is  necessary  to  have  recourse  to  that  contract.  The  right  of 
recovery  must  rest  upon  a  disaffirmance  of  the  contract,  and  it 
is  permitted  only  because  of  the  desire  of  courts  to  do  justice 
as  far  as  possible  to  the  party  who  has  made  payment  or  de- 
livered property  under  a  void  agreement,  and  which  in  justice 
he  ought  to  recover.  But  courts  will  not  in  such  endeavor 
permit  any  recovery  which  will  weaken  the  rule  founded  upon 
public  policy  already  noticed.'-  3 

Unquestionably  in  such  instances  many  courts  would  dis- 
tinguish between  contracts  merely  ultra  vires  and  those  which 
are  also  illegal.  In  regard  to  the  former  the  general  principle  is 
stated  by  Mr.  Brice  as  follows  : 3  "  But  though  a  corporation  can- 
not be  sued,  any  more  than  any  other  citizen,  directly  upon  a 
contract  or  analogous  transaction  which  does  not  bind  it,  yet  if 
it  sets  up  this  defence  it  must  restore  to  the  other  party  what 
it  has  obtained  from  him.  It  may  repudiate  the  transaction  if 
it  chooses,  but  if  so  it  must  repudiate  altogether — it  cannot 
reprobate  and  approbate — it  cannot  reject  and  yet  keep  what  in 
another  form  it  has  rejected." i  Clear  as  this  statement  seems, 
it  requires  qualification  in  this  respect :  that  the  corporation 
may  repudiate  the  contract  without  rendering  up  the  benefits 
which  through  the  contract  have  accrued  to  the  corporate  prop- 
erty, when  such  benefits  have  become  amalgamated  with  the 
corporate  property  and  cannot  be  rendered  up  without  infring- 
ing the  rights  of  persons  who  have  never  assented  to  the  con- 


1  Pullman  Palace  Car  Co.  v.  Central 
Trans.  Co.,  171  U.  S.  138.  The 
opinion  discusses  the  way  to  arrive 
at  the  value.  See,  also,  Aldrich  v. 
Chemical  Nat.  Bk.,  176  U.  S.  618. 


2  171  U.  S.  151. 

3  Ultra  Vires,  2d  Eng.  ed.  p.  769. 

4  See  Miinville  v.  Belden  M'g  Co.,  5 
McCrary,  301;  Panhandle  Nat.  Bk.  v. 
Emery,  78  Tex.  498. 

281 


§  311.]        THE   LAW    OF    PRIVATE    CORPORATIONS.    [CHAP.  VII. 

tract  nor  in  any  way  acquiesced  in  it.1  In  ascertaining  the 
liability  of  tbe  corporation,  either  directly  on  the  contract,  or 
indirectly  for  the  benefits  which  through  the  contract  have  ac- 
crued to  the  corporate  property,  it  must  continually  be  borne 
in  mind  that  the  rights  of  different  persons  regarding  the  cor- 
porate property  are  distinguishable.  Some  persons  may  be  in 
a  position  to  say  to  the  other  contracting  party,  "  take  back 
what  you  can  reach  without  disturbing  my  rights."  The  above- 
mentioned  qualification,  however,  is  applicable  only  where  the 
benefits  from  the  ultra  vires  contract  have  become  indistinguish- 
ably  interwoven  with  the  corporate  property,  so  as  to  make 
impossible  a  restitution  in  integrum. 

§  311.  The  simplest  conceivable  case  for  the  application  of  the 
general  rule  is  where  a  corporation  has  received  specific  property, 
Specific  real  or  personal,  the  distinguishing  characteristics  of 
chattels        which  remain  unimpaired  after  it  has  come  into  the 

must  be  .  L 

returned.  possession  of  the  corporation.  In  such  case  the  prop- 
erty must  be  returned  upon  the  repudiation  of  the 
contract  in  pursuance  to  which  the  corporation  received  it.3  If 
money  has  been  loaned  to  a  corporation  in  furtherance  of  some 
scheme  known  to  the  lender  to  be  ultra  vires,  it  does  not  neces- 
sarily follow  that  the  corporation  will  have  to  return  the  money, 
which  may  never  have  been  applied  to  corporate  purposes. 
Thus,  where  the  directors  of  a  building  society,  the  rules  of 
which  gave  directors  no  power  to  borrow,  borrowed  money 
for  the  purpose  of  advancing  it  to  the  members  on  the  security 
of  their  shares,  the  lender's  claim  was  disallowed  on  the  wind- 
ing up  of  the  society.3  In  this  case  there  was  no  proof  that  the 
money  was  ever  applied  to  the  proper  purposes  of  the  society 
or  to  the  payment  of  any  debt  for  which  the  society  was  liable. 
On  the  other  hand,  when  through  an  ultra  vires  transaction 
money  has  come  into  the  possession  of  a  corporation  and  has 
been  applied  to  proper  corporate  purposes,  the  corporation  in 
repudiating  the  transaction  will  have  to  refund  the  money  so 


iSee  Hill's  Case,  L.  R.  9  Eq.  605. 

2  A  national  bank,  on  being  repaid 
a  loan,  must  return  property  which 
came  into  its  hands  in  pursuance  of 
a  contract  it  had  no  authority  to 
make.     Logan  County  Nat.  Bank  v. 

282 


Townsend,  139  U.  S.  G7.     Compare 
§277. 

3  In  re  Nat.  Permanent  Benefit 
B'ld'g  Asso.,  ex  parte  Williamson, 
L.  R.  5  Ch.  309. 


I 


PART  in.]  ACTS   BEYOND    THE   CORPORATE   POWERS.        [§  312. 


applied.1  Thus,  in  Burges  and  Stock's  Case2  the  holders  of 
marine  insurance  policies,  which  the  company  was  not  author- 
ized to  issue,  were  allowed  on  winding  up  the  company  to  re- 
cover the  premiums  paid  by  them  on  such  policies ;  but  were 
not  allowed  to  recover  the  value  of  the  policies,  Page-Wood, 
V.  C,  saying :  "  They  have  had  no  consideration  for  the  pre- 
miums they  paid.  The  directors,  it  is  true,  had  no  power  to 
issue  marine  policies ;  but  they  had  power  to  receive  money 
and  apply  it  to  the  benefit  of  the  company.  It  is  proved  that 
they  did  so  receive  and  apply  these  premiums,  and  the  amount 
might  have  been  recovered  even  at  law  as  money  had  and  re- 
ceived." 3 

§  312.  The  liability  of  a  corporation  to  account  for  benefits 
received  by  it  under  an  ultra  vires  transaction,  does  Basis  of  the 
not  rest  on  the  circumstance  that  the  other  party  has  liaDlllty- 
rendered  services  or  parted  with  property,4  nor  on  that  circum- 
stance combined  with  the  further  circumstance  that  the  prop- 
erty of  the  corporation  has  received  a  benefit.  The  still 
further  circumstance  must  exist  that  the  benefit  itself  was 
appropriated  to  the  uses  of  the  corporation  through  some  cor- 
porate agency  acting  within  the  scope  of  its  express  or  implied 
authority.5  j^o  more  than  an  individual  can  a  corporation  be 
compelled  to  account  for  money,  property,  or  benefits  thrust 
upon  it  without  its  consent.  In  such  case  the  only  remedy  of 
the  owner  is  to  recover  the  identical  property  or  its  proceeds, 
if  one  or  the  other  can  be  traced.  Moreover,  from  the  mere 
retention  and  use  of  a  benefit,  where  there  is  no  freedom  of 


1  German  Nat.  Bk.  v.  Butcher's, 
etc.,  Co.,  97  Ky.  34  ;  Union  Hard- 
ware Co.  v.  Plume,  etc.,  Co.,  58  Conn. 
219.  A  corporation  cannot  repudi- 
ate a  mortgage,  made  in  disregard 
of  statutory  provisions,  without  re- 
turning the  money.  Williams  v. 
Bank,  71  Miss.  858 ;  So.  B.  &.  L. 
Ass'n  v.  Casa  Grande  Stable  Co.,  128 
Ala.  624. 

2  2  J.  &  H.  441. 

8  See,  also,  White  v.  Franklin 
Bank,  22  Pick.  181  ;  Hawken  v. 
Bourne,   8   M.   &  W.    703  ;    Port  of 


Lond.  Assur.  Co.'s  Case,  5  De  G.  M. 
&  G.  465  ;  S.  C,  sub  nom.  Ernest 
v.  Xicholls,  6  H.  L.  C.  401;  Hall  v. 
Mayor,  etc.,  of  Swansea,  5  Q.  B.  526; 
In  re  Cork,  etc.,  R'y  Co.,  L.  R.  4  Ch. 
748,  760  ;  Humphrey  v.  Patrons' 
Mercantile  Ass'n,  50  Iowa,  607. 

4  Except  where  a  specific  piece  of 
property  may  be  handed  back. 

6  Franco-Texan  Land  Co.  r.  McCor- 
mick,  85  Tex.  417;  Hawtayne  v. 
Bourne,  7  M.  &  W.  595  ;  Ex  parte 
Cropper,  1  De  G.  M.  &  G.  147. 

283 


313.]         TIIK    LAW    OF    PRIVATE   CORPORATIONS.  [CHAP.  VII. 


choice  to  reject  or  accept,  no  promise  to  pay  or  account  for  the 
same  can  be  implied.1 

§  313.  The  rules  already  stated  are  not  always  nor  altogether 

applicable  to  restitutions  on  the  repudiation  of  con- 

uitm  vires     tracts  which,  besides  being  ultra  vires,  are  also  un- 

con tracts.        •.        ~   -, 

lawful. 

A  party  to  a  contract,  the  making  of  which,  though  pro- 
hibited by  law,  is  not  malum  in  se,  may,  while  it  remains  ex- 
ecutory, rescind  it  and  recover  monev  advanced  by  him  thereon 
to  the  other  party  who  has  performed  no  part  thereof.  Per- 
mitting the  plaintiff  to  recover  back  is  not  carrying  out  the 
illegal  transaction,  but  the  effect  is  to  put  everybody  in  the 
situation  they  were  in  before  the  illegal  contract  was  deter- 
mined on.2  Thus,  where  a  deposit  was  made  in  a  bank,  and 
the  depositor  received  a  book  containing  the  cashier's  certificate 
that  the  money  was  to  remain  on  deposit  a  certain  length  of 
time,  it  was  held  that  such  stipulation  was  void  as  amounting 
to  a  contract  on  the  part  of  the  bank  for  the  payment  of  money 
at  a  future  day  certain,  a  contract  prohibited  by  statute.  But 
the  court  held  that,  though  no  action  could  be  maintained  by 
the  depositor  on  the  stipulation,  still  he  could  recover  back  the 
money  before  the  expiration  of  the  time  for  which  it  was  to 
remain  on  deposit,  and  that,  too,  without  any  previous  demand 
on  the  bank.3  It  will  be  noticed  that  in  this  case,  though  the 
express  contract  was  beyond  the  cashier's  authority,  yet  receiv- 
ing the  money  on  deposit  was  not,  and  so  the  money  was  actu- 
ally applied  to  the  purposes  of  the  bank  by  its  agent  acting 
within  his  powers. 

Sometimes  a  harsher  doctrine  is  applied.  Undoubtedly  the 
right  of  a  party  to  an  illegal  contract  to  have  it  rescinded  rests 
on  public  policy  rather  than  on  any  rights  of  the  party  him- 
self.    And  so  a  corporation,  without  regard  to  the  fact  that  it 


1  In  re  Worcester  Corn  Exch.  Co., 
3  De  G.  M.  &  G.  180  ;  Zottman  v. 
San  Francisco,  20  Cal.  96  ;  Murphy 
v.  City  of  Louisville,  9  Bush  (Ky. ), 
189  ;  In  re  Kent  Benefit  B'ld'g  Soc, 
1  Dr.  &  Sm.  417. 

2  Spring  Co.  v.  Knowlton,  103  U. 
S.  49  ;  Oneida  B'k  v.  Ontario  B'k, 
21   N.   Y.   490;    White   v.    Franklin 

284 


B'k,  22  Pick.  181  ;  Dill  v.  Wareham, 
7  Mete.  (Mass. )  438  ;  Whitney  v. 
Peay,  24  Ark.  22  ;  Foulke  v.  San 
Diego,  etc.,  R.  R.  Co.,  51  Cal.  365; 
Philadelphia  Loan  Co.  ».  Towner,  13 
Conn.  249.  Compare  Brooks  v.  Mar- 
tin, 2  Wall.  70. 

3  White  v.  Franklin  B'k,  22  Pick. 
181. 


PART  HI.]  ACTS   BEYOND   THE   CORPORATE   POWERS.         [§  314. 


is  particeps  oriminis,  may  invoke  the  aid  of  a  court  to  relieve 
it  from  an  illegal  contract ;  for  the  relief  is  regarded  as  given 
to  the  public  through  the  party  in  whose  name  it  is  sought. 
Thus,  in  a  New  York  case,  it  was  held  that  a  lease  taken  by  a 
railroad  company  for  the  purpose  of  extending  its  road  beyond 
its  chartered  terminus  was  ultra  vires  and  void,  and  would  be 
set  aside  on  the  application  of  a  party  to  it.  But  it  was  also 
held  that  the  court  would  not  relieve  the  parties  any  further 
than  the  public  interest  required,  and  accordingly  no  recovery 
was  permitted  for  the  use  of  the  leased  property  previous  to 
the  time  when  the  lease  was  declared  invalid.1 

§  314.  Persons  who  at  the  expense  of  a  corporation  have 
received  benefit  from  an  ultra  vires  transaction,  even   _.  ...mj_     m 

'     .  Liability  of 

a  transaction  that  is  illegal  as  against  public  policy,  other  party 
may  have  to  refund  to  the  corporation  to  the  extent 
of  the  benefit  they  have  received.2  Where,  however,  both  the 
corporation  and  the  other  contracting  party  have  received  bene- 
fits under  a  partially  executed  ultra  vires  contract,  the  corpora- 
tion, it  is  held,  cannot  retake  its  property,  which  under  the 
contract  has  passed  to  the  other  contracting  party,  without 
offering  to  return  the  property  of  the  other  party,  which, 
through  the  same  contract,  has  come  into  the  possession  of  the 
corporation  ;  and,  at  all  events,  a  corporation  will  be  enjoined 
from  taking  possession  of  its  former  property  under  such  cir- 
cumstances till  a  judicial  settlement  and  accounting  can  be 
had.3 

The  litigation  in  the  cases  cited  in  the  note  arose  from  trans- 
actions which  were  not  only  ultra  vires,  but,  on  grounds  of  pub- 
lic policy,  illegal.  In  one  of  them,  American  Union  Tel.  Co.  v. 
Union  Pacific  Eailway  Co.,  Judge  McCrary  said:4  "Many 
cases  hold  that  a  corporation  which  has  made  a  contract  ultra 


1  Union  Bridge  Co.  ».  Troy,  etc., 
R.  R.  Co.,  7  Lans.  (X.  Y.)  240. 

2  Briee,  Ultra  Vires,  2d  Eng.  ed. 
p.  814.  See  Bryson  v.  Warwick,  etc., 
Canal  Co.,  1  Sm.  &  G.  447;  S.  C,  4 
De  G.  M.  &  G.  711;  Ernest  v.  Croys- 
dill,  2  Be  G.  F.  &  J.  175;  Zulueta's 
Claim,  L.  R.  5  Ch.  444;  Hardy  v. 
Metropolitan  Land  Co.,  L.  R.  7  Ch. 
427. 


3  American  Union  Tel.  Co.  v.  Union 
Pac.  Ry.  Co.,  1  McCrary,  188;  Atl. 
&  Pac.  Tel.  Co.  v.  Union  Pac.  Ry. 
Co.,  ib.  541;  Central  Branch  U.  P. 
R.  R.  Co.  v.  West'n  Union  Tel.  Co., 
ib.  551;  West'n  Union  Tel.  Co.  v. 
Burlington,  etc.,  Ry.  Co.,  3  McCrary, 
130. 

*  1  McCrary,  188,  201. 

285 


§  315.]  THE    LAW    OF   PRIVATE   CORPORATIONS.  [CHAP.  VU. 


vires,  which  has  not  been  fully  performed,  is  not  estopped  from 
pleading  its  own  want  of  power ;  but  that  doctrine  does  not 
apply  to  a  case  where  a  party  comes  into  a  court  of  equity,  and, 
while  retaining  all  that  he  has  received  upon  such  a  contract, 
asks  to  be  permitted  to  retake  what  he  has  parted  with  under 
it.  I  take  it  there  is  nothing  in  the  law,  as  there  is  certainly 
nothing  in  the  principles  of  equity,  to  estop  the  court  from 
saying  that  the  obligation  to  return  the  property  transferred 
under  these  contracts  is  mutual,  and  shall  not  be  enforced 
against  one  of  the  parties  without  being,  at  the  same  time, 
enforced  against  the  other.  As  the  parties  and  the  subject- 
matter  are  now  before  the  court,  it  is  the  duty  of  the  court,  so 
far  as  is  possible,  to  place  them  in  statu  quo" 1 

§  315.  In  a  treatise  on  the  law  of  stock  corporations  very 

little  of  the  law  relating  to  municipal  corporations 
corpora/       will  be  included  ;  the  latter  being  very  different  legal 

institutions  and  subserving  very  different  purposes. 
"  A  municipal  corporation,1'  says  Justice  Hunt,  "  in  the  exer- 
cise of  all  its  duties,  including  those  most  strictly  local  or 
internal,  is  but  a  department  of  the  state.  The  legislature  may 
give  it  all  the  powers  such  a  being  is  capable  of  receiving, 
making  it  a  miniature  state  within  its  locality.  Again,  it  may 
strip  it  of  every  power,  leaving  it  a  corporation  in  name  only ; 
and  it  may  create  and  recreate  these  changes  as  often  as  it 
chooses,  or  it  may  exercise  directly  within  the  locality  any  or 
all  of  the  powers  usually  committed  to  a  municipality." 2  The 
case  from  which  this  citation  is  taken  held  a  municipal  corpo- 
ration responsible  for  negligence  in  the  management  of  its 
streets ;  and  the  decision  is  undoubted  law.  Nevertheless,  a 
municipal   corporation   is   not  liable  for  misfeasance  or  non- 


1  See,  also,  Madison  Ave.  Baptist 
Church  o.  Oliver  Street  Bap.  Church, 
73  N.  Y.  82.  When  an  illegal  con- 
tract of  consolidation  has  been  exe- 
cuted and  the  defendant  has  derived 
all  the  benefits  from  the  contract, 
its  illegality  is  no  defence  to  a  bill 
in  equity  for  an  accounting  and  re- 
turn to  the  plaintiff  of  the  consider- 
ation  of  the   contract.     Railroad  v. 

286 


Railroad,  66  N".  II.  100.  When  a  per- 
son enters  into  an  illegal  "trust"  be 
cannot  come  into  equity  seeking  an 
accounting  for  the  jirofits  arising  un- 
der such  trust  (i.  e.,  not  suing  in  dis- 
affirmance and  to  get  back  his  prop- 
erty). Uncles  v.  Colgate,  148  N.  Y. 
529. 

2  Barnes  v.  District  of  Columbia, 
91  U.  S.  540,  544. 


PART    III.]  ACTS    BEYOND    THE   CORPORATE   POWERS.       [§  317. 

feasance  in  all  respects  like  a  private  corporation,1  and  to 
reason  by  analogy  from  the  one  kind  of  corporation  to  the 
other  may  cause  error. 

§  316.  Municipal  corporations  have  little  if  any  inherent  ju- 
risdiction to  make  laws  or  adopt  governmental  regulations. 
The}7  can  exercise  no  powers  in  this  respect  not  given  them 
expressly  or  impliedly  by  their  charters,  or  by  other  statutes 
or  the  constitution  of  the  state.2  There  is  no  contract  implied 
between  municipal  corporations  and  the  state;  and  the  state 
may  alter  their  constitutions  in  any  way,  may  divide  one  munic- 
ipal corporation  into  two  or  more,  and  may  apportion  between 
the  new  corporations  the  property  and  burdens  of  the  former 
corporation.  When  a  municipal  corporation  is  legislated  out 
of  existence  and  its  territory  is  annexed  to  other  corporations, 
the  latter,  unless  the  legislature  otherwise  provides,  become 
entitled  to  its  property  and  immunities,  and  severally  liable  for 
a  proportionate  share  of  all  its  subsisting  legal  debts,  as  well  as 
vested  with  its  powers  of  taxation  to  raise  revenue  to  pay  them. 
The  remedy  of  creditors  of  an  extinguished  municipal  corpora- 
tion is  in  equity  against  the  corporation  succeeding  to  its  prop- 
erty and  powers.3  A  change  in  its  charter,  by  amendment  or 
the  substitution  of  a  new  one,  will  not  be  deemed  to  affect  the 
identity  of  the  corporation  or  relieve  it  from  its  previous  lia- 
bilities, when  substantially  the  same  corporators  and  territory 
are  embraced  under  the  new  charter.4 

§  317.  Still,  however  much  in  their  organization  and  purposes 
municipal  corporations  may  differ  from  stock  corporations,  the 
liability  of  the  former  on  their  bonds  issued  in  aid  of  railroad 
and  other  business  enterprises  of  public  importance  is  in  many 
respects  similar  to  the  liability  of  the  latter  on  their 
contracts.     In  especial,  the  rules  governiug  the  effect   JdbraSs. 
of  recitals  in  municipal  bonds  are  analogous  to  the 
rules  determining  the  liability  of  stock  corporations  for  the  acts 

1  Post,  §  335,  note;  and  see  Fowle    Detroit  Citizens'  St.  Ry.  Co.u.  Detroit 
v.  Common  Council  of  Alexandria,  3    Ry.,  171  U.  S.  48. 

Pet.  398,  409;  and  §  177.  Compare,  3  Mount  Pleasant  v.  Beckwith,  100 
generally,  Vidal  v.  Girard's  Exec-  U.  S.  514.  See  Newton  v.  Commis- 
utors,  2  How.  127.  si  oners,    ib.    548  ;  East   Hartford   v. 

2  A  municipal  corporation  cannot    Hartford  Bridge  Co.,  10  How.  511. 
grant  an  exclusive  privilege  to  a  street       4  Broughton  i\  Pensacola,  93  U.  S. 
railway  unless  expressly  authorized.  ,  266. 

287 


§  318.]       THE   LAW   OF   PRIVATE   CORPORATIONS.    [CHAP.  VII. 


of  their  agents,  when  the  authority  of  the  agent  to  act  is  con- 
ditioned on  facts  peculiarly  within  his  knowledge.1  Moreover, 
the  rule  that  every  person  dealing  -with  a  corporation,  private 
or  municipal,  is  affected  with  notice  of  the  corporate  powers,  is 
strikingly  exemplified  in  the  law  of  municipal  bonds.  For 
these  reasons  municipal  bonds  will  be  the  subject  of  discussion 
in  the  next  few  pages. 

§  318.  Since  a  large  proportion  of  the  suits  on  municipal 
bonds  are  brought  in  the  Federal  courts,  the  deci- 
dedsions  sions  of  the  Supreme  Court  of  the  United  States  upon 
the  validity  of  municipal  bonds  are  of  wide  author- 
ity and  application.2  The  Federal  courts  will  follow  an  un- 
broken line  of  decisions  of  the  highest  court  of  a  state  constru- 
ing its  constitution  and  statutes.3  But  the  rights  of  bona  fide 
holders  of  municipal  bonds  are  to  be  determined  by  the  law  as 
judicially  construed  when  the  bonds  in  litigation  were  put  on 
the  market ;  and  the  United  States  Supreme  Court  will  not 
follow  the  later  decisions  of  a  state  tribunal  in  conflict  with  de- 
cisions under  which  the  rights  of  such  holders  arose.4  Accord- 
ingly, when  by  a  series  of  decisions  the  highest  court  of  a  state 
has  held  that  the  state  legislature  could  competently  author- 
ize municipal  corporations  to  issue  bonds  in  aid  of  railroads  ex- 
tending beyond  the  limits  of  the  town  or  county  issuing  the 
bonds,  and  those  decisions  have  been  approved  by  the  Federal 
Supreme  Court,  the  fact  that  subsequently  the  highest  court  of 
the  same  state  has  held  its  former  decisions  erroneous,  will,  in 
a  Federal  court,  have  no  effect  on  the  rights  of  bona  fide  hold- 
ers arising  from  transactions  which  occurred  before  the  change 
in  state  judicial  opinion  had  been  promulgated.  Under  such 
circumstances  Federal  courts  will  not  follow  the  oscillations  of 
state  courts.5    Moreover,  when  the  question  of  the  validity  of 


i  See  §§  203-207. 

2  Regarding  the  jurisdiction  of  the 
Federal  Circuit  Courts,  see  Bernard's 
Township  v.  Stebhins,  109  U.  S.  341. 

"Township  of  Elm  wood  v.  Marcy, 
92  U.  S.  289;  Claiborne  County  r. 
Brooks,  111  U.  S.  400. 

4  Douglass  d.  Couuty  of  Pike,  101 
U.  S.  677;  Green  County  r.  Conness, 
109    U.    S.    104;    Anderson    r.  Santa 

288 


Anna,  116  U.  S.  356;  Knox  County  v. 
Ninth  Nat.  Bank,  147  U.  S.  91. 

5Gelpcke  v.  City  of  Dubuque,  1 
Wall.  175;  Haverneyer  v.  Iowa  Coun- 
ty, 3  Wall.  294.  See  Columbia  Coun- 
ty v.  King,  13  Fla.  451.  Compare 
Wade  i\  Travis  Couuty,  174  U.  S. 
499.  See  Lock  v.  Columbia  Town- 
ship Trustees,  179  U.  S.  472;  Wilkes 
County  v.  Coler,  180  U.  S.  506. 


PART    III.]  ACTS    BEYOND   THE   CORPORATE   POWERS.        [§  319. 


municipal  bonds  held  by  an  innocent  holder  comes  before  the 
Supreme  Court  of  the  United  States,  that  court  in  its  discre- 
tion may  disregard  the  decisions  of  a  state  court,  although 
they  involve  the  construction  of  a  statute  of  the  state,  if  those 
decisions  are  not  deemed  satisfactory.  Such  a  question  be- 
longs to  the  domain  of  general  jurisprudence,  and  the  Federal 
courts  will  not  be  controlled  by  state  decisions.1 

§  319.  A  municipal  corporation  has,  of  course,  no  implied  or 
inherent  power   to  issue  bonds  in   aid  of  railroad  _ 

enterprises,2  nor  any  implied  power  to  utter  commer-   ity  has  no 
cial  paper  of  any  kind.3     State  legislatures,  however,   power  to 
unless  prohibited  by  some  constitutional  provision,   ^f^jd  " 
may  authorize  a  town  or  county  to  aid  in  the  con-  Con- 
struction of  a  railroad  by  subscribing  for  shares  in  the  stock 
of  a  railroad  corporation  and  issuing  bonds  in  payment  there- 
for, or  by  issuing  its  bonds  as  a  simple  gift  to  the  corporation.4 


1  Township  of  Pine  Grove  o.  Tal- 
cott,  19  Wall.  666;  Town  of  Venice 
o.  Murdock,  92  U.  S.  494;  see  Swift 
v.  Tyson,  16  Pet.  1;  Oates  v.  Nation- 
al Bank,  100  U.  S.  239;  Railroad  Co. 
o.  National  Bank,  102  U.  S.  14;  Pana 
v.  Bowler,  107  U.  S.  529;  Carroll 
County  v.  Smith,  111  U.  S.  506.  See, 
also,  §  468. 

2  Kenicott  v.  Supervisors,  16  Wall. 
452;  Thomson  v.  Lee  County,  3  Wall. 
327;  Barnum  v.  Okolona,  148  U.  S. 
393;  Provident  Trust  Co.  v.  Mercer 
County,  170  U.  S.  593;  Hancock  v. 
Chicot  County,  32  Ark.  575;  see  City 
of  Lynchburg  v.  Slaughter,  75  Va.  57. 
Compare  Bell  v.  Railroad  Co.,  4  Wall. 
598. 

An  injunction  lies  to  restrain  an 
issue  of  bonds  where  there  has  been 
a  material  departure  from  the  stat- 
ute. Union  Pac.  R.  R.  Co.  v.  Lincoln 
Co.,  3  Dillon,  300;  City  of  Madison 
v.  Smith,  83  Iud.  502.  See  Noesen  v. 
Town  of  Port  Washington,  37  Wis. 
168;  and  compare  Rogers  v.  Burling- 
ton, 3  Wall.  654,  667.  A  taxpayer 
has  a  standing  in  court  to  maintain 


nessee  &  P.  R.  R.  Co.,  1  Bax.  (Tenn.) 
82.  But  bonds  of  a  municipal  corpo- 
ration which  are  void  in  the  hands  of 
an  innocent  holder  are  no  charge 
against  the  public,  and  a  taxpayer 
has  no  right  to  enjoin  their  circula- 
tion.    McCoy  v.  Briant,   53  Cal.  247. 

3  Claiborne  County  v.  Brooks,  111 
U.  S.  400. 

4  Thomson  v.  Lee  County,  3  Wall. 
327;  Railroad  Co.  v.  County  of  Otoe, 
16  Wall.  667;  Town  of  Queensbury  v. 
Culver,  19  Wall.  83;  Clarke  v.  City 
of  Rochester,  28  N.  T.  605 ;  Davidson 
o.  County  Commissioners,  18  Minn. 
482;  Chicago,  Danville,  etc.,  R.  R. 
Co.  v.  Smith,  62  111.  268;  Leaven- 
worth County  c  Miller,  7  Kan.  479 
( in  which  last  case  a  full  review  of  au- 
thorities  is  given);  Stockton,  etc.,R. 
R.  Co.  v.  City  of  Stockton,  41  Cal. 
147;  Petty  v.  Myers,  49  Ind.  1;  Leav- 
enworth, etc.,  R.  R.  Co.  v.  Douglass 
County,  18  Kan.  169;  New  Orleans, 
etc.,  R.  R.  Co.  v.  McDonald,  53  Miss. 
240.  See  Township  of  Pine  Grove  o. 
Talcott,  19  Wall.  666,  677;  Dillon  on 
Municipal   Corps.,  3d  ed.  §  153.  note. 


such  an  injunction,     Winston  v.  Ten- 1  Compare  City  of  Ottawa  r.    Carey, 

19  289 


§  320.]        THE   LAW   OF  PRIVATE   CORPORATIONS.    [CHAP.  VII. 


And  this  it  is  competent  for  a  legislature  to  do,  with  or  with- 
out the  popular  vote  of  the  municipality,1  although  the  pro- 
jected railroad  lie  outside  of  the  county  or  even  the  state ;  pro- 
vided the  building  of  the  road  will  give  the  county  a  desirable 
connection  with  some  other  region.2  The  constitutionality  of 
such  legislation  is  based  on  the  view  that  the  construction  of  a 
railroad  is  of  such  general  utility  that  taxation  in  aid  thereof 
is  constitutional,  being  for  a  public  purpose.3 

§  320.  In  order  that  municipal  bonds  issued  in  aid  of  a  rail- 
road may  have  any  validity  in  the  hands  of  any  one, 
special  authority  must  have  been  given  by  the  legis- 
lature to  the  municipality  to  issue  them.     This  is  un- 
with  notice,  questionable  law.4     And  every  holder  of  municipal 


Special 

authority 

requisite. 

Holders 

charged 


103  U.  S.  110.  Contra,  People  v. 
Salem,  20  Mich.  452;  Whiting  v.  She- 
boygan, etc.,  R.  R.  Co.,  25  Wis.  167; 
Hanson  v.  Vernon,  27  Iowa,  28.  The 
last  case  was  virtually  overruled  in 
Stewart  v.  Polk  County,  30  Iowa,  1. 
In  the  cases  cited  in  the  following 
notes  the  constitutionality  of  such 
legislation  is  affirmed  or  assumed. 
The  power  to  issue  municipal  bonds 
imports  the  power  to  sell  and  make 
them  payable  beyond  the  limits  of 
the  state.  Lynde  v.  The  County,  16 
Wall.  6. 

1  Railroad  Co.  v.  County  of  Otoe, 
16  Wall.  667;  Otoe  County  v.  Bald- 
win, 111  U.  S.  1. 

2  Railroad  Co.  v.  County  of  Otoe, 
16  Wall.  667.  See  Kirkbride  v.  La- 
fayette County,  108  U.  S.  208. 

3  See  Olcott  v.  Supervisors,  16  Wall. 
678;  and  cases  in  last  note  but  one. 
Accordingly,  legislation  authorizing 
an  issue  of  municipal  bonds  to  aid  a 
private  business  enterprise  is  uncon- 
stitutional, and  the  bonds  are  void. 
Loan  Ass'n  v.  Topeka,  20  Wall.  655; 
Parkersburg  v.  Brown,  106  U.  S.  487; 
Osborne  v.  County  of  Adams,  106  U. 
S.  181;  Cole  v.  Lagrange,  113  U.  S.  1. 
Where,  however,  a  statute  declares 
all  custom  grist-mills  to  be  "  public 

290 


mills,"  and  regulates  their  manage- 
ment, the  legislature  may  authorize 
a  municipal  corporation  to  issue 
bonds  in  aid  of  such  a  mill,  although 
it  is  owned  by  a  private  individual. 
Township  of  Burlington  v.  Beasley, 
94  U.  S.  310;  Blair  v.  Cuming  County, 
111  U.  S.  363;  but  compare  C.  B.  U. 
P.  R.  Co.  v.  Smith,  23  Kan.  745. 

4  Wells  o.  Supervisors,  102  U.  S. 
625;  Welch  v.  Post,  99  111.  471; 
Hayes  v.  Holly  Springs,  114  U.  S.  120; 
Jonesboro  City  v.  Cairo,  etc.,  K.  R. 
Co.,  110  U.  S.  192;  Concord  v.  Robin- 
son, 121  U.  S.  165.  See  Allen  v. 
Louisiana,  103  U.  S.  80;  and  cases  in 
next  note.  Where  there  is  a  total 
want  of  authority  to  issue  municipal 
bonds,  there  can  be  no  bona  fide  hold- 
ing of  them.  Township  of  East  Oak- 
land v.  Skinner,  94  U.  S.  255.  See 
Welch  v.  Post,  supra.  And  the  au- 
thority must  not  have  been  revoked 
before  the  actual  issue  of  the  bonds. 
Town  of  Concord  v.  Portsmouth  Sav- 
ings Bank,  92  U.  S.  625.  The  charter 
of  a  railroad  company  authorized  the 
county  commissioners  of  a  county 
through  which  the  railroad  passed,  to 
subscribe  for  stock  and  issue  bonds, 
provided  a  majority  of  qualified 
voters  of  the   county   should  vote  in 


PART  in.]  ACTS   BEYOND   THE   CORPORATE    POWERS.        [§  320. 

bonds,  whether  he  receive  them  directly  from  the  town  or 
county,  or  from  the  railroad  corporation  to  which  they  may 
have  been  delivered,  or  take  them  from  some  prior  holder  in  the 
ordinary  course  of  business,  is  chargeable  with  notice  of  the 
statutory  provisions  under  which  they  were  issued.1  More- 
over, that  which  is  not  a  valid  law  can  give  no  validity  to  mu- 
nicipal bonds  which  purport  to  be  issued  by  virtue  of  it,  even 
when  those  bonds  have  passed  into  the  hands  of  bona  fide 
holders  for  value.2 


favor  of  such  action.  A  favorable 
vote  was  had;  but  before  the  sub- 
scription was  made  the  state  adopted 
a  new  constitution  which  prohibited 
such  subscriptions  unless  paid  in  cash 
and  forbade  counties  to  loan  their 
credit  to  any  corporation  or  to  bor- 
row money  in  order  to  take  stock. 
It  was  held  that  the  provisions  in 
the  railroad  charter  authorizing  the 
commissioners  to  subscribe,  con- 
ferred a  power  ou  a  public  corpora- 
tion which  could  be  modified  by 
legislative  authority;  that  the  char- 
ter did  not  import  a  contract  on  the 
part  of  the  state  with  the  railroad 
corporation  that  counties  should 
continue  competent  to  issue  bonds; 
and  that  the  bonds  issued  after  the 
new  state  constitution  had  gone  into 
effect  were  void.  Aspinwall  v.  Com- 
missioners of  the  County  of  Daviess, 
22  How.  364;  confirmed  in  Wads- 
worth  p.  Supervisors,  102  U.  S.  534. 
Compare  Supervisors  v.  Galbraith, 
99  U.  S.  214.  Power  to  subscribe 
to  stock  in  a  railroad  company  does 
not  confer  on  a  municipal  corporation 
power  to  issue  negotiable  bonds  in 
payment,  unless  the  power  to  issue 
such  bonds  is  expressly  or  by  impli- 
cation conferred  by  the  statute. 
Kelley  v.  Milan,  127  U.  S.  139;  Norton 
b.  Dyersberg,  127  U.  S.  160;  Hill 
v.  Memphis,  134  U.  S.  198;  Brenham 
v.  German  Am.  Bk.,  144  U.  S.  173. 
See  Young  v.  Clarendon    Township, 


132  U.  S.  340;  Merrill  v.  Monticello, 
138  U.  S.  673.  But  the  express 
power  to  issue  bonds  bearing  inter- 
est carries  the  power  to  attach  inter- 
est coupons.  Atchison  Board  u.  De- 
Kay,  148  U.  S.  591. 

1  Ogdena.  County  of  Daviess,  102 
U.  S.  634;  United  States  v.  County  of 
Macon,  99  U.  S.  582;  Anthony  v. 
County  of  Jasper,  101 U.  S.  693; 
Town  of  South  Ottawa  o.  Perkins,  94 
U.S.  260;  McClure  v.  Township  of 
Oxford,  94  U.  S.  429;  Ottawa  v. 
Casey,  108  U.S.  110;  Lewis  v.  City 
of  Shreveport,  108  U.  S.  282;  Hoff  v. 
Jasper  County,  110  U.  S.  53;  Wood- 
ruff v.  Town  of  Okolona,  57  Miss. 
806;  Tax  Payers  v.  Tennessee  Central 
R.  R.  Co.,  11  Lea  (Tenn.),  329; 
Potter  v.  Greenwich,  26  Hun  (N.  Y. ), 
326;  S.  C,  92  N.  Y.  662;  Johnson 
City  v.  Railroad,  101  Tenn.  138.  Al- 
though the  law  authorizing  the  sub- 
scription be  silent  on  the  subject, 
the  municipality  in  voting  may  im- 
pose conditions  on  which  the  sub- 
scription is  to  depend.  People  v. 
Glann,  70  111.  232;  see  People  v. 
Holden,  91  111.  446. 

2  Post  v.  Supervisors,  105  U.  S. 
667.  Whether  a  seeming  act  of  the 
legislature  is  a  law,  is  a  judicial  ques- 
tion for  the  court,  not  for  the  jury. 
lb.  In  Norton  v.  Shelby  County, 
118  U.  S.  425,  442,  Field,  J.,  said,  giv- 
ing the  opinion  of  the  court:  "  An 
unconstitutional  act  is  not  a  law ;  it 

291 


§  321.]        THE  LAW   OF   PRIVATE   CORPORATIONS.    [CHAP.  VH. 


To  constitute  a  "  subscription "  by  a  county  to  stock  in  a 
railroad  company  it  is  not  necessary  that  there  be  an  actual 
subscribing  in  the  books  of  the  company.  If  a  county  passes 
a  resolution  declaring  a  subscription  made,  which  the  company 
accepts,  notifying  the  county  :  and  the  county  delivers  its  bonds 
in  payment,  accepts  shares  of  stock,  votes  as  a  shareholder,  and 
levies  a  tax  to  pay  the  interest  on  its  bonds,  it  will  be  estopped, 
as  against  'dbonajide  holder  of  the  bonds,  from  denying  its  sub- 
scription ;  assuming  that  it  had  power  to  subscribe.  And  the 
county  will  not  be  released  by  a  subsequent  alteration  in  the 
organization  or  purposes  of  the  railroad  company,  unless  the 
alteration  is  fundamental,  and,  in  addition,  is  not  provided  for  or 
contemplated  either  by  the  charter  of  the  company  or  the  gen- 
eral laws  of  the  state.1  As  Chief  Justice  Waite  said,  giving  the 
opinion  of  the  Federal  Supreme  Court  in  Bates  County  v.  Win- 
ters :  "  An  actual  manual  subscription  on  the  books  of  a  rail- 
road company  is  not  indispensably  necessary  to  bind  a  munici- 
pality as  a  subscriber  to  the  capital  stock.  If  the  body  or 
ageney  having  authority  to  make  such  subscription  passes  an 
ordinance  or  a  resolution  to  the  effect  that  it  does  thereby,  in 
the  name  and  on  the  behalf  of  the  municipality,  subscribe  a 
specified  amount  of  stock,  and  presents  a  copy  of  that  ordinance 
or  resolution  to  the  company  for  acceptance  as  a  subscription, 
and  the  company  does  in  fact  accept,  and  notifies  the  munici- 
pality, or  its  proper  agent,  to  that  effect,  the  contract  of  sub- 
scription is  complete,  and  binds  the  parties  according  to  its 
terms." 3 

§  321.  State  bonds,  as  well  as  municipal  bonds,  issued  in  ex- 
r,     ..,         cess  of  a  constitutional  limitation,  are  void.3    Accord- 

Constitu-  ' 

tionai  limi-   inffly,  when  a  state  constitution  declares  that  no  city 

tations. 

or  other  municipal  corporation  shall  become  indebted 


confers  no  rights;  it  imposes  no 
duties;  it  affords  no  protection;  it 
creates  no  office;  it  is,  in  legal  con- 
templation, as  inoperative  as  though 
it  had  never  been  passed." 

1  Nugent  «.  Supervisors,  19  Wall. 
241.  That  the  municipality  subse- 
quently returns  to  the  railroad  com- 
pany the  stock  for  which  the  munic- 
ipal  bonds    were    issued,    will    not 

292 


invalidate  the  bonds.  Cairo  v.  Zane, 
149  U.  S.  122. 

-  112  TJ.  S.  325,  327.  Compare 
Atchison  Board  v.  De  Kay,  148  U.  S. 
591. 

3  Williams  v.  Louisiana,  103  U.  S. 
G37.  Where  a  county  court  issues 
bonds  in  excess  of  the  amount  au- 
thorized by  the  statute,  the  over- 
issue is  void.     The  bonds  delivered 


PART  III.]  ACTS    BEfOtfD    THE   CORPORATE    POWERS.         [§  322. 


in  any  way  for  any  purpose  to  an  amount,  including  existing 
indebtedness,  in  the  aggregate  exceeding  five  per  cent,  on  the 
value  of  the  taxable  property  therein,  bonds  issued  in  excess 
cannot  be  recovered  on.1  Further,  a  constitutional  provision 
prohibiting  the  creation  of  indebtedness  by  a  direct  loan  of 
municipal  credit  does  not  permit  an  indirect  use  of  such  credit 
for  the  same  purpose.2 

§  322.  A  statute  authorizing  a  municipal  corporation  to  lend 
its  credit  to  a  specified  railroad  company  and  "to   R  .,     , 
any  other  railroad  company  duly  incorporated  and    not  yet  in 
organized  for  the  purpose  of  constructing  railroads'1 
leading  in  a  direction  specified,  empowers  the  corporation  to 
lend  its  credit  to  a  railroad  company  duly  incorporated  sub- 
sequently to  the  passage  of  the  act,  as  well  as  to  one  in  ex- 
istence when  the  act  was  passed.3     And  municipal  bonds  will 


before  the  limit  was  reached  are  the 
valid  ones.  Daviess  County  v.  Dick- 
inson, 117  U.  S.  657. 

i  Buchanan  v.  Litchfield,  102  U.  S. 
278.  See  School  District  v.  Stone, 
106  U.  S.  83 ;  §  332.  But  if  the  bouds 
expressly  recite  that  the  issue  is 
not  in  excess  of  the  limitation,  and 
nothing  in  the  bonds  shows  it  to  be 
in  excess,  the  recital  is  conclusive, 
unless  the  purchaser  knows  the  limit 
to  have  been  passed  (Doon  Township 
o.  Cummins,  142  U.  S.  366),  or  is 
bound  to  take  notice  of  records 
which  would  show  the  fact  to  be 
otherwise  than  as  recited  in  the 
bouds.  Chaffee  County  v.  Potter, 
142  U.  S.  355;  Gunnison  County 
Com.  v.  Rollins,  173  U.  S.  255;  Waite 
u.  Santa  Cruz,  184  U.  S.  302;  Nesbit 
v.  Riverside  Independent  Dist.,  144 
U.  S.  611;  Sherman  County  v.  Si- 
mons, 109  U.  S.  735;  Dallas  County 
i\  McKenzie,  110  IT.  S.  686;  Marcy  v. 
Township  of  Oswego,  92  U.  S.  637; 
HumboldtTownship  v.  Long,  92  U.  S. 
642.  See  as  to  effect  of  recitals, 
§§  329,  etc. 

In  Louisiana  v.  Wood,  102  U.  S. 
294,  it  was  held  when  a  city  borrows 


money  on  its  bonds  concededly  in- 
valid for  want  of  registration,  the 
money  paid  for  them  may  be  recov- 
ered back  with  lawful  interest. 
Qucere,  whether  this  last  decision 
would  apply  if  the  bonds  for  which 
the  money  was  paid  had  been  issued 
in  contravention  of  a  constitutional 
restriction  ? 

2  Jarrolt  v.  Moberly,  103  U.  S.  580. 
An  act  forbidding,  under  certain  pen- 
alties, the  officers  of  a  municipal 
corporation  from  subscribing  for 
railroad  stock,  without  the  previous 
assent  of  two-thirds  of  the  qualified 
voters,  is  in  itself  no  authority  to 
loan  money  when  such  assent  is 
given.     lb. 

3  James  v.  Milwaukee,  16  Wall.  159. 
A  city  authorized  "  to  obtain  money 
on  loan,  on  the  faith  and  credit  of 
said  city,  for  purposes  of  contribut- 
ing to  works  of  internal  improve- 
ment," may  guarantee  bonds  of  a 
railroad  company  whose  road  runs 
through  the  city.  City  of  Savannah 
v.  Kelly,  108  U.  S.  184.  In  regard  to 
the  meaning  of  the  phrase  "  corpo- 
rate purposes,"  see  City  of  Ottawa  v. 
Carey,  108  U.  S.  110. 

293 


§  323.]         THE  LAW    OF    PRIVATE   CORPORATIONS.  [CHAP.  VII. 


not  be  rendered  invalid  in  the  bands  of  a  bona  fide  holder  by 
the  fact  that  the  railroad  company,  in  payment  for  whose  stock 
the  bonds  were  issued,  was  not  in  existence  when  the  vote  was 
passed  authorizing  the  subscription.1  But  where  a  statute  au- 
thorized a  town  to  appropriate  money  to  aid  in  constructing  a 
certain  railroad  as  soon  as  its  track  should  havebeen  located  and 
constructed  through  the  town,  it  was  held  that  the  town  could 
make  no  appropriation  until  the  road  was  so  located  and  con- 
structed.2 Likewise  where  the  popular  vote,  taken  in  accord- 
ance with  the  statute,  authorized  a  subscription  to  one  railroad 
company,  and  the  bonds  were  issued  to  another  railroad  com- 
pany, this  appearing  on  the  bonds  themselves,  the  lack  of  au- 
thority is  evident  from  the  face  of  the  bonds,  and  there  can  be 
no  bona  fide  holder  of  them.3 

§  323.  In  the  case  of  March  v.  Fulton  County,4  a  railroad 
company  subsequent  to  its  incorporation  was  divided 
into  three  divisions,  and  each  division  incorporated 
as  a  distinct  corporation.  A  vote  of  the  people  of 
the  county  had  authorized  the  bonds  whose  validity 
was  before  the  court,  to  be  issued  to  the  original  corporation  ; 
and  the  court  held  that  they  could  not  under  this  vote  be  validly 
issued  to  one  of  three  new  corporations.  It  is  to  be  noticed, 
however,  that  the  statute  which  in  this  case  permitted  counties 
to  issue  their  bonds  in  aid  of  railroad  enterprises,  required  the 
notices  of  election  to  specify  the  corporation  to  which  it  was 
proposed  to  issue  them.5  The  Federal  Supreme  Court  has  also 
held  that  although  a  subscription  to  the  stock  of  a  railroad 
company  be  duly  authorized  by  the  requisite  vote,  yet  if  before 
the  subscription  be  actually  made  the  company  becomes  con- 
solidated with  another,  thereby  forming  a  third,  a  subscription 
to  the  stock  of  the  new  corporation  and  the  issue  of  bonds 
therefor  are  unauthorized.6 


Effect  of  a 
consolida- 
tion of  the 
railroad 
company. 


1  County  of  Daviess  v.  Huidekoper, 
98  U.  S.  98. 

2  Town  of  Concord  v.  Portsmouth 
Savings  Bank,  92  U.  S.  625.  See 
County  of  Moultrie  e.  Savings  Bank, 
92  U.  S.  631;  Railroad  Co.  v.  Falco- 
ner, 103  U.S.  821.  Compare  County 
of  Randolph  v.  Post,  93  U.  S. 
502. 

294 


8  County  of   Bates  v.  Winters,  97 
U.  S.  83. 
4 10  Wall.  676. 

5  Municipal  bonds  voted  and  deliv- 
ered to  a  corporation  under  a  changed 
name  are  not  by  such  change  invali- 
dated. Town  of  Reading  v.  Wedder, 
66  111.  80. 

6  Harshman  v.    Bates   County,   92 


PART    III.]  ACTS   BEYOND   THE   CORPORATE   POWERS.       [§  325. 

§  324.  It  may  be  questioned  whether  the  case  last  referred 
to,  Harshman  v.  Bates  County,  would  be  followed  now  by  the 
Supreme  Court ;  for  that  court  has  since  held  in  more  than  one 
instance,  that  when  a  municipal  corporation  is  authorized  to 
issue  its  bonds  to  a  railroad  company,  the  consolidation  of  that 
company  with  another  does  not  destroy  the  power  of  the  county 
to  issue  its  bonds  nor  the  right  of  the  railroad  company  to  re- 
ceive them.1  And  bonds  voted  in  aid  of  one  company,  which 
under  the  law  then  in  force  was  subsequently  consolidated  with 
another,  may  be  delivered  to  the  consolidated  company.2 

§  325.  Municipal  bonds,  invalid  in  their  inception,  may  be 
validated  by  legislative  sanction  or  even  recognition.3 
For,  in  the  absence  of  constitutional  restrictions,  a   bond^may 
legislature    may   competently    validate,    by    retro-   ^atld11" 
spective  statutes,  an  irregular  or  defective  execution 
of  a  power  by  a  municipal  or  other  public  corporation.4     More- 


U.  S.   569.     See   Wagner   v.    Meety, 
69  Mo.  150. 

1  Menasha  ».  Hazard,  102  IT.  S.  81 ; 
County  of  Scotland  v.  Thomas,  94  U. 
S.  682;  Town  of  East  Lincoln  v. 
Davenport,  94  U.  S.  801 ;  County  of 
Henry  v.  Nicolay,  95  U.  S.  619;  Liv- 
ingston County  v.  Portsmouth  Bank, 
128  U.  S.  102,  substantially  disap- 
proving Harshman  v.  Bates  County. 
See  County  of  Cass  v.  Gillett,  100 
U.S.  585;  County  of  Schuyler  v. 
Thomas,  98  U.  S.  169;  Wilson  v.  Sala- 
manca, 99  U.  S.  499;  County  of  Tip- 
ton v.  Locomotive  Works,  103  U.  S. 
523;  Harter  v.  Kernochan,  103  U.  S. 
562;  Scott  v.  Hansheer,  94  Ind.  1; 
Edwards  v.  People,  88  111.  340,  and 
§  536. 

2  New  Buffalo  v.  Iron  Company, 
105  U.  S.  73;  Chickaming  v.  Carpen- 
ter, 106  U.  S.  663;  Nugent  v.  Super- 
visors, 19  Wall.  241;  Bates  County  » 
Winters,  112  U.  S.  325;  Niantic  Sav- 
ings Bank  v.  Town  of  Douglas,  5  111. 
App.  579. 

3  Grenada  County  Supervisors  v. 
Brogden,  112  U.  S.  261;  Campbell  v. 


City  of  Kenosha,  5  Wall.  194;  Utter 
v.  Franklin,  172  U.  S.  416. 

*Otoe  County  v.  Baldwin,  111  U. 
S.  1;  Gelpcke  v.  Dubuque,  1  Wall. 
175,  203;  Tifft  v.  City  of  Buffalo,  82 
N.  Y.  204;  Keithburgu.  Frick,  34  111. 
405;  Copes  v.  Charleston,  10  Rich.  L. 
(S.  C.)  491;  McMillen  v.  Boyles,  6 
Iowa,  304;  McMillen  v.  Judge  of  Lee 
County,  ib.  391;  Bass  v.  City  of  Co- 
lumbus, 30  Ga.  845;  Steines  v.  Frank- 
lin County,  48  Mo.  167;  Knapp  v. 
Grant,  27  Wis.  147 ;  Town  of  Duanes- 
burg  ».  Jenkins,  57  N.  Y.  177.  Com- 
pare White  Mountains  R.  R.  Co.  v. 
White  Mountains  R.  R.,  50  N.  H.  50; 
Gross  v.  United  States  Mortgage  Co., 
108  U.  S.  477;  Alexander  v.  Commis- 
sioners of  McDowell  County,  70  N. 
C.  208;  Single  v.  Supervisors,  38  Wis. 
363.  But  see  Cairo  and  St.  L.  R.  R. 
Co.  v.  City  of  Sparta,  77  111.  505. 
But  a  legislature  cannot  validate 
municipal  bonds  by  a  statute  passed 
after  a  constitutional  amendment 
has  forbidden  the  legislature  to  au- 
thorize municipal  bonds.  Katzen- 
berger  v.  Aberdeen,  121  U.  S.  172. 

295 


§  326.] 


THE    LAW    Otf    PK1VATK    COttPOttATlONS.   [CHAP.  VII. 


over,  the  levy  of  a  tax  and  the  payment  of  interest  by  the 
proper  municipal  authorities  have  been  held  to  validate,  in  the 
hands  of  burnt  fide  holders  for  value,  county  bonds  irregular  in 


their  origin.1 


§  326.  Municipal  bonds,  made  payable  to  bearer  (or,  as  is 
unusual,  to  order)  are  negotiable;-  they  are  transferable  by 
delivery  without  indorsement,3  and  the  holder  may  sue  in  his 


A  law  requiring  a  municipal  cor- 
poration to  pay  a  demand  which  is 
without  legal  obligation,  but  which 
is  equitable  and  just  in  itself,  being 
founded  on  a  valuable  consideration 
received  by  the  corporation,  is  not  a 
retrospective  law,  any  more  than 
would  be  an  appropriation  for  the 
payment  of  a  pre-existing  claim. 
Read  v.  Plattsmouth,  107  U.  S.  568. 
But  compare  Coosa  River  Steamboat 
Co.  v.  Barclay,  30  Ala.  120. 

1  Gelpcke  v.  City  of  Dubuque,  1 
Wall.  176;  Havemeyer  v.  Iowa 
County,  3  Wall.  294;  Supervisors  v. 
Schenck,  5  Wall.  772;  Lee  County  ». 
Rogers,  7  Wall.  181;  Commissioners 
of  Johnson  County  v.  January,  94 
U.  S.  202;  County  of  Jasper  v.  Ballon, 
103  U.  S.  745;  see,  also,  Hannibal  and 
St.  Jo.  R.  R.  Co.  v.  Marion  County, 
30  Mo.  294;  Barrett  v.  County  Court, 
44  Mo.  197.  A  municipality,  author- 
ized to  subscribe  for  railroad  shares 
and  to  issue  its  bonds  in  payment, 
issued  its  bonds  with  a  condition, 
which  was  never  complied  with,  and 
subsequently  waived  the  condition, 
accepted  certificates  of  stock,  and 
then  refunded  its  bonds;  held  the 
new  bonds  were  valid,  as  were  the 
old  ones  also.  Graves  r.  Saline  Co., 
161  U.  S.  359. 

2  Commissioners  of  Marion  Coun- 
ty v.  Clark,  94  U.  S.  278  ;  Oubre  v. 
Donaldsonville,  33  La.  Ann.  386;  City 
of  Mount  Vernon  v.  Hovey,  52  Ind. 
563  ;  Blackman  v.  Lehman,  63  Ala. 
547.  And  this  although  the  corpo- 
rate seal  is  attached.     Mercer  Coun- 

296 


ty  v.  Hackett,  1  Wall.  83.  But  coun- 
ty warrants  are  not  negotiable. 
Wall  v.  County  of  Monroe,  103  U.  S. 
74  ;  County  of  Ouachita  v.  Wolcott, 
103  U.  S.  509.  A  purchaser  of  bonds 
before  maturity,  unless  he  is  person- 
ally chargeable  with  fraud  in  procur- 
ing them,  can  recover  the  full  amount 
of  their  par  value,  although  he  has 
paid  less,  and  the  bonds  were  origi- 
nally affected  by  some  infirmity. 
Cromwell  ».  County  of  Sac,  96  U.  S. 
51.  Where  an  original  issue  of  its 
bonds  may  have  been  illegal,  and  a 
city  redeems  them  with  legal  bonds, 
the  illegality  of  the  original  issue 
does  not  prejudice  the  holder  of  legal 
bonds,  which  he  has  received  on  sur- 
rendering the  illegal  bonds.  Little 
Rock  v.  National  Bank,  98  IT.  S.  308. 
The  legality  of  the  original  claims 
against  a  town  cannot  be  inquired 
into  in  a  suit  on  bonds  issued  to  com- 
promise them.  Dugas  v.  Town  of 
Donaldsonville,  33  La.  Ann.  668  ;  S. 
C.  and  St.  P.  R.  Co.  v.  Osceola  Coun- 
ty, 52  Iowa,  26. 

The  court  will  not  readily  construe 
a  municipal  bond  to  contain  a  condi- 
tion making  it  payable  on  a  contin- 
gency, and  so  non-negotiable.  Hum- 
boldt Township  v.  Long,  92  U.  S.  642. 
The  holder  of  a  municipal  bond  is 
presumed  to  have  acquired  it  in  good 
faith.  He  need  not  have  given  value 
for  it  if  au  intermediate  holder  did, 
and  he  succeeds  to  all  the  latteris 
rights.  Montclair  v.  Ramsdell,  107 
r.  S.  147. 

3  If  a  municipal  bond  affected  with 


PART    III.]  ACTS   BEYOND    THE   CORPORATE   POWERS.       [§  327. 


own  name.1     Likewise,  the  interest  coupons  attached    B    ,       , 
to  municipal  bonds  payable  to  bearer  are  themselves   coupons 
negotiable  and  transferable  by  delivery  when  sepa- 
rated from  the  bonds.-     An  overdue  and  unpaid  interest  coupon, 
attached  to  a  bond  which  has  several  years  to  run,  does  not 
render  the  bond  and  the  subsequently  maturing  coupons  dis- 
honored paper,  so  as  to  subject  them  in  the  hands  of  a  pur- 
chaser for  value  to  defences  good  against  the  original  holder.8 
§  327.  The  rule  that  all  persons  are  affected  with  notice  of  a 
suit  pending  in  regard  to  the  title  to  property,  and   H  ld 
that  every  one  buys  the  same  at  his  peril  from  any  of  affected 
the  litigating  parties,  does  not  apply  to  municipal   ot  lis  pen- 
bonds  and   other   commercial   securities,   purchased     ens' 
before  maturity.4     But  a  person  who  buys  overdue  municipal 


some  infirmity  passes  to  the  hands  of 
a  holder  for  value  without  notice,  so 
that  he  could  collect,  all  his  rights 
pass  to  a  subsequent  purchaser  with 
notice.  Scotland  County  v.  Hill,  132 
U.  S.  107. 

1  Ottawa  y.  National  Bank,  105  U. 
S.  342. 

2  City  of  Lexington  v.  Butler,  14 
Wall.  282  ;  Grande  Chute  v.  Winegar, 
15  Wall.  355;  Clark  v.  Iowa  City,  20 
Wail.  583  ;  Walnut  v.  Wade,  103  U. 
S.  023  ;  Ohio  v.  Frank,  ib.  697. 

3  Cromwell  v.  County  of  Sac,  96  U. 
S.  51.  And  overdue  interest  coupons 
detached  from  a  bond  not  yet  ma- 
tured are  negotiable.  Thompson  v. 
Perrine,  106  U.  S.  589.  Quazre,  as  to 
the  scope  of  the  decision  in  this  last 
case  ;  for  the  statute  of  limitations 
runs  against  coupons  from  the  time 
they  are  due,  whether  they  are  de- 
tached from  their  bonds  or  not. 
Amy  v.  Dubuque,  98  II.  S.  470  ; 
Koshkonong  ».  Burton,  104  U.  S. 
668. 

In  a  suit  on  municip.nl  bonds,  the 
holder  of  the  bonds  and  the  unpaid 
coupons  is  entitled  to  interest  on  un- 
paid interest  from  the  time  it  fell 


due.  Rich  v.  Town  of  Seneca  Falls, 
19  Blatchf.  558  ;  cf.  Bailey  v.  County 
of  Buchanan,  115  N.  Y.  297;  although 
there  has  been  no  demand  for  pay- 
ment, McLendon  v.  Commissioners, 
71  N.  C.  38  ;  but  there  must  have 
been  default  on  the  part  of  county, 
either  in  the  payment  of  the  prin- 
cipal debt  or  the  coupons.  See  Au- 
rora City  v.  West,  7  Wall.  82;  Gelpcke 
v.  Dubuque,  1  Wall.  175.  Overdue 
interest  coupons  bear  interest  at  the 
legal  rate  of  the  place  where  they  are 
payable.  Scotland  County  v.  Hill, 
132  U.  S.  107.  The  right  to  interest 
on  interest,  whether  arising  on  an 
express  or  on  an  implied  agreement, 
if  allowed  by  statutes  in  force  when 
the  bonds  were  issued,  cannot  be  im- 
paired by  subsequent  legislation  de- 
claring the  true  intent  and  meaning 
of  those  statutes.  Koshkonong  v. 
Burton,  104  U.  S.  668. 

4  Couuty  of  Warren  v.  Marcy,  97 
U.  S.  96;  County  of  Cass  v.  Gillett, 
100  U.  S.  585;  Carroll  County  w. 
Smith,  111  U.  S.  556;  Enfield  v.  Jor- 
dan, 119  U.  S.  680.  See,  also.  County 
of  Macon  v.  Shores,  97  U.  S.  272; 
Leitch  v.  Wells,  48  N.  Y.  585;  Stone 
297 


§  329.]         THE    LAW    OF    PBIVATE   CORPORATIONS.   [CHAP.  VII. 


328. 


Presump 
tions. 


bonds  which  have  been  adjudged  void,  is  bound  by  the  judg- 
ment.1 

An  important  consequence  of  the  principle  that  mu- 
nicipal bonds  payable  to  bearer  are  negotiable,  is  that 
"  the  omission  of  formalities  and  ceremonies  or  the 
existence  of  fraud  on  the  part  of  the  agents  of  the 
municipality  issuing  their  bonds  cannot  be  urged  against  a  bona 
fide  holder  seeking  to  enforce  them."2  For  "  when  a  corpora- 
tion has  power  under  any  circumstances  to  issue  negotiable  se- 
curities, the  bona  fide  holder  has  a  right  to  presume  that  they 
were  issued  under  the  circumstances  that  give  the  requisite  au- 
thority, and  they  are  no  more  liable  to  be  impeached  for  any 
infirmity  in  the  hands  of  such  a  holder  than  any  other  com- 
mercial paper."  3 

§  329.  The  last  statement  in  the  text  is  the  reiterated  lan- 
guage of  the  Supreme  Court  of  the  United  States, 
recital       Yet  ^  seems  broader  than  was  required  for  the  de- 
cision of  any  case  in  which  it  wras  applied  to  munic- 


v.  Elliott,  11  Ohio  St.  252;  Kieffer  v. 
Eliler,  18  Pa.  St.  388;  Winston  v. 
Westfeldt,  22  Ala.  760. 

1  Louis  v.  Brown  Township,  109 
U.  S.  162.  And  persons  buying  ne- 
gotiable securities  with  actual  notice 
of  the  pendency  of  a  suit  affecting 
the  title  or  validity  act  at  their  peril, 
and  must  abide  the  result  and  will  be 
concluded  by  the  judgment.  Scot- 
land County  v.  Hill,  112  U.  S.  183. 
See  Lytle  v.  Lansing,  147  U.  S.  59. 

2  Kenicott  v.  Supervisors,  16  Wall. 
452,  465;  Grand  Chute  v.  Winegar, 
15  Wall.  355;  Meyer  p.  City  of  Mus- 
catine, 1  Wall.  384;  State  v.  Saline 
County  Court,  48  Mo.  390.  But  com- 
pare Jacksonville,  etc.,  R.  R.  Co.  v. 
Town  of  Virden,  104  111.  339.  The 
absence  of  a  seal  does  not  affect  the 
right  of  a  bona  fide  holder  to  recover. 
Draper  v.  Springport,  104  U.  S.  501. 
Compare  Bank  v.  Statesville,  84  N. 
C.  169.  When  commissioners  author- 
ized to  issue  town  bonds  are  directed 
by  the  statute  to  affix  their  seals,  and 

298 


omit  to  do  so,  a  bill  in  equity  lies  by 
the  bona  fide  holders  to  restrain  the 
township  from  pleading  the  want  of 
seals.  Bernard's  Township  v.  Steb- 
bins,  109  U.  S.  341.  All  qualified 
voters,  who  absent  themselves  from 
an  election  held  on  public  notice  duly 
given,  are  presumed  to  assent  to  the 
expressed  will  of  the  majority  of 
those  voting;  unless  the  law  provid- 
ing for  the  election  otherwise  de- 
clares. County  of  Cass  v.  Johnston, 
95  U.  S.  360;  Carroll  County  v.  Smith, 
111  U.  S.  556. 

3  Gelpcke  r.  Dubuque,  1  Wall.  175, 
203;  City  of  Lexington  v.  Butler,  14 
Wall.  282;  see  §  205.  But  if  the 
plaintiff  is  the  railroad  company,  or 
is  not  an  innocent  holder,  the  inquiry 
whether  formalities  and  conditions 
precedent  have  been  complied  with 
remains  entirely  open.  Chambers 
County  v.  Clews,  21  Wall.  317.  When 
an  act  is  done  which  can  be  done 
legally  only  after  the  performance 
of  some  prior  act,  proof  of  the  later 


I 


PART  III.]  ACTS    BEYOND   THE   CORPORATE   POWERS.         [§  330. 


ipal  bonds.1  If  a  corporation  has  a  general  power  to  issue  ne- 
gotiable securities,  any  person  may  purchase  them  on  the  as- 
sumption that  they  were  competently  issued  in  the  course  of 
authorized  transactions.2  But  when  a  corporation — at  least  a 
municipal  corporation — has  but  a  special  and  conditioned  power 
to  issue  negotiable  securities  for  a  specified  purpose,  the  Su- 
preme Court  has  never  actually  decided  that  from  the  simple 
bald  fact  that  the  securities  were  issued,  and  signed  by  the  proper 
officers,  the  commercial  public  is  entitled  to  assume  them  to 
have  been  issued  for  the  special  purpose  authorized  by  law,  and 
that  all  conditions  precedent  to  the  authority  of  the  officers  to 
issue  them  had  been  fulfilled.3 

§  330.  Knox  County  v.  Aspinwall 4  is  authority  for  the  propo- 
sition that  from  the  mere  issue  of  bonds  with  a  recital  that 
they  were  issued  in  pursuance  of  the  statute,  a  purchaser  might 
assume  that  the  conditions  on  which  the  county  was  authorized 
to  issue  them  had  been  complied  with.  Although  this  has  been 
reaffirmed  in  the  Supreme  Court, 5  it  is  safer  to  say:  "Where 


act  carries  the  presumption  of  the 
due  performance  of  the  prior  act. 
Knox  County  v.  Ninth  Nat.  Bank, 
147  U.  S.  91. 

1  For  instance,  in  City  of  Lexington 
v.  Butler,  14  Wall.  282,  where  this 
general  language  is  used,  there  were 
recitals  in  the  bonds  importing  that 
the  bonds  were  issued  for  the  purpose 
authorized  by  the  statute,  and  in  com- 
pliance therewith.  A  complaint  on  a 
bond  issued  by  a  town  having  au- 
thority to  issue  bonds  for  certain  pur- 
poses, should  state  the  purpose  for 
which  the  bond  was  issued.  Hopper 
v.  Covington,  118  U.  S.  148. 

2  See  §  205. 

3  See  Merchants'  Bank  v.  Bergen 
County,  115  U.  S.  384.  The  con- 
trary of  this  proposition  was  substan- 
tially held  in  Barnett  v.  Denison,  145 
U.  S.  135. 

4  Knox  County  v.  Aspinwall,  21 
How.  539.  Compare  Kenicott  v.  Su- 
pervisors, 16  Wall.  452;  St.  Joseph 
Township  p.   Rogers.   IB  Wall.  644: 


Marcey  v.  Township  of  Oswego,  92  U. 
S.  638;  Humboldt  Township  «.  Long, 
92  U.  S.  642;  Commissioners,  etc.,  v. 
Bolles,  94  U.  S.  104;  Township  of 
Rock  Creek  v.  Strong,  96  U.  S.  271 ; 
San  Antonio  v.  Mehaffy,  96  U.  S. 
312 ;  County  of  Warren  v.  Marcy,  97 
U.  S.  96;  Nauvoo  v.  Ritter,  97  U.  S. 
389;  Hackett  w.  Ottawa,  99  U.  S.  86; 
Town  of  Weyanwega  v.  Ayling,  99  U. 
S.  112;  Supervisors  v.  Galbraith,  99 
U.  S.  214;  Brooklyn  v.  Insurance  Co., 
99  U.  S.  362;  Block  v.  Commission- 
ers, 99  U.  S.  686;  Pana  v.  Bowler, 
107  U.  S.  529;  Oregon  v.  Jennings, 
119  U.  S.  74;  Dodge  v.  County  of 
Platte,  16  Hun,  285  ;  Shurtleff  v. 
Wiscasset,  74  Me.  130 ;  Anderson 
County  v.  Houston  &  G.  N.  R.  R. 
Co.,  52  Tex.  228;  compare  Jackson- 
ville, etc.,  R.  R.  Co.  v.  Town  of  Vir- 
den,  104  111.  339. 

5  Mercer  County  v.  Hacket,  1  Wall. 
83  ;  Moran   v.    Commrs.    of    Miami 
County,  2  Black,  722,   732;  Supervi- 
sors o.   Schenck,   5    Wall.    772,  784; 
299 


§  331.]         THE   LAW   OF   PRIVATE   CORPORATIONS.  [CHAP.  VII. 


legislative  authority  has  been  given  to  a  municipality,  or  to  its 
officers,  to  subscribe  for  the  stock  of  a  railroad  company,  and 
to  issue  municipal  bonds  in  payment,  but  only  on  some  prece- 
dent condition,  such  as  a  popular  vote  favoring  the  subscription, 
and  where  it  may  be  gathered  from  the  legislative  enactment 
that  the  officers  of  the  municipality  were  invested  with  power 
to  decide  whether  the  condition  precedent  has  been  complied 
with,  their  recital  that  it  has  been  made  in  the  bonds  issued  by 
them  and  held  by  a  bona  fide  purchaser,  is  conclusive  of  the 
fact  and  binding  upon  the  municipality,  for  the  recital  is  itself 
a  decision  of  the  fact  by  the  appointed  tribunal."  l 

§  331.  Officers  executing  the  bonds  are  sometimes  expressly 
authorized  to  certify  to  the  fulfillment  of  conditions  prece- 
dent,2 or  the  authority  may  be  held  to  rise  by  implication.  As 
Justice  Svvayne  said,  in  Commissioners  of  Johnson  County  v. 
JsinuaYy : 3  "  This  act  ....  authorized  the  commissioners  to 
issue  the  bonds,  when  the  requirements  of  the  law  had  been 
complied  with.  They  were  thus  constituted  a  tribunal  for  the  ad- 
justment of  all  questions  touching  the  subject.  They  were  clothed 
with  the  power  and  charged  with  the  duty  to  decide  them. 
No  appeal  or  review  wras  provided  for.  Their  issuing  the  bonds 
was  the  reflex  and  embodiment  of  their  judgment  that  it  was 
proper  to  do  so.1' 4 


Meyer  v.  City  of  Muscatine,  1  Wall. 
384. 

1  Town  of  Coloma  v.  Eaves,  92  U. 
S.  484,  491;  op'n  of  c't  per  Strong.  J., 
ace.  Town  of  Venice  v.  Murdock,  92 
U.  S.  494;  Anderson  Cy.  Com  mis.  v. 
Beal,  113  U.  S.  227;  Evansville  v. 
Dennett,  161  U.  S.  434;  Provident 
Trust  Co.  v.  Mercer  County,  170  U. 
S.  593;  Gunnison  County  Com.  v. 
Rollins,  173  U.  S.  255;  Waite  v. 
Santa  Cruz,  184  U.  S.  302;  contra, 
Cogwin  v.  Town  of  Hancock,  84  X. 
Y.  532. 

See,  also,  Pompton  i>.  Cooper  Union, 
101  U.  S.  196;  Bonliam  v.  Needles, 
103  U.  S.  648;  Walnut  v.  Wade,  ib. 
683;  County  of  Clay  i\  Society  for 
Savings,  104  U.  S.  579;  Insurance 
Co.  v.  Bruce,  105  U.  S.  328;  Grenada 
300 


County  Supervisors  v.  Brogden,  112 
U.  S.  261;  County  of  Ralls  o.  Doug- 
lass, ib.  728;  Lewis  ».  Commission- 
ers, ib.  739;  Dallas  County  v.  Mc- 
Kenzie,  110  U.  S.  686. 

2  As,  e.  f/.,  in  Lynde  v.  The 
County,  16  Wall.  6. 

3  94  U.  S.  202,  205.  See  Bissell  ». 
Jeffersonville,  24  How.  287;  Van 
Hostrup  v.  Madison  City,  1  Wall. 
291;  Mercer  County  v.  Hacket,  ib. 
83;  also  §§  205  et  seq. 

'The  municipality  is  estopped  from 
setting  up  the  non-fulfillment  of  a 
condition  precedent  "if  certified  to 
by  the  authorities  whose  primary 
duty  is  to  ascertain  it.11  Pana  t>. 
Bowler,  107  U.  S.  529. 


PART  III.]  ACTS   BEYOND   THE   CORPORATE   POWERS.         [§  332. 

§  332.  The  more  recent  decisions  of  the  Supreme  Court  of 
the  United  States,  either  deciding  new  points  or  „  . 
interpreting  former  decisions,  place  the  following  Recent  de- 
limitations or  conditions  on  the  operation  of  recitals 
in  municipal  bonds  as  estoppels.  First :  the  recital  will  not 
conclude  the  municipality  when  from  the  face  of  the  bond  or 
from  some  record  with  notice  of  which  the  holder  is  affected, 
it  appears  that  the  statute  authorizing  the  issue  has  not  been 
complied  with.1  Thus,  where  a  statute  directs  the  county  com- 
missioners, when  the  electors  shall  have  voted  to  issue  bonds  in 
aid  of  a  railroad,  to  order  the  county  clerk  to  make  the  sub- 
scription, and  to  cause  the  bonds  to  be  issued  in  the  name  of 
the  township,  signed  by  the  chairman  of  the  board  and  attested 
by  the  clerk  under  the  seal  of  the  county,  the  signature  of  the 
clerk  is  essential  to  the  valid  execution  of  the  bonds,  even  though 
he  has  no  discretion  to  withhold  it ;  and  the  town  will  not  be  es- 
topped from  disputing  their  validity  by  reason  of  recitals  in  the 
bonds  to  the  effect  that  the  terms  of  the  statute  have  been  com- 
plied with.2 

In  another  case,  under  the  constitution  and  laws  of  Nebraska, 
a  county  had  authority  to  issue  bonds  to  the  extent  of  ten  per 
cent,  of  the  assessed  valuation  of  the  property  in  the  county. 
The  bonds  stated  on  their  face  that  they  were  part  of  a  series 
amounting  in  the  aggregate  to  a  specified  sum,  which  exceeded 
ten  per  cent,  of  the  assessed  valuation  of  the  property  in  the 
county,  as  any  one  could  have  ascertained  by  examining  the 
assessment  rolls  on  hie.  It  was  held  that  the  officers  issuing 
the  bonds  had  no  authority  to  conclude  the  county  by  a  recital 
in  the  bonds  to  the  contrary  of  what  could  thus  have  been  as- 


xOf  course  no  recital  will  conclude 
the  municipality  where  there  was  no 
authority  to  issue  the  bonds;  for 
every  one  is  bound  to  take  notice  of 
the  rule  that  municipal  corporations 
have  no  implied  authority  to  issue 
negotiable  bonds;  and  also  every  one 
is  bound  to  take  notice  of  the  terms 
of  the  legislative  authority  under 
which  the  bonds  purport  to  be  is- 
sued. See  §§  319,  320.  The  Federal 
Supreme  Court  "has  never  intended 


to  adjudge  that  mere  recitals  by  the 
officers  of  a  municipal  corporation  in 
bonds  issued  in  aid  of  a  railroad  cor- 
poration precluded  an  inquiry,  even 
where  the  rights  of  a  bona  fide  holder 
were  involved,  as  to  the  existence  of 
legislative  authority  to  issue  them." 
Northern  Bank  v.  Porter  Township, 
HOLT.  S.  608,  615,  opinion  of  Court 
per  Harlan,  J. 

-  Bisscll  i\  Spring  Valley  Township. 
110  U.  S.  162. 

301 


§  332.]         THE   LAW    OF    PRIVATE   CORPORATIONS.  [CHAP.  VII. 


certained.1  "  If  the  fact  necessary  to  the  existence  of  the 
authority  was  by  law  to  be  ascertained,  not  officially  by  officers 
charged  with  the  execution  of  the  power,  but  by  reference  to 
some  express  and  definite  record  of  a  public  character,  then  the 
true  meaning'  of  the  law  would  be,  that  the  authority  to  act  at 
all  depended  upon  the  actual  objective  existence  of  the  requisite 
fact,  as  shown  by  the  record,  and  not  upon  its  ascertainment 
and  determination  by  any  one ;  and  the  consequence  would 
necessarily  follow  that  all  persons  claiming  under  the  exercise 
of  such  a  power  might  be  put  to  proof  of  the  fact  made  a  condi- 
tion of  its  lawfulness,  notwithstanding  any  recital  in  the  in- 
strument." 2  Recitals  that  bonds  are  issued  in  pursuance  of  a 
statute  and  city  council  ordinances  do  not  put  a  purchaser  on 
inquiry  as  to  those  ordinances  ;  nor  does  a  recital  that  they 
were  issued  "  by  virtue  of  a  resolution  "  of  the  city  council  put 
him  on  inquiry  as  to  the  terms  of  that  resolution.3 

Secondly  :  recitals  in  municipal  bonds  are  conclusive  only  as 
far  as  they  relate  to  facts  within  the  authority  of  the  officers 
making  the  recitals  to  determine  and  certify  to  the  existence 
of.4  "  The  adjudged  cases,  examined  in  the  light  of  their 
special  circumstances,  show  that  the  facts  which  a  municipal 
corporation,  issuing  bonds  in  aid  of  the  construction  of  a  rail- 
road, was  not  permitted,  against  a.  bona  fide  holder,  to  question, 
in  face  of  a  recital  in  the  bonds  of  their  existence,  were  those 
connected  with  or  growing  out  of  the  discharge  of  the  ordinary 
duties  of  such  of  its  officers  as  were  invested  with  authority  to 
execute  them,  and  which  the  statute  conferring  the  power  made 
it  their  duty  to  ascertain  and  determine  before  the  bonds  were 
issued  ;  not  merely  for  themselves,  as  the  ground  of  their  own 
action  in  issuing  the  bonds,  but  equally  as  authentic  and  final 
evidence  of  their  existence,  for  the  information  and  action  of 
all  others  dealing  with  them  in  reference  to  it."  5  Or,  as  Justice 


1  Dixon  County  v.  Field,  111  U.  S. 
83.     See  §  321. 

2  Opinion  of  Court  in  Dixon  County 
v.  Field,  111  U.  S.  83,  93,  quoted  in 
Lake  County  v.  Graham,  130  U.  S. 
674,  682,  in  which  case  the  bonds  is- 
sued in  excess  of  constitutional  limi- 
tation were  held  void.  "The  cases 
just  cited  show  that  the  records  are 

302 


the  only  source  of  information,"  ib. 
683.  Ace.  Sutliff  v.  Lake  County, 
147  U.  S.  230. 

8  Evansville  v.  Dennett,  161  U.  S. 
434. 

4  See  §§330,  331. 

5  Northern  Bank  v.  Porter  Town- 
ship, 110  U.  S.  608,  619,  opinion  of 
the  court,  per  Harlan,  J.     Compare 


PART    III.]  ACTS   BEYOND    THE   CORPORATE   POWERS.        [§  332. 

Matthews  said,  giving  the  opinion  of  the  court  in  Dixon  County 
v.  Field :  "  Where  the  validity  of  the  bonds  depends  on  an 
estoppel  claimed  to  arise  upon  the  recital  of  the  instrument, 
the  question  being  as  to  the  existence  of  power  to  issue  them, 
it  is  necessary  to  establish  that  the  officers  executing  the  bonds 
had  lawful  authority  to  make  the  recitals  and  to  make  them 
conclusive.  The  very  ground  of  the  estoppel  is  that  the  recitals 
are  the  official  statements  of  those  to  whom  the  law  refers  the 
public  for  authentic  and  final  information  on  the  subject."  1 

Thirdly :  the  recital  or  fact  to  be  conclusive  on  the  munici- 
pality must  be  the  act  of  municipal  officers  empowered  to  cer- 
tify to  it,  or  to  take  final  action  in  the  matter,  and  not  the  act 
of  some  outside  tribunal  before  whom  the  municipality  has 
had  no  opportunity  of  appearing ;  or  at  least  the  fact  or  recital 
must  be  based  on  the  action  of  such  municipal  officers.  Thus, 
a  statute  provided  that  the  holder  of  certain  municipal  bonds 
mio-ht  have  them  registered  in  the  office  of  the  auditor  of  state, 
whose  duty  it  should  then  be  to  notify  the  town  officers  issuing 
them,  who  in  their  turn  should  record  the  fact  of  the  auditor's 
registration ;  and  the  bonds  should  thereafter  be  considered 
registered  bonds.  The  mere  registration  by  the  auditor,  with- 
out further  steps,  was  held  ineffectual  and  not  to  estop  the 
town.2  Giving  the  opinion  of  the  court,  Justice  Matthews  said  : 
"  If  complete  and  conclusive  effect  were,  on  the  contrary,  given 
to  the  ex  parte  record  of  the  auditor  of  state,  as  is  claimed  for 
it,  the  obvious  design  and  just  purpose  of  the  statute  would 
be  not  secured,  but  subverted  ;  and  municipal  corporations 
might  be  subjected  to  liability  for  bonds  purporting  to  be  is- 
sued by  them,  which,  in  fact  and  in  law,  were  not  their  ob- 
ligations, by  virtue  of  a  proceeding  of  which  they  had  no  notice, 
resulting  in  an  adjudication  which  they  had  no  opportunity  of 
contesting.  A  construction  of  the  statute  that  necessarily  leads 
to  that  conclusion  is  not  warranted  by  its  terms,  and  would  be 
repugnant  to  fundamental  principles  of  common  right.  If  the 
registration  of  bonds  issued  under  the  act  itself  is  to  have  the 
force  of  an  adjudication  by  the  auditor,  the  preliminary  record 


Town  of  Springport  v.  Teutonia  Sav- 
ings Bank,  75  N.  Y.  397;  S.  C,  84 
N.  Y.403;  Craig  v.  Town  of  Andes, 
93  N.  Y.  405. 


1  111  U.  S.  83,  94. 

2Bissell   v.   Spring   Valley   Town- 
ship, 110  U.  S.  162. 

303 


§  332.]         THE   LAW    OF   PRIVATE   CORPORATIONS.   [CHAP.  VII. 

by  the  officers  of  the  municipal  corporation  transmitted  to  him 
must  be  the  indispensable  foundation  of  his  jurisdiction,  without 
which  he  cannot  lawfully  act;  and  as  to  bonds  issued  as  were 
these  now  in  suit,  under  previous  statutes,  the  action  of  the 
auditor  is  itself  but  the  preliminary  proceeding,  of  which  con- 
firmation by  the  subsequent  record  of  the  officers  issuing  them 
is  essential  to  its  efficacy  as  a  registration.  If  these  officers 
refuse  to  recognize  the  registry  of  the  auditor,  whether  right- 
fully or  wrongfully,  the  holder  loses  no  rights.  He  has  the 
bonds  as  he  acquired  them,  and  may  test  the  liability  of  the 
corporation  by  judicial  proceedings.  If,  on  the  other  hand, 
the  statute  is  construed  to  allow  him,  b}T  a  proceeding  before 
the  auditor,  conclusively  to  fix  the  liability  of  the  municipal 
corporation,  without  notice  and  without  a  hearing,  certainly,  in 
respect  to  bonds  previously  issued,  it  would  be  open  to  the 
gravest  objection  on  constitutional  grounds,  for,  if  a  law  cannot 
impair  the  obligation  of  a  contract,  neither  can  it  create  one, 
nor,  by  a  mere  fiat,  take  from  a  party  an  existing  and  meri- 
torious defence."  x 

Fourthly :  recitals  will  not  estop  the  county  from  showing 
the  invalidity  of  the  bonds  on  grounds  not  properly  covered 
by  them.  Thus,  a  recital  in  a  municipal  bond  that  it  was 
"  authorized  by  the  following  styled  acts,"  giving  their  titles 
and  dates,  does  not  estop  the  municipality  from  showing  that 
the  issue  was  not  authorized  by  a  two-thirds  vote,  as  required 
bv  the  state  constitution.2  In  another  case3  the  bonds  recited 
that  they  were  "  issued  by  the  board  of  school  directors  by  au- 
thority of  an  election  of  voters  of  said  school  district,  held  on 
the  thirty-first  day  of  July,  1869,  in  conformity  with  the  pro- 


1  Bissell  v.  Spring  Valley  Town- 
ship, 110  U.  S.  162,  173.  Compare 
Lewis  v.  Commissioners,  105  U.  S. 
730. 

When  the  constitution  or  a  statute 
of  a  state  requires  as  essential  to  the 
validity  of  municipal  bonds  that  they 
shall  be  registered  by  the  secretary 
and  auditor  of  state,  who  shall  also 
certify  on  them  the  fact  that  they 
have  been  issued  according  to  law, 
yet  does  not  give  any  conclusive  effect 
to  such  registration  or  certificate,  the 

304 


municipality  is  not  concluded  by  the 
certificate  from  denying  the  facts 
certified  to.  Dixon  County  v.  Field, 
111  U.  S.  83;  see,  also,  Crow  i>.  Ox- 
ford, 119  U.  S.  215.  Compare  Hoff 
v.  Jasper  County,  110  U.  S.  53;  Cairo 
d.  Zane,  149  U.  S.  122. 

2  Carroll  County  v.  Smith,  111  U. 
S.  550.  Compare  §  329  and  authori- 
ties cited  in  the  last  note  to  it. 

3  School  District  v.  Stone,  106  U. 
S.  183. 


J 


PART  III. J  ACTS   BEYOND   THE   CORPORATE   POWERS.         [§  333. 

visions  of  chap.  98  of  acts  12th  general  assembly  of  the  state 
of  Iowa."  The  constitution  of  Iowa  declares  that  no  munic- 
ipal corporation  "shall  be  allowed  to  become  indebted  in  any 
manner,  or  for  any  purpose,  to  an  amount  in  the  aggregate 
exceeding  five  per  centum  of  the  value  of  the  taxable  property 
within  such  county  or  corporation,  to  be  ascertained  by  the  last 
state  and  county  tax  lists,  previous  to  the  increasing  of  such 
indebtedness."  The  court  held  that  the  recital  above  men- 
tioned "  necessarily  implied  nothing  more  than  that  the  bonds 
were  issued  by  authority  of  the  electors,  and  that  the  election 
was  held  in  conformity  with  the  statute.  The  statute  may  have 
been  pursued  as  to  the  notice  required  to  be  given  of  the  time 
and  place  of  the  election,  and  as  to  the  manner  in  which  the 
will  of  the  voters  was  to  be  ascertained,  and  yet  it  may  have 
been  disregarded  in  respect  to  the  limit  it  imposes  upon  dis- 
trict indebtedness.  The  declaration,  therefore,  that  the  election 
was  held  in  conformity  with  the  statute,  does  not  with  suffi- 
cient distinctness  imply  that  the  indebtedness  voted  was  less 
than  five  per  cent,  on  the  value  of  the  taxable  property  of  the 
district,  as  shown  by  the  state  and  county  tax  lists."  Accord- 
ingly, the  bonds,  having  been  issued  in  excess  of  the  constitu- 
tional limit,  were  held  void.  The  court  concluded  with  saying, 
that  "  where  the  holder  relies  for  protection  upon  mere  recitals, 
they  should,  at  least,  be  clear  and  unambiguous,  in  order  to 
estop  a  municipal  corporation,  in  whose  name  such  bonds  have 
been  made,  from  showing  that  they  were  issued  in  violation,  or 
without  authority  of  law." * 

§  333.  If  not  restrained  by  some  valid  special  limitation  upon 
the  exercise  of  its  taxing  power,  a  county  authorized   p 
to  contract  an   extraordinary  indebtedness   by  the   municipal 
issue  of  negotiable  securities,  may  levy  a  tax  to  meet   to  tax. 
principal  and  interest  as  they  accrue.2    And  when  a  Mandamus- 
state  has  authorized  a  municipal  corporation  to  contract,  and 
to  exercise  the  power  of  local  taxation  to  the  extent  necessary 


UOe  U.  S.  187.  Compare  with 
this  decision  Marcy  o.  Township  of 
Oswego,  92  U.  S.  637,  and  see  §  321. 
The  municipality  may  set  up  non- 
performance of  condition  on  which 
the  bonds  were  voted  to  be  issued, 


when  recitals  do  not  cover  that  point. 
Citizens,  etc.,  Asso'n  v.  Perry  Co., 
156  U.  S.  693. 

-  Ralls  County  Court  r.  United 
States,  105  U.  S.  733;  Quincy  v. 
Jackson,  113  U.  S.  332. 


20  305 


§  333.]        THE   LAW   OF   PRIVATE   CORPORATIONS.    [CHAP.  VII. 


to  meet  its  engagements,  the  power  of  taxation  thus  given  can- 
not be  withdrawn  until  the  contract  is  satisfied.  The  state  and 
the  corporation  are  equally  bound  to  respect  the  claims  of  the 
creditors  of  the  latter ;  and  the  power  given  becomes  a  trust 
which  the  donor  cannot  annul  and  the  donee  is  bound  to  exe- 
cute. "  By  the  obligation  of  a  contract  is  meant  the  means 
which,  at  the  time  of  its  creation,  the  law  affords  for  its  en- 
forcement. The  usual  mode  by  which  municipal  bodies  obtain 
funds  to  meet  their  pecuniary  engagements  is  taxation.  Ac- 
cordingly, when  a  contract  is  made  upon  the  faith  that  taxes 
will  be  levied,  legislation  repealing  or  modifying  the  taxing 
power  of  the  corporation,  so  as  to  deprive  the  holder  of  the  con- 
tract of  all  adequate  and  efficacious  remedy,  is  within  the  con- 
stitutional inhibition." 1  Accordingly,  a  mandamus  will  issue 
to  a  municipal  corporation  commanding  it  to  levy  taxes  to 
the  amount  requisite  to  meet  its  valid  engagements.2  It  is 
well  established  that  after  judgment  at  law  for  a  sum  of  money 
against  a  municipal  corporation  and  the  return  of  execution 
unsatisfied,  mandamus,  not  a  bill  in  equity,  is  the  proper  mode 
to  compel  the  levy  of  a  tax  which  the  corporation  is  bound  to 
levy  to  pay  the  judgment.4     And  when  judgment  has  been 


1  Nelson  v.  St.  Martin's  Parish, 
111  U.  S.  716,  721;  opinion  per 
Field,  J.,  Ace.  Scotland  County  Court 
v.  Hill,  140  U.S.  41.  And  see  Seibert 
v.  Lewis,  122  U.  S.  284,  and  cases  in 
next  note. 

2  Von  Hoffman  v.  City  of  Quincy, 
4  Wall.  535;  United  States  v.  New 
Orleans,  98  U.  S.  381;  Brodie  v. 
McCabe,  33  Ark.  690;  Columbia 
County  v.  King,  13  Fla.  451.  As 
long  as  a  city  exists,  laws  are  void 
which  withdraw  or  restrict  her  tax- 
ing power  so  as  to  impair  the  obliga- 
tion of  her  contracts  made  upon  a 
pledge  expressly  or  impliedly  given 
that  it  shall  be  exercised  for  their 
fulfillment.  Mandamus  will  lie,  not- 
withstanding such  laws.  Wolff  v. 
New  Orleans,  103  U.  S.  358,  approv- 
ing Von  Hoffman  v.  Quincy.  Com- 
pare Louisiana  v.  Mayor  of  New  Or- 
leans,   109    U.    S.    285;    Rahway   v. 

306 


Munday,  44  N.  J.  L.  395.  Where 
the  relator  has  a  judgment,  on  rail- 
way aid  bonds,  against  a  township, 
aud  is  otherwise  entitled  to  a  writ  of 
mandamus,  a  mandamus  to  compel 
the  levy  of  a  tax  lies  against  all  the 
officers  whose  co-operation  in  tax 
levies  is  by  law  required,  whether 
they  are  town  or  county  officers. 
Labette  County  Commissioners  v. 
Moulton,  112  U.  S.  217.  But  judg- 
ment on  the  bonds  must  first  have 
been  had.  Davenport  v.  County  of 
Dodge,  105  U.  S.  237;  County  of 
Greene  v.  Daniel,  102  U.  S.  187.  Re- 
garding mandamus  as  a  remedy  of 
the  holder  of  municipal  bonds,  see 
Dillon  on  Mud.  Corps.,  3d  ed.  §§  849 
et  seq. 

3  Thompson  v.  Allen  County,  115 
U.  S.  550. 

4  Walkley  v.  City  of  Muscatine,  6 
Wall.  481. 


, 


PART  in.]  ACTS   BEYOND   THE   CORPORATE   POWERS.         [§  334. 


duly  obtained  against  a  county  on  its  bonds  or  coupons,  no  de- 
fence questioning  their  validity  can  be  pleaded  to  a  mandamus.1 
Conversely,  when  in  an  action  for  a  mandamus  a  judgment  is 
rendered  against  the  relator  on  the  ground  that  the  bonds  are 
invalid,  that  judgment  is  conclusive  of  their  invalidity  as  against 
the  vendee  of  the  relator  who  purchases  the  bonds  after  ma- 
turity.2 If  a  municipality  by  the  statute  authorizing  the  issue 
of  bonds  receives  power  to  levy  taxes  to  a  certain  amount,  the 
implication  arises  that  the  legislature  did  not  intend  to  authorize 
taxation  beyond  that  amount,  and  a  court  has  no  power  by 
mandamus  to  compel  a  municipal  corporation  to  levy  a  tax  un- 
authorized by  law ;  nor  to  compel  it  to  levy  a  larger  tax  than 
is  authorized  expressly  or  by  implication.3  A  mandamus  can 
only  enforce  existing  laws  ;  it  confers  no  new  power  on  those  to 
whom  it  issues.4 

§  334.    Property  held  for  public  uses,  such  as  public  build- 
ings, squares,  parks,  promenades,  wharves,  landing         .  . 
places,  fire-engines,  hose  and  hose-carriages,  engine-   property- 
houses,  engineering  instruments,  and  generally  every-   ffonfexe- 
thing  held  for  governmental  purposes,  cannot  be  sub-    cutlon- 


1  Ralls  County  Court  v.  United 
States,  105  U.  S.  733.  Compare 
State  v.  Mayor  of  Manitowoc,  52  Wis. 
423. 

A  county  subscribed  for  the  stock 
of  a  railroad  corporation,  and  issued 
bonds  in  payment  therefor  pursuant 
to  a  law  that  authorized  the  levy  of 
a  special  tax  to  pay  them,  "  not  to 
exceed  one-twentieth  of  one  per 
cent,  upon  the  assessed  value  of  tax- 
able property  for  each  year,"  but 
which  contained  no  provision  that 
only  the  fund  so  derived  should  be 
applied  to  their  payment.  Held, 
that  the  bonds  were  debts  of  the 
county  as  fully  as  any  other  of  its 
liabilities,  and  that  for  any  balance 
remaining  due  on  account  of  princi- 
pal or  interest  after  the  application 
thereto  of  the  proceeds  of  such  tax, 
the  holders  were  entitled  to  pay- 
ment out  of  the  general  funds  of  the 
county.     United  States  v.  County  of 


Clark,  96  U.  S.  211;  Knox  County  v. 
United  States,  109  U.  S.  229.  Com- 
pare East  St.  Louis  v.  Zebley,  110 
U.  S.  321.  Contra,  State  v.  Macon 
County,  68  Mo.  28.  When  the  re- 
lator has  obtained  judgment  on 
county  bonds  issued  in  aid  of  a  rail- 
road, and  his  only  means  of  obtain- 
ing satisfaction  is  through  the  levy 
of  a  tax,  a  mandamus  from  a  Federal 
court  to  the  county  officers  directing 
them  to  levy  a  tax  to  pay  the  interest 
on  the  bonds,  can  in  no  way  be  con- 
trolled by  an  injunction  from  a  state 
court  enjoining  a  levy.  Supervisors 
v.  Durant,  9  Wall.  415;  Hawley  v. 
Fairbanks,  108  U.  S.  543. 

2  Louis  v.  Brown  Township,  109 
U.  S.  162. 

3  United  States  v.  County  of  Ma- 
con, 99  U.  S.  582.  See  Quincy  v. 
Jackson,  113  U.  S.  332,  338. 

4  United  States  v.  County  of  Clark, 
96  U.S.  769. 

307 


§  334.]  THE    LAW    OF    PRIVATE   CORPORATIONS.   [CHAP.  VII. 

jected  to  the  payment  of  the  debts  of  the  municipality.  The 
public  character  of  such  property  forbids  this.  Upon  the  repeal 
of  the  charter  of  the  city,  such  property  passes  under  the  imme- 
diate control  of  the  state,  the  power  once  delegated  to  the  city 
in  that  behalf  having  been  withdrawn;  neither  can  the  private 
property  of  individuals  within  the  limits  of  the  territory  of 
the  city  be  subjected  to  the  payment  of  its  debts,  except  through 
taxation.  The  doctrine  of  some  states  that  such  property  can 
be  reached  directly  on  execution  against  the  municipality  has 
not  been  generally  accepted.1 


1  Merriweather  v.  Garrett,  102  U. 
S.  472  ;  Darling  v.  Mayor,  etc.,  of  Bal- 
timore, 51  Md.  2.  In  towns  in  Con- 
necticut (as  in  Massachusetts  and 
Maine),  the  property  of  any  inhabi- 
308 


tant  may,  by  common  law  or  imme- 
morial usage,  be  taken  on  execution 
upon  a  judgment  against  the  town. 
Bloom  field  v.  Charter  Oak  Bank,  121 
U.  S.121. 


PART  IV.]  LIABILITY'    FOR    TORTS    OF    AGENTS. 


[§  335. 


PART  IV 


? 


LIABILITY  OF  A  CORPORATION   FOR  THE  TORTS  OF  ITS 
AGENTS  AND  SERVANTS. 


Corporations  liable  like  natural  prin- 
cipals. Grounds  of  the  principal's 
liability,  §  335. 

An  underlying  principle.  Applica- 
tion of  the  doctrines  of  ultra  vires, 
§§  336-338. 

Liability  when  corporation  is  under 
no  special  obligation  to  the  injured 
person,  §  339. 

Corporations  also  liable  for  torts  on 
principles  rendering  them  liable 
for  contracts,  §  340. 

Summary.     Rules,  §  341. 

First  rule.  Liability  resting  on 
agent's  authority,  §  342. 

Second  rule.  Liability  resting  on 
course  of  tort-feasor's  employ- 
ment, §§  343,  344. 

Third  rule.  Liability  where  tort 
causes  violation  of  duty  owed  by 
the  corporation,  §  345. 

Violation  of  special  obligation,  §  346. 

Common  carriers  of  passengers, 
§347. 

May  make  reasonable  regulations, 
§348. 

Liability  of  carriers  for  negligence, 
§349. 


Carrier's  fundamental  obligations, 
§350. 

Modification  of  carrier's  common  law 
liability,  §351. 

Carrier  cannot  stipulate  against  lia- 
bility for  negligence,  §§  352-354. 

Carrier's  liability  for  baggage,  §  355. 

Limitations  of  carrier's  liability  in 
amount,  §  356. 

Telegraph  companies,  §  357. 

Evidence  of  assent  to  limitations  of 
carrier's  liability,  §§  358,  359. 

When  carrier's  liability  begins  and 
ceases,  §  360. 

Delay  in  transportation,  §  361. 

Carrier's  liability  for  losses  on  con- 
necting lines,  §5  362-364. 

Corporation's  liability  for  injuries  to 
employes,  §§  365,  366. 

Liability  of  corporation  where  it  owes 
no  special  duty,  §  367. 

Railroad  companies,  §§  368,  369. 

Liability  when  lessened,  §  370. 

Trespassers,  §§  371,  372. 

Contributory  negligence,    §§  373-375 

Burden  of  proof,  §  376. 

Damages  recoverable.  Exemplary 
damages,  §§  377,  378. 


§  335.  It  may  be  stated  as  a  general  rule  that  corporations ' 

1  It  is  to  be  understood  that  the  I  different.  (Compare  ante,  §315.)  The 
following  sections  have  in  view  only  following  frequently-cited,  general 
private  corporations  formed  for  bus-  statement  is  from  the  opinion  of  the 
iness  purposes.  The  liability  in  tort  New  York  Court  of  Appeals,  through 
of  municipal  corporations    is   quite  '  Judge  Folger,  in  Maxmilian  v.  Mayor, 

309 


§  335.]         THE    LAW    OF    PRIVATE   CORPORATIONS.   [CHAP.  VII. 

are  responsible1  for  the  torts2  of  their  agents  and  servants  upon 
the  same  ground  and  to  the  same  extent  as  individual  princi- 


etc,  of  New  York  :  "There  are  two 
kinds  of  duties  which  are  imposed 
upon  a  municipal  corporation  ;  one 
is  of  that  kind  which  arises  from 
the  grant  of  a  special  power,  in  the 
exercise  of  which  the  municipality 
is  as  a  legal  individual  ;  the  other  is 
of  that  kind  which  arises,  or  is  im- 
plied, from  the  use  of  political  rights 
under  the  general  law,  in  the  exer- 
cise of  which  it  is  as  a  sovereign. 
The  former  power  is  private,  and 
is  used  for  private  purposes ;  the 
latter  is  public  and  is  used  for  public 
purposes  ;  the  former  is  not  held  by 
the  municipality  as  one  of  the  politi- 
cal divisions  of  the  state  ;  the  latter 
is.  In  the  exercise  of  the  former 
power,  and  under  the  duty  to  the 
public  which  the  acceptance  and  use 
of  the  power  involves,  a  municipal- 
ity is  like  a  private  corporation,  and 
is  liable  for  a  failure  to  use  its  power 
well,  or  for  an  injury  caused  by 
using  it  badly.  But  where  the  power 
is  intrusted  to  it  as  one  of  the  politi- 
cal divisions  of  the  state,  and  is  con- 
ferred not  for  the  immediate  benefit 
of  the  municipality,  but  as  a  means 
to  the  exercise  of  the  sovereign 
power  for  the  benefit  of  all  citizens, 
the  corporation  is  not  liable  for  non- 
user,  nor  for  misuser  by  the  public 
agents.  ...  [  Such  agents  ]  are 
not  then  the  agents  or  servants  of 
the  municipal  corporation,  but  are 
public  officers,  agents  or  servants  of 
the  public  at  large,  and  the  corpora- 
tion is  not  responsible  for  their  acts 
or  omissions."  62  N.  Y.  160,  164, 
citing  Eastman  v.  Meredith,  36  N. 
H.  284  ;  Fisher  v.  Boston,  104  Mass. 
87.  See  also  §  177,  ante.  The  same 
rule  applies  to   counties,   Hughes  v. 

310 


County  of  Monroe,  147  N.  Y.  40,  and 
villages,  Fire  Ins.  Co.  v.  Keeseville, 
148  N.  Y.  46.  The  whole  subject 
was  exhaustively  treated  by  Chief 
Justice  Gray  giving  the  opinion  of 
the  Massachusetts  Supreme  Court  in 
Hill  v.  Boston,  122  Mass.  354,  a  case 
which  held  a  city  free  from  liability 
for  an  accident  to  a  child  due  to  the 
unsafe  condition  of  a  public  school. 
Cf.  Lichtensteiu  v.  Mayor,  etc.,  of 
New  York,  159  N.  Y.  500.  Statutes 
usually  require  the  fulfillment  of 
preliminary  formalities  (e.g.,  certain 
demands  or  filing  of  notices)  before 
commencing  suit  against  a  munici- 
pality. See  e.  g.,  Missano  i\  Mayor, 
etc.,  of  New  York,  160  N.  Y.  123. 

Likewise  the  liability  in  tort  of 
public  charitable  institutions,  like  a 
hospital,  or  a  large  "Boys'  Club" 
open  to  all,  is  not  as  great  as  that  of 
a  corporation  formed  for  profit.  If 
due  care  is  used  in  the  selection  of 
agents  and  servants  such  charitable 
corporations  will  not  be  liable  for 
the  special  acts  of  neglect  of  the 
latter.  McDonald  v.  Massachusetts 
General  Hospital,  120  Mass.  432.  See 
Ward  ».  Saint  Vincent's  Hospital,  65 
App.  Div.  ( N.  Y. )  64,  and  compare 
Nims  u.  Mount  Hermon  Boys'  School, 
160  Mass.  177. 

1  That  is  to  say,  legal  relations  oc- 
casioned by  the  tort  will  subsist  be- 
tween the  injured  person  and  the 
corporation. 

2  A  tort  is  a  fact  with  legal  effect, 
other  than  a  contract  or  agreement; 
a  fact,  that  is,  which  occasions  legal 
rules  to  manifest  themselves  in  legal 
relations.  Such  fact  may  consist  in 
an  act  or  in  an  omission. 


PART  IV.]  LIABILITY   FOR    TORTS    OF    AGENTS.  [§  335. 


pals  or  masters.1     The  liability  of  principals  or  masters  for  the 

torts  of  their  agents  or  servants  does  not  rest  in  every  ~ 

o  J    corpora- 

respect  on  the  rules  which  constitute  the  basis  of  the  tj°ns  liable 

responsibility  of  principals  for  the  contracts  of  their  principals, 
agents.  The  liability  of  a  principal  for  the  contract  the^rinc?- 
of  his  agent  depends  altogether  on  whether  the  con-  ^tsyha" 
tract  was  within  the  scope  of  the  agent's  actual 
authority,  or  of  such  authority  as  the  other  contracting  party 
acting  as  a  careful  and  honest  man  was  justified  in  inferring  to 
exist  from  the  course  and  general  scope  of  the  agent's  employ- 
ment. But  in  regard  to  the  principal's  liability  on  the  contract 
of  his  agent,  the  course  and  scope  of  the  agent's  employment  are 
material  only  in  determining  whether  the  other  contracting 
party  was  justified  in  relying  on  the  agent's  assumed  authority. 
On  the  other  hand,  in  regard  to  the  principal's  liability  for 
the  torts  of  his  agent  or  servant,  the  course  and  scope  of  the 
employment  become  material  in  themselves  apart  from  their 
materiality  as  evidence  of  implied  authority:  for  a  principal 
may  be  liable  for  torts  of  his  employe,  committed  in  the  course 
of  the  latter's  employment,  which  the  injured  person  could 
never  have  imagined  that  the  principal  had  authorized.  Thus, 
in  Craker  v.  Chicago  and  Northwestern  Railway  Co.,2  a  rail- 
road company  was  held  liable  to  pay  damages  to  a  young  lady 
passenger  whom  the  conductor  kissed  ;  a  tort  which  she  was 
not  justified  in  supposing  to  have  been  committed  pursuant  to 
instructions  from  the  company.  It  might,  indeed,  be  suggested 
that  kissing  passengers  was  not  properly  within  the  scope  of 
the  conductor's  employment ;  but  it  is  within  the  scope  of  his 
employment  and  duty  to  protect  them  from  insult ;  and  if  he 
violates  this  duty  by  insulting  them  himself,  the  company  will 
be  responsible.  For  a  railroad  company  is  responsible  to  pas- 
sengers even  for  the  wilful  and  malicious  acts  of  its  conductors 


1  Philadelphia,  etc.,  R.  R.  Co.  v. 
Quigley,  21  How.  202,  209  ;  Fishkill 
Savings  Ins' a  v.  National  Bank,  80 
N.  Y.  162  ;  Denver  and  R.  G.  Ry.  v. 
Harris,  122  U.  S.  597  ;  Angell  and 
Ames  on  Corp.,  §  310.  See  Ramsden 
v.  Boston  and  Albany  R.  Co.,  104 
Mass.  117  ;  Brokaw  ».  N.  J.  R.  Co., 
32  N.  J.  L.  328  ;  South  and  North 


Alabama  R.  R.  Co.  v.  Chappell,  61 
Ala.  527  ;  Merchants'  Bank  v.  State 
Bank,  10  Wall.  645  ;  Salt  Lake  City 
v.  Hollister,  118  U.  S.  256  ;  Ranger  o. 
Great  Western  R'y  Co.,  5  H.  L.  C. 
72,  86  ;  State  ex  inf.  Crow  v.  Fire- 
men's Fund  Ins.  Co.,  152  Mo.  1. 
2  36  Wis.  657. 

311 


§  336.J         THE    LAW    OF    PRIVATE   CORPORATIONS.    [CHAP.  Vll. 

and  train  hands  committed  while  they  are  employed  in  curry- 
ing out  the  contract  between  the  passenger  and  the  company.1 
§336.  An  underlying  principle  here  is  this :  if  the  corpora- 
tion, acting  within  the  scope  of  its  corporate  author- 

An    under-     .  ,  l  .  , 

lying  prin-  ity,  employs  agents  or  servants  in  such  a  manner  as 
plication  of  to  put  it  within  their  power  to  cause  a  violation  of  a 
trinesof  duty  owed  by  the  corporation,  the  corporation  will 
ultra  vires.  noi  De  sustained  in  the  defence  that  the  violation 
complained  of  was  not  authorized  by  it.  And  thus  it  is,  if  the 
tort  was  committed  in  the  course  of  an  employment,  or  in  con- 
nection with  transactions  which  the  corporation  had  compe- 
tently authorized  or  acquiesced  in,  and  any  duty  owed  by  the 
corporation  is  violated  by  the  tort,  it  will  be  no  valid  defence 
to  the  corporation  that  the  tort  itself  was  not  only  unauthor- 
ized, but  was  even  ultra  vires  the  corporation.  To  the  tort  it- 
self, under  such  circumstances,  the  doctrines  of  ultra  vires  have 
no  application;  but  they  do  apply  where  the  employment  in 
the  course  of  which,  or  the  transaction  in  connection  with 
which,  the  tort  was  committed,  was  ultra  vires  the  corpora- 
tion. 

Ordinarily,  to  render  a  corporation  liable  for  the  torts  of  its 
officers,  agents,  or  employes,  it  must  appear  that  the  tort  was 
in  some  way  connected  with  the  business  which  the  corpora- 
tion was  incorporated  to  carry  on  ; 2  and  a  corporation  will  not 
be  liable  for  a  tort  committed  in  the  course  of  a  transaction 
clearly  ultra  vires;3  unless  on  principles  of  acquiescence  and 
ratification  heretofore  discussed.4 


1  Stewart  v.  Brooklyn  and  Cross- 
town  K.  R.  Co.,  90  N.  Y.  588; 
Dwindle  v.  N.  Y.  C,  etc.,  R.  R.  Co., 
120  N.  Y.  117  ;  Central  of  Ga.  Ry. 
Co.  v.  Brown,  113  Ga.  414.  Accord- 
ingly, that  the  tortious  act  of  the 
employe"  was  done  in  direct  violation 
of  orders  will  not  exonerate  the  cor- 
poration. Phila.  and  Reading  R.  R. 
Co.  v.  Derby,  14  How.  408.  See 
§347. 

2  Miller  v.  Burlington,  etc.,  R.  R. 
Co.,  8  Neb.  219.  Compare  Helfrich 
v.  Williams,  84  Ind.  5.33. 

3  Central  R.  R.,  etc.,  Co.  v.  Smith, 

312 


70  Ala.  572.  Compare  Hern  v.  Agri- 
cultural Soc,  91  Iowa,  97.  A  na- 
tional bank  is  not  authorized  to  en- 
gage in  the  business  of  selling  rail- 
road bonds  on  commission;  and  con- 
sequently is  not  liable  in  an  action 
for  deceit  for  the  false  statements  of 
its  teller  made  while  selling  sucl) 
bonds.  Weckler  v.  First  Nat.  Bank. 
42  Md.  581.  However,  if  a  corpora- 
tion reaps  and  retains  the  benefits  of 
a  false  representation,  it  cannot  set 
up  the  plea  of  ultra  vires.  Amer. 
Nat.  B'k  v.  Hammond,  25  Colo.  367. 
4  See  §  269.     For  instance,  a  cor- 


PART    IV.]         LIABILITY    FOR   TORTS    OF   AGENTS.  [§338. 

§  337.  It  has  been  frequently  said  that  "  corporations  are 
liable  for  every  wrong  they  commit,  and  in  such  cases  the  doc- 
trine of  ultra  vires  has  no  application." 1  This  phrase  contains 
endless  ambiguities.  In  two  of  the  cases  cited  in  the  note,  the 
remark  was  unnecessary,  if  not  inapplicable,  to  the  decision  of 
the  case.  In  Merchants'  Bank  v.  State  Bank,2  whatever  wrong 
was  committed,  was  committed  by  the  cashier  in  the  course  of 
what  the  court  decided  the  injured  party  was  entitled  to  regard 
as  the  scope  of  the  cashiers  employment  and  authority.  In 
National  Bank  v.  Graham  the  bank  was  sued  for  the  loss  of  a  spe- 
cial deposit  occurring  through  the  gross  negligence  of  its  officers 
and  emplo3Tes.  All  the  stock  was  owned  by  the  directors,  who 
knew  of  the  receipt  of  the  special  deposit,  and  had  acquiesced 
in  it  for  years,  and  the  court  said,  "  it  is  now  well  settled  that 
if  a  bank  be  accustomed  to  take  such  deposits  as  the  one  here 
in  question,  and  this  is  known  and  acquiesced  in  by  the  direct- 
ors, and  the  property  is  lost  by  the  gross  carelessness  of  the 
bailee,  a  liability  ensues  in  like  manner  as  if  the  deposit  had 
been  authorized  by  the  terms  of  the  charter." 3  And  to  clinch 
the  irrelevancy  of  the  dictum,  the  court  held  that  the  bank  was 
authorized  by  its  charter  to  receive  the  deposit. 

§  338.  An  exposure  of  the  ambiguities  or  inaccuracies  of  the 
phrase  above  mentioned  may  be  found  in  an  opinion  where  a 
similar  phrase  is  used.  "A  corporation  is  liable  to  the  same 
extent,  and  under  the  same  circumstances,  as  a  natural  person 
for  the  consequences  of  its  wrongful  acts,  and  will  be  held  to 
respond  in  a  civil  action  at  the  suit  of  an  injured  party  for 
every  grade  and  description  of  forcible,  malicious,  or  negligent 


poration  which  runs  a  ferry  boat  for 
hire,  and  accepts  fares,  etc.,  is  liable 
in  an  action  in  tort  for  personal  in- 
juries to  a  passenger,  though  running 
a  ferry  was  ultra  vires.  Nims  v.  Mt. 
Ilermon  School,  160  Mass.  177  ;  & 
&  O.  By.  Co.  p.  Howard,  178  U.  S.  153. 

1  National  Bank  v.  Graham,  100 U. 
S.  699,  702  ;  Merchants'  Bank  v.  State 
Bank,  10  Wall.  604,  645  ;  Hussey  v. 
Norfolk  R.  R.  Co.,  98  N.  C.  34  ;  Pron- 
ger  p.  Old  Nat.  B'k,  20  Wash.  618. 

2  See  §  243  for  a  fuller  statement  of 
this  case. 


3  Citing  Foster  v.  Essex  Bank,  17 
Mass.  479  ;  Lancaster  County  Nat  B'k 
v.  Smith,  62  Pa.  St.  47  ;  Scott  v.  Nat. 
B'k  of  Chester  Valley,  72  Pa.  St.  471; 
First  Nat.  B'k  v.  Graham,  79  Pa.  St. 
106  ;  Turner  v.  First  Nat.  Bank,  26 
Iowa,  562  ;  Smith  v.  First  Nat.  B'k. 
99  Mass.  605  ;  Chattahoochee  Nat, 
B'k  v.  Schley,  58  Ga.  369.  Contra, 
Wiley  o.  First  Nat.  B'k,  47  Vt.  54(5  ; 
Whitney  v.  First  Nat.  B'k,  50  Vt.  389. 
See  §  161. 


313 


§  338.]         THE   LAW    OF   PRIVATE   CORPORATIONS.    [CHAP.  VII. 


tort  or  wrong  which  it  commits,  however  foreign  to  its  nature 
or  beyond  its  grunted  powers  the  wrongful  transaction  or  act 
may  be.1  ....  But  in  this  case  the  false  certificates  were 
issued  and  the  spurious  stock  transferred  by  an.  officer  of  the 
corporation.  A  corporation  aggregate  being  an  artificial  body 
— an  imaginary  person  of  the  law,  so  to  speak — is,  from  its 
nature,  incapable  of  doing  any  act  except  through  agents  to 


1  New  York  and  New  Haven  R.  R. 
Co.  v.  Schuyler,  34  N.  Y.  30,  49, 
citing  the  following  cases,  not  one  of 
which  sustains  the  proposition  as 
stated:  Life  and  Fire  Ins.  Co.  v.  Me- 
chanic Fire  Ins.  Co.,  7  Wend.  31, 
which  held  that  a  corporation  author- 
ized to  loan  on  bond  and  mortgage 
could  not  recover  money  loaned  in 
any  other  way  [?]  ;  and  that  when  an 
illegal  loan  is  made  by  the  officers  of 
the  corporation  who  have  power  to 
loan  for  it,  the  company  is  affected 
with  the  illegality  of  the  transaction. 
Albert  v.  Savings  Bank,  2  Md.  1G9, 
a  case  where,  in  violation  of  a  pro- 
vision in  its  charter,  a  savings  bank 
made  a  loan  to  one  of  its  directors 
on  the  security  of  stock  which  the 
borrower  held  in  a  fiduciary  capacity. 
The  suit  was  brought  by  the  cestui 
que  trust  to  set  aside  the  transfer 
to  the  bank,  and  recover  the  divi- 
dends received  by  it.  The  court  said 
that  any  loan  made  to  a  director  was 
void,  and  could  not  be  recovered  (on 
this  point  this  case  seems  overruled  in 
Lester  v.  Howard  Bank,  33  Md.  558). 
It  will  be  noticed  that  the  suit  was 
brought  to  set  aside  an  illegal  trans- 
action arising  out  of   the  abuse  of  a 


general  power  conferred  on  the  bank,  .Philadelphia,  etc.,  K.  R.  Co.  v.  Quig 


a  transaction  which,  though  illegal, 
was  clearly  connected  with  the  ordi- 
nary course  of  the  bank's  business  ; 
and  certainly  was  not  a  transaction 
"foreign  to  the  nature"  of  the  bank. 
Goodspeed  v.  East  naddam  Bank,  22 
Conn.  530,  541,  a  case  where  a  bank 
was  held  liable  for  a  vexatious  suit  in- 

314 


stituted  by  its  directors.  But  it  is 
clearly  within  the  province  of  direct- 
ors to  institute  suits  on  behalf  of  their 
bank,  and  so  this  was  but  the  abuse 
of  a  general  power  confided  to  an 
agent.  Bissell  v.  Mich.  So.,  etc.,  Rail- 
road Cos.,  22  N.  Y.  305,  309,  a  case  re- 
ferred to  elsewhere,  §§  275,  290.  In 
this  case  Judge  Selden  did  hold  the 
contract  ultra  vires  and  incapable  of 
sustaining  an  action,  but  that  plain- 
tiff could  recover  on  the  ground  of 
tort,  on  account  of  the  "  duty  to  ob- 
serve care'1  which  "  in  these  cases 
arises,  not  upon  any  contract,  but 
from  the  obligation  which  rests  upon 
all  persons,  whether  natural  or  arti- 
ficial, so  to  conduct  as  not  through 
their  negligence  to  inflict  injury  on 
others."  But  to  this  it  may  be  said 
that,  except  as  the  persons  interested 
in  the  corporate  enterprise  acqui- 
esced in  the  transactions  in  the  course 
of  which  the  tort  was  committed, 
and  so  were  estopped  from  objecting, 
they  owed  the  plaintiff  no  duty  which 
would  give  him  any  right  to  funds  in 
which  they  had  rights.  Frankfort 
Bank  v.  Johnson,  24  Me.  490.  In  this 
case  the  officers  wore  acting  within 
the  general   scope  of  their  powers. 


ley,  21  How.  209.  Here,  also,  the 
officers  were  acting  within  the  scope 
of  their  employment.  Green  v.  Lon- 
don Omnibus  Co.,  7  C.  B.  N.  S.  290. 
And  in  this  case,  too,  the  acts  were 
connected  with  the  objects  of  incor- 
poration, and  done  in  the  course  of 
the  employment  of  the  servant. 


PART  IV.]  LIABILITY   FOR    TORTS   OF   AGENTS.  [§  338. 

whom  is  given  by  its  fundamental  law,  or  in  pursuance  of  it, 
every  power  of  action  it  is  capable  of  possessing  or  exercising. 
Hence  the  rule  has  been  established  ....  that  a  corporation 
is  responsible  for  the  acts  or  negligence  of  its  agents  while 
engaged  in  the  business  of  the  agency,  to  the  same  extent,  and 
under  the  same  circumstances,  that  a  natural  person  is  charge- 
able with  the  acts  and  negligence  of  his  agent."  1 

Granted  that  a  corporation  is  liable  to  the  same  extent  as  a 
natural  person  for  the  torts  of  its  agents.  Nevertheless,  it  is 
not  liable  for  any  tort  they  may  commit,  however  foreign  to 
the  nature  of  the  corporate  business  the  tort  may  be.2  But,  say 
the  court,  a  corporation  can  act  only  through  agents.  Truly : 
and  the  binding  quality  of  the  acts  of  the  body  corporate  itself 
acting  as  such,  i.  e.,  through  a  majority  vote,  is  determined  by 
a  construction  of  its  powers  and  the  principles  of  agency.  As- 
suredly there  exists  no  universal  agency  in  the  corporation 
which  will  render  any  act  of  the  majority  binding.  Accord- 
ingly, to  hold  the  corporation  liable  for  any  wrong  it  might 
authorize  would  be  to  hold  the  corporate  funds,  in  which  are 
interested  dissenting  shareholders  and  innocent  creditors,  bound 
by  the  acts  of  an  agent  {i.  e.,  the  majority)  clearly  beyond  the 
scope  of  his  authority  and  business  :  a  liability  far  beyond  that 
attaching  to  individuals  for  the  acts  of  their  agents.  There  is 
no  decision  known  to  the  writer  holding  a  corporation  liable 
for  a  tort  committed  in  the  course  of  an  ultra  vires  transaction 
on  its  face  foreign  to  the  corporate  business,  where  the  persons 
who  could  have  objected  to  the  transaction  had  not  acquiesced 
init.O  i?v„  €*0fatft2*    *  2>f~~~*>l   /7#  2*4    /<s^ 

As  before  stated,  the  question  is  not  whether  the  wrongful 
act  itself  was  ultra  vires  •  any  more  than  the  question  would  be 
whether  the  act  itself  had  been  authorized  by  the  corporation.3 
The  question  is  whether  the  employment  or  general  transaction, 
in  the  course  of  which  the  tort  was  committed,  was  ultra  vires  ; 
and  if  this  is  answered  in  the  affirmative,  the  corporation  should 

1  34  N.  Y.  50.  The  point  decided 
in  this  case  was  that  the  corporation 
was  liable  in  damages  to  a  bona  fide 
holder  of  shares  issued  by  the  proper 
officer,  but  in  excess  of  the  amount 
limited  by  the  charter;  undoubted 
law,  but  not  calling  for  any  statement 


like  that  contained  in  the  first  part  of 
the  citation. 

2  Langan  v.  Iowa,  etc.,    Construc- 
tion Co.,  49  Iowa,  317;  §  342,  note  1. 

3  See  Butler  v.  Watkins,   13  Wall. 
456. 

315 


§  339.]  THE    LAW    OF    PBIVATE   CORPORATIONS.   [CHAP.  VII. 


not  be  held  liable  for  the  act,  except  on  principles  of  acquies- 
cence and  ratification  of  the  employment  or  transaction  which 
undoubtedly  make  the  decision  in  the  Bissell  case  correct.1 
§  339.  When  the  tort  is  committed  by  an  employe  on  some 
person  between  whom  and  the  corporation  no  con- 
tractual relations  exist,  so  that  the  tort  causes  the 
violation  of  no  special  duty  or  obligation  on  the  part 
of  the  corporation,  its  responsibility  will  be  governed 
by  the  rule  expressed  as  follows  in  the  Kew  York 
case  of  Mott  v.  Consumers'  Ice  Co.  :2  "  For  the  acts  of 
the  servant,  within  the  general  scope  of  his  employment,  while 
engaged  in  his  master's  business,  and  done  with  a  view  to  the 


Liability 
w  1 1 rii  cor- 
poration is 
uniler  no 
special 
obligation 
to  tlie  in- 
jured per- 
son. 


1  See  §  275.  Nothing  in  the  Bissell 
case  except  the  actual  decision  has 
the  sanction  of  the  court.  Hutchin- 
son v.  Western  and  Atlantic  It.  R. 
Co.,  6  Heisk.  (Tenn.)  634;  New  York, 
L.  E.  and  W.  Ry.  Co.  i>.  Having,  47 
N.  J.  L.  137;  and  Gruber  ».  R.  R. 
Co.,  92  N.  C.  1,  are  similar  to  the 
Bissell  case,  approve  of  the  phrase 
objected  to  in  the  text,  and  were  de- 
cided in  the  same  way.  Hood  v.  New 
York  and  New  Haven  R.  R.  Co.,  22 
Conn.  502,  is  contra. 

In  Alexander  v.  Relfe,  74  Mo.  495, 
517,  the  language  of  Judge  Davis  in 
the  Schuyler  case,  quoted  above,  is 
cited  approvingly,  and  a  suggestion 
made  that  a  corporation  is  not  an- 
swerable for  ultra  circs  contracts, 
but  is  for  ultra  vires  torts.  The  court 
refers  to  Cooley  on  Torts,  119.  Judge 
Cooley,  however,  says  nothing  coun- 
tenancing any  such  rule.  He  does 
say,  a  corporation  "must,  indeed, 
act  through  agents  and  officers;  but 
if  these  undertake  to  do  what  the 
corporation  is  not  empowered  to  do, 
their  action  cannot  impose  a  liability 
on  the  corporation."  And  then 
Judge  Cooley  refers  to  Weckler  v. 
First  Nat.  Bank,  42  Md.  581,  cited 
§  330,  and  goes  on  to  qualify  the  sen- 
tence quoted  from  him,  giving  a  gen- 

316 


eral  view  of  the  liability  of  a  corpo- 
ration for  torts  which  in  no  way 
supports  any  proposition  like  that 
approved  by  the  Missouri  court. 

"To  fix  the  liability  of  a  corpora- 
tion for  the  tortious  act  of  one  of  its 
employes,  done  in  obedience  to  the 
commands  of  its  officers,  the  act  must 
be  connected  with  the  transaction  of 
the  business  for  which  the  company 
was  incorporated.  If  the  directors 
should  order  an  agent  to  take  a  per- 
son out  of  his  house  and  beat  him, 
the  corporation  could  not  be  held  for 
the  assault  and  battery;  or  if  the  di- 
rectors of  a  banking  company  should 
purchase  a  steamboat,  and  engage  in 
transporting  passengers,  the  corpo- 
ration would  not  be  liable^ for  the 
misfeasance  or  non-feasance  of  agents 
employed  in  that  business.  But  if 
the  directors  of  a  corporation  having 
power  to  hold  lands,  order  an  agent 
to  enter  on  lands  and  take  possession 
of  them  for  the  legitimate  uses  of  the 
company,  his  entry,  if  unlawful,  will 
be  the  trespass  of  the  corporation." 
Brokaw  v.  N.  J.  R.,  etc.,  Co.,  32  N. 
J.  L.  328,  332. 

2  73  N.  Y.  543,  547.  Compare  Gir- 
vin  v.  N.  Y.  C.  &  H.  R.  R.  Co.,  166 
N.  Y.  289. 


PART  IV.]  LIABILITY   FOR   TORTS   OF   AGEXTS.  [§  341. 

furtherance  of  that  business  and  the  master's  interest,  the 
master  will  be  responsible,  whether  the  act  be  done  negli- 
gently, wantonly,  or  even  wilfully.  .  .  .  But  if  a  servant  goes 
outside  of  his  employment,  and  without  regard  to  his  service, 
acting  maliciously,  or  in  order  to  effect  some  purpose  of  his  own, 
wantonly  commits  a  trespass,  or  causes  damages  to  another,  the 
master  is  not  responsible  ;  so  that  the  inquiry  is  whether  the 
wrongful  act  is  in  the  course  of  the  employment,  or  outside  of 
it,  and  to  accomplish  a  purpose  foreign  to  it.  In  the  latter 
case  the  relation  of  master  and  servant  does  not  exist  so  as  to 
hold  the  master  for  the  act." 1 

§  340.  So  far  as  to  the  general  liability  of  a  corporation  for 
the  torts  of  its  agents,  as  based  on  principles  not   corpora- 
wholly  applicable  to  a  corporation's  responsibility  for   ^bfe^or 
its  agent's  contracts.     It  must  not  be  inferred,  how-   torts  on 

priiiciplGS 

ever,  that  a  corporation  is  not  also  liable  for  the  torts  rendering 
of  its  agents  and  servants  on  principles  which  regu-  forecon-a  ° 
late  its  liability  for  its  agent's  contracts.  For,  subject  tracts- 
to  the  qualification  regarding  ultra  vires  acts  above  mentioned, 
a  corporation  is  liable  for  any  tort  which  it  authorizes  expressly, 
or  which  is  fairly  within  the  general  scope  of  the  authority  of 
the  agents  who  do  the  wrongful  act. 

§  341.  To  sum  up :  a  corporation  will  be  responsible  for  the 
torts  of  its  servants  and  agents,  (1)  if  the  corporation 
or  corporate  management  acting  within  the  scope  of   |™"ary' 
its  powers,  authorized  or  ratified  the  tort,  or  the  tort 
was  fairly  within  the  scope  of  the  tort-feasor's  authority  to  act 
for  the  corporation  ;  or  (2)  if  the  tort  was  committed  in  the 
course  of  the  tort-feasor's  employment  by  the  corporation  ;  or 
(3)  if  the  tort  occasioned  a  violation  of  any  duty  or  obligation 
owed  by  the  corporation  to  the  injured  person.     And  in  apply- 
ing the  doctrines  of  ultra  vires  to  the  liability  of  corporations 
for  the  torts  of  their  agents  and  servants,  it  must  be  remembered 
that  those  doctrines  are  never  applicable  to  the  actual  tort ; 
though  they  may  operate  to  relieve  a  corporation  from  respon- 
sibility where  the  entire  employment  of  the  agent  or  servant, 

1  See,  also,  Poulton  v.  London  and  I  western  R'y  Co.,  L.  R.  5  C.  P.  445  ; 
Southwestern  R'y  Co.,  L.  R.  2  Q.  B,  Allen  v.  London  and  Southwestern 
534;  Edwards  v.  London  and  North- '  R'y  Co.,  L.  R.  6  Q.  B.  65. 

317 


§  342.]        THE   LAW   OF   PRIVATE    CORPORATIONS.    [CHAP.  VII. 


or  the  whole  transaction  in  regard  to  which  the  tort  was  com- 
mitted, is  evidently  ultra  vires. 

Illustrations  will  now  be  given  of  the  three  general  rules. 
§  342.  If  the  corporation  or  the  corporate  management,  act- 
ing within  the  scope  of  its  powers,  authorized  or 
ratified  the  tort,  or  if  the  tort  was  fairly  within  the 
scope  of  the  agent's  authority  to  act  for  the  corpora- 
tion, the  latter  will  be  responsible.1 
This  rule  is  applicable  to  the  torts  of  officers  and  agents, 
rather  than  to  those  of  the  corporation's  servants  and  employes. 
A  corporation  is  liable  for  any  fraud2  committed  by  an  agent 
in  the  course  of  a  transaction  in  regard  to  which  he  actually 
has  authority  to  act  for  the  corporation,  or  where  authority  to 
act  for  it  may  be  inferred  from  the  course  and  scope  of  his 
position   and   employment.3      An   action    for    deceit   will   lie 


First  rule. 
Liability 
resting  on 
agent's 
authority. 


1  See  Washington  Gas  Light  Co.  v. 
Lansden,  172  U.  S.  534.  A  corpora- 
tion is  liahle  for  an  overpayment 
made  by  mistake  to  its  general  man- 
ager, he  acting  at  the  time  in  the 
course  of  his  employment  and  au- 
thority. Kansas  Lumber  Co.  v.  Cen- 
tral Bank,  34  Kan.  635. 

2  A  corporation  may  be  in  a  legal 
sense  guilty  of  a  fraud,  and  in  such 
case  ordinary  rules  permitting  re- 
scission of  contracts  induced  by 
fraud,  and  reclamation  of  property 
■when  the  owner  is  induced  to  part 
with  it  through  fraud,  apply  in  favor 
of  persons  dealing  with  the  corpora- 
tion. Cragie  v.  Hadley,  99  N.  Y.  131. 
See  Dorsey  M.  Co.  v.  McCaffrey,  139 
Ind.  545. 

3  Butler  v.  Watkins,  13  Wall.  456; 
Lamm.  v.  Port  Deposit  Homestead 
Ass'n,  49  Md.  233;  Scofield  Rolling 
Mill  Co.  v.  Georgia,  54  Ga.  635;  Bank 
of  Greensboro  v.  Clapp,  76  N.  C.  482; 
Mackay  v.  Commercial  Bank,  L.  R.  5 
P.  C.  394;  Hunter  v.  Hudson  River 
Iron  Co.,  20  Barb.  507;  New  York 
and  N.  H.  R.  R.  Co.  v.  Schuyler,  34 
N.  Y.  30;  Erie  City  Iron  Works  v. 
Barber,    106  Pa.   St.    125  ;    Western 

318 


Maryland  R.  R.  Co.  v.  Franklin  Bank, 
60  Md.  36;  Shaw  v.  Port  Philip,  etc., 
Mg.  Co.,  132  B.  Div.  603;  Binghamp- 
ton  Trust  Co.  v.  Auten,  68  Ark.  299. 

"It  is  urged  that  a  corporation 
will  not  be  affected  by  any  represen- 
tation made  by  an  agent,  unless  the 
agent  was  directly  authorized  to 
make  the  particular  statement.  The 
principal  is  liable  for  the  false  rep- 
resentations of  the  agent  made  in 
and  about  the  matter  for  which  he 
was  appointed  agent,  not  on  the 
ground  of  express  authority  given  to 
the  agent  to  make  the  statement, 
but  on  the  ground  that  as  to  the  par- 
ticular matter  for  which  the  agent  is 
appointed  he  stands  in  the  place  of 
the  principal,  and  whatever  he  does 
or  says  in  or  about  that  matter  is 
the  act  or  declaration  of  the  princi- 
pal, for  which  the  principal  is  just 
as  liable  as  if  he  had  personally  done 
the  act  or  made  the  declaration." 
Sharp  v.  Mayor,  etc.,  of  New  York, 
40  Barb.  256,  273. 

A  bank  cannot  set  up  the  fraud  of 
its  own  officers  to  a  demand  by  a  de- 
positor for  repayment.  Steckel  v. 
First  Nat.  Bk.,  93  Pa.  St.  376  ;  Ziegler 


PART  IV.]  LIABILITY   FOR    TOUTS    OF   AGENTS. 


[§  342. 


against  a  corporation,1  or  an  action  of  trover  for  conversion.2 
So  a  corporation  will  be  liable  in  damages  for  the  publication  of 
a  libel  by  its  agents,3  unless  the  libel  and  the  matter  to  which 


v.  Same,  ib.  393  ;  Citizens'  Savings 
Bank  v.  Blakesley,  42  O.  St.  645. 
Compare  First  Nat.  Bank  v.  Williams, 
100  Pa.  St.  123  ;  Lewis  v.  Meier,  4 
McCrary,  286  ;  Commonwealth  v. 
Beading  Savings  Bank,  137  Mass.  431. 
Defendaut  borrowed  six  thousand 
dollars  from  a  bank  and  deposited 
collaterals,  which  the  president  of 
the  bank  converted  to  his  own  use. 
The  bank  trustees  appeared  to  have 
been  negligent  in  inspecting  its  secu- 
rities, and  the  president  had  charge 
of  the  collaterals.  Held,  that  the 
receiver  of  the  bank  could  not  re- 
cover without  allowing  defendant  the 
value  of  his  collaterals.  Cutting  v. 
Marlor,  17  Hun,  573  ;  see  Williamson 
v.  Mason,  12  Hun,  97.  Compare 
Barksdale  v.  Finney,  14  Gratt.  (Va.) 
338  ;  Commonwealth  v.  Reading  Sav- 
ings Bk.,  133  Mass.  16.  If  a  treas- 
urer be  a  defaulter,  and  take  money 
from  a  third  person,  and  place  it 
with  the  funds  of  the  corporation  in 
order  to  conceal  and  make  good  his 
defalcation,  and  the  corporation  use 
the  money,  no  other  officer  knowing 
of  the  facts,  the  plaintiff  from  whom 
the  money  is  obtained  may  recover 
from  the  corporation,  although  the 
plaintiff  be  another  corporation  of 
which  the  defaulting  treasurer  was 
also  treasurer,  and  the  money  was 
drawn  by  him  from  plaintiff  corpora- 
tion and  transferred  to  defendant. 
Atlantic  Mills  v.  Indian  Orchard 
Mills,  147  Mass.  268. 

But  officers  cannot  render  the  cor- 
poration liable  for  fraudulent  mis- 
representations regarding  matters 
not  connected  with  the  corporation. 
Thus,  where  one  company  becomes  a 
shareholder  in  another,  the  officers 


of  the  former  have  no  authority  to 
make  representations  as  to  the  pe- 
cuniary condition  of  the  latter,  so  as 
to  render  the  former  company  liable, 
although  the  representations  be 
fraudulent  and  untrue.  Langan  v. 
Iowa,  etc.,  Construction  Co.,  49  Iowa, 
317. 

1  Peebles  v.  Patapsco  Guano  Co., 
77  N.  C.  233.  But  compare  Western 
Bank  of  Scotland  v.  Addie,  L.  K.  1 
H.  L.  Sc.  145,  157. 

The  fraudulent  representations  of 
the  corporate  agent  may  also  give  the 
other  party  the  right  to  annul  the 
contract.  McClellau  v.  Scott,  24  Wis. 
81  ;  Derrick  v.  Lamar  Ins.  Co.,  74 
111.  404  ;  Henderson  v.  Railroad  Co., 
17  Tex.  560  ;  Wickham  v.  Grant,  28 
Kan.  517.  As  to  the  avoidance  of  a 
contract  to  take  shares  on  account  of 
the  fraud  of  the  corporate  agent,  see 
§§  523-526. 

2  Beach  v.  Fulton  Bank,  7  Cow. 
(N.  Y.)485. 

3  Philadelphia,  etc.,  R.  R.  Co.  v. 
Quigley,  21  How.  202  ;  Washington 
Gas  Light  Co.  v.  Lansden,  172  U.  S. 
534  ;  Vance  v.  Erie  R.  Co.,  3  Vroom 
(N.  J.),  334  ;  McDermott  v.  Evening 
Journal,  43  N.  J.  L.  488  ;  S.  C,  44 
N".  J.  L.  430  ;  Maynard  v.  Firemen's 
Fund  Ins.  Co.,  34  Cal.  48  ;  S.  C,  47 
Cal.  207  ;  Vinas  v.  Merchants'  Mut. 
Ins.  Co.,  27  La.  Ann.  367  ;  Howe 
Machine  Co.  v.  Souder,  58  Ga.  64  ; 
Fenton  v.  Wilson  Sewing  Machine 
Co.,  9  Phila.  189  ;  Bacon  v.  Michigan 
Central  R.  R.  Co.,  55  Mich.  224  ; 
Boogher  v.  Life  Association,  75  Mo. 
319  (overruling  Gillett  v.  Missouri 
Valley  R.  R.  Co.,  55  Mo.  315,  and 
semhle  Childs  v.  Bank  of  Missouri,  17 
Mo.  213)  ;  Johnson  v.  St.  Louis  Dis- 

319 


§  344.]  THE   LAW   OF   PRIVATE   CORPORATIONS.   [CHAP.  VII. 


it  related  were  beyond  the  scope  of  the  express  and  implied 
authority  of  the  agents ;  in  which  case  it  will  not  be  liable.1 
Likewise  an  action  for  false  imprisonment,'-  or  for  malicious 
prosecution,  will  lie  against  a  corporation,  provided  the  prose- 
cution was  authorized  or  ratified  by  the  corporation,  or  was 
instituted  by  some  officer  or  agent  acting  within  the  scope  of 
his  authority  or  the  course  of  his  employment.3 

§  343.  The  second  ride — that  the  corporation  is  responsible 
for  a  tort  committed  in  the  course  of  the  tort-feasor's 
rule.    Lia-    employment  by  the  corporation — is  of  a  tenor  similar 
Kgon  ieSt"  to  tnat  of  the  first  rule,  but  applies  to  the  torts  of  em- 
course  of      ployes  and  servants,  rather  than  to  those  of  officers 

tort- if  "is- 

and  agents.  Employes  and  servants  have,  properly 
speaking,  no  authority  to  represent  the  corporation 
or  to  contract  for  it.  Hence,  the  course  of  their  employment 
is  all-important  in  determining  the  liability  of  the  corporation 
for  their  torts. 

§  344.  A  corporation,  as,  for  instance,  a  railroad  company,  is 


or's  em- 
ployment. 


patch  Co.,  2  Mo.  App.  565  ;  cf. 
Behre  c.  National  Cash  Register  Co., 
100  Ga.  213. 

The  communications  of  an  officer 
to  the  members  of  the  corporation 
in  the  course  of  his  duty  are  privi- 
leged. But  this  privilege  does  not 
extend  to  the  presentation  of  a  re- 
port and  evidence  in  the  permanent 
form  of  a  book  for  distribution 
among  the  persons  belonging  to  the 
corporation,  and  members  of  the 
community.  Exemplary  damages, 
however,  should  not  be  allowed  when 
there  is  no  evidence  of  malice.  Phila- 
delphia, etc.,  R.  R.  Co.  v.  Quigley,  21 
How.  202.  On  the  question  of  privi- 
lege, see,  also,  Lawless  v.  Anglo- 
Egyptian  Co.,  L.  R.  4  Q.  B.  2(52. 

1  Southern  Express  Co.  v.  Fitzner, 
59  Miss.  581. 

2  Lynch  v.  Metropolitan  Elevated 
R.  R.  Co.,  90  N.  Y.  77. 

;;  Williams  p.  Planter's  Ins.  Co.,  57 
Miss.     759;    Reed   v.    Home    Savings 
Bank.    130   Mass.   443;  Woodward  v. 
320 


St.  Louis,  etc.,  Ry.  Co.,  85  Mo.  142; 
Willard  v.  Holmes,  142  N.  Y.  492; 
Wheeler,  etc.,  Co.  v.  Boyce,  36  Kan. 
350;  Copley  v.  Grover  &  Baker  S'g 
M.  Co.,  2  Woods,  494;  Carter  v.  Howe 
Machine  Co.,  51  Md.  290;  Turnpike 
Road  v.  Green,  86  Md.  161;  Jordan  v. 
Alabama,  G.  S.  R.  R.  Co.,  74  Ala.  85, 
overruling  Owsley  v.  Montgomery, 
etc.,  R.  R.  Co.,  37  Ala.  560;  and  South 
and  North  Ala.  R.  R.  Co.  v.  Chappell, 
61  Ala.  527;  see  Ricord  v.  Central 
Pac.  R.  R.  Co.,  15  Nev.  167;  Good- 
speed  i\  EastHaddam  Bank,  22  Conn. 
530;  Wheless  v.  Second  Nat.  Bk.,  1 
Baxt.  (Tenn.)  469;  Lovick  v.  Atl. 
Coast  Line  R.  R.  Co.,  129  N.  C.  427. 
A  corporation  may  be  punished  by 
fine  for  contempt,  for  publishing 
matter,  pending  a  trial,  not  compe- 
tent, and  not  introduced  at  the  trial, 
and  of  such  a  nature  that  it  might 
improperly  influence  the  justice  and 
the  jury  in  the  determination  of  the 
cause.  Telegram  Newspaper  Co.  V. 
Comra.,  172  Mass.  294. 


PART  IV.]  LIABILITY   FOR    TORTS   OF   AGENTS. 


[§  345. 


liable  for  the  assaults  and  batteries1  and  trespasses2  of  its  ser- 
vants committed  while  acting  within  the  general  scope  of  their 
employment  in  the  business  of  the  corporation  ;  or  for  a  public 
nuisance  created  by  them  under  like  circumstances.3  And  the 
circumstance  that  the  act  of  the  servant  was  wilful  will  not,  in 
itself,  preclude  the  liability  of  the  corporation.4  But  the  as- 
sault of  the  servants  must  in  some  way  be  connected  with  their 
employment  in  the  business  of  the  corporation.  And  thus  it 
has  been  held  that  a  railroad  company  is  not  liable  for  an  as- 
sault and  battery  committed  by  its  employes  on  a  person  who, 
they  thought,  had  placed  obstructions  on  the  railroad  track ; 
the  assault  being  in  no  way  connected  with  their  employment.5 
§  345.  We  come  now  to  the  consideration  of  the  third  rule 
regulating  the  liability  of  corporations  for  the  torts   „,, .  ,     , 

00  J  l  Third  rule. 

of  their  servants  and  agents.     A  corporation  is  liable   Liability 

-  -    ,  t  .  , ,         where  tort 

for  any  wrongful  or  negligent  act  or  omission  on  the  causes  vio 
part  of  any  of  its  servants  or  agents  which  causes  a  ^utyowed 
violation  of  any  duty  or  obligation  owed  by  the  cor-   by  p°rP°- 

J       ,    J  °  J  ration. 

poration  to  the  injured  person :  and  this  is  true 
whether  the  corporation  owes  to  the  injured  person  special 
duties  arising  from  contract,  so  that  the  tort  occasions  a  breach 
of  contract ;  or  whether  it  is  a  duty  owed  to  the  injured  person 
merely  as  a  member  of  the  community  ;  a  duty  mainly  based 
on  the  maxim,  Sic  utere  tuo  ut  alienum  non  Icedas.  It  will  be 
convenient  to  consider  first  the  liability  of  a  corporation  for 
the  torts  of  its  agents  and  employes  which  cause  the  breach  of 


1  Hewitt  v.  Swift,  3  Allen,  420; 
Holmes  v.  Wakefield,  12  Allen,  580. 
See  §§  347,  348. 

2Whiteman,s  Exr.  v.  Wilmington, 
etc.,  R.  R.  Co.,  2  Hair.  (Del.)  514; 
Hazen  v.  Boston  and  Maine  R.  R.  Co., 
2  Gray,  574;  Mobile,  etc.,  R.  R.  Co., 
v.  McKellar,  59  Ala.  458;  Palmer  v. 
Maine  Cent.  R.  R.  Co.,  92  Me.  399. 

3  Ford  v.  Santa  Cruz  R.  R.  Co.,  59 
Cal.  290. 

4  Mott  v.  Consumers1  Ice  Co.,  73  X. 
Y.  543;  Nashville  &  C.  R.  R.  Co.  t>. 
Starnes,  9  Heisk.  (Tenn.)  52;  Banis- 
ter v.  Pennsylvania  Co.,  98  Iud.  220. 
A  railroad  company  is  liable  for  the 

21 


wilful  acts  of  its  servants  in  running 
a  train  over  a  person  on  the  track. 
Terre  Haute,  etc.,  R.  R.  Co.  v.  Gra- 
ham, 46  Ind.  239.  Contra,  Illinois 
Central  R.  R.  Co.  v.  Downey,  18  111. 
259;  Pennsylvania  Co.  v.  Toomey, 
91  Pa.  St.  256. 

5  Porter  v.  C.  R.  I.  and  P.  R.  R. 
Co.,  41  Iowa,  358.  See,  also,  Marion 
o.  C.  R.  I.  and  P.  R.  Co.,  59  Iowa, 
428.  A  railroad  company  is  not  re- 
sponsible for  the  acts  of  its  employes 
in  creating  a  nuisance  by  using  a  cul- 
vert under  its  railroad,  near  the  plain- 
tiff's residence,  as  a  privy.  Hopkins 
v.  Western   Pac.  R.    R.    Co.,   50  Cal. 

321 


§  347.]        THE   LAW   OF   PRIVATE   CORPORATIONS.    [CHAP.  VII. 

some  special  or  contractual  obligation  owing  from  the  corpora- 
tion to  the  injured  person.  The  illustrations  will  be  almost 
entirely  drawn  from  the  law  relating  to  common  carriers,  and 
in  especial  to  railroad  companies ;  but  of  course  other  classes  of 
corporations  will  at  times  have  to  respond  in  damages  for  omis- 
sions and  neglects  of  their  servants  and  agents,  which  cause 
the  breach  of  a  duty  owing  from  the  corporation. 

§  346.  Thus,  a  bank  is  liable  for  the  loss,  through  the  gross 
Violation  negligence  of  its  officers  or  employes,  of  a  special  de- 
of  special      posit  received  by  it  for  safe- keeping ; l  and  for  the 

obligation.      1        .  .  .  J?  L 

neglect  of  its  officers  to  protest  or  present  at  matu- 
rity a  promissory  note  deposited  with  it  for  collection.2  And  a 
bank  will  be  liable  if  its  teller  receives  a  deposit  unaccompanied 
by  the  customary  deposit  ticket  or  pass-book,  and  credits  it  by 
mistake  to  the  wrong  person.3 

§  347.  To  the  contract  of  a  common  carrier  of  passengers 
„  the  law  from  the  motives  of  public  policy  adds  certain 

Common  l  . 

carriers  of  implied  covenants  or  obligations  ;  or  it  may  be  said, 
in  somewhat  different  words,  the  carrier  impliedly 
agrees  to  do  more  than  simply  to  carry  the  passenger.  He 
agrees,  as  we  shall  hereafter  see  in  regard  to  negligence,  to  use 
every  reasonable  precaution  for  the  passenger's  safety  ; 4  and 
while  a  carrier  does  not  insure  his  passengers  against  every 
conceivable  danger,  he  is  held  absolutely  to  agree  that  his  own 
servants  engaged  in  transporting  the  passenger  shall  commit  no 
wrongful  act  against  him.  Accordingly,  any  tort  committed 
on  a  passenger  by  servants  of  the  carrier  who  come  in  contact 
with  him  in  the  ordinary  performance  of  their  duties  and 
labors,  causes  a  breach  of  contract  between  the  passenger  and 
the  carrier,  for  which  the  latter  is  liable.  Recent  cases  state 
this  liability  in  the  broadest  and  strongest  language  ;  and,  with- 
out going  beyond  the  actual  decisions,  it  may  be  said  that  the 


190.  See,  also,  Edwards  v.  London 
and  N.  W.  R'y  Co.,  L.  R.  5  C.  P. 
445;  Allen  v.  London  and  S.  W.  R'y 
Co.,  L.  R.  6  Q.  B.  65;  but  compare 
Goff  v.  Great  Northern  R'y  Co.,  3  E. 
&  E.  672. 

1  National  Bank  ».  Graham,  100  U. 
S.  699;  Chattahoochee  Nat.  Bk.  v. 
Schley,  58  Ga.  369;  §§161,  337. 

322 


2  Chapman  v.  McCrea,  63  Ind.  360; 
Bank  of  New  Hanover  v.  Kenan,  76 
N.  C.  340;  Steele  v.  Russell,  5  Neb. 
211;  Capital  State  Bank  v.  Lane,  52 
Miss.  677.     See  §  161. 

3  Jackson  Ins.  Co.  v.  Cross,  9  Heisk. 
( Tenn. )  283. 

4  See  §  350. 


PART  IV. J         LIABILITY   FOR   TORTS   OF   AGENTS. 


[§  347. 


carrier  is  liable  for  every  conceivable  wrongful  act  done  to  a 
passenger  by  its  train-bands  and  other  employes  while  they  are 
engaged  in  transporting  him ;  no  matter  how  wilful  and  ma- 
licious the  act  may  be,  or  how  plainly  may  be  apparent  from 
its  nature  that  it  could  not  have  been  done  in  furtherance  of 
the  carrier's  business.  The  rule  limiting  the  responsibility  of 
the  master  to  acts  of  his  servants  done  within  the  scope  of  the 
servants'  employment,  does  not  apply  to  the  relations  between 
common  carriers  and  passengers.1 

A  carrier's  liability  extends  even  further.  He  is  bound  to 
use  every  endeavor  to  protect  his  passengers,  as  long  as  they 
are  under  his  charge,  from  the  assaults  of  persons  other  than 
his  own  servants,  for  instance,  fellow-passengers.  And  if  his 
servants  fail  to  use  their  best  endeavors  to  protect  passengers, 
the  carrier  will  be  responsible.2 


1  Stewart  v.  Brooklyn  and  Cross- 
town  R.  R.  Co.,  90  N.  Y.  588  (prac- 
tically overruling  Isaacs  v.  Third  Av. 
R.  R.  Co.,  47  N.  Y.  122);  Pendleton 
v.  Kinsley,  3  Cliff.  416;  Goddard  v. 
Grand  Trunk  Railway,  57  Me.  202; 
Bryant  b.  Rich,  106  Mass.  180;  Chi- 
cago and  Eastern  R.  R.  Co.  v.  Flex- 
man,  103  111.  546;  Hanson  v.  Euro- 
pean, etc.,  R.  Co.,  62  Me.  84;  Craker 
v.  Chicago  and  X.  W.  R'y  Co.,  36 
Wis.  657;  Passenger  R.  R.  Co.  v. 
Young,  21  Ohio  St.  518;  Terre  Haute 
and  I.  R.  R.  Co.  ».  Jackson,  81  Ind. 
19;  Jeffersonville  R.  R.  Co.  v.  Rog- 
ers, 38  Ind.  116;  Indianapolis,  P. 
and  C.  R.  R.  Co.  v.  Anthony,  43  Ind. 
183;  Terre  Haute  and  I.  R.  R.  Co.  v. 
Fitzgerald,  47  Ind.  79;  New  Orleans, 
St.  Louis,  etc.,  R.  R.  Co.  v.  Burke,  53 
Miss.  201;  Nieto  v.  Clark,  1  Cliff.  145; 
Sherleyw.  Billings,  8  Bush  (Ky.),  147; 
Moore  o.  FitchburgR.  R.  Co.,  4  Gray, 
465;  Lampkin  v.  R.  R.  Co.,  106  Ala. 
287;  cf.  Perkins  i>.  Missouri,  etc.,  R. 
R.  Co.,  55  Nev.  201;  Smith  v.  Nor- 
folk &  W.  R.  R.  Co.,  48  W.  Ya.  69; 
Williams  v.  Gill,  Rec'r,  122  N.  C.  967; 
Trabing  u.  Calif.  Nav.  &  Imp't  Co., 


121  Cal.  137.  But  see  Allegheny  R. 
R.  Co.  v.  McLain,  91  Pa.  St.  422.  Nor, 
on  the  other  hand,  will  it  in  all  cases 
protect  the  corporation  that  the  em- 
ploye in  committing  the  tort  acted  in 
good  faith.  Thus  in  Palmeri  v.  Man- 
hattan R'y  Co.,  133  N.  Y.  261,  a 
ticket  agent  arrested  a  passenger, 
thinking  he  had  passed  a  counter- 
feit coin;  the  company  was  held  lia- 
ble. Compare  Mulligan  v.  N.  Y.,  etc., 
R'y  Co.,  129  N.  Y.  506.  But,  of  course, 
the  conduct  of  the  passenger  may  be  a 
good  defence;  e.  g.,  a  railroad  com- 
pany is  not  liable  to  a  passenger  for 
an  injury  done  him  by  the  conductor 
in  self-defence.  New  Orleans,  etc., 
R.  R.  Co.  v.  Jopes,  142  U.  S.  18. 

2  Pittsburgh,  Ft.  W.  and  C.  R'y  Co. 
v.  Hinds,  53  Pa.  St.  512  ;  Flint  v. 
Norwich  and  N.  Y.  Trans'n  Co.,  34 
Conn.  554;  Holly  v.  Atlanta  Street 
R.  R.  Co.,  61  Ga.  215  (a  statute  af- 
fected this  decision);  Weeks  v.  N.  Y., 
N.  II.  and  H.  R.  R.  Co.,  72  N.  Y.  50; 
Hendricks  v.  Sixth  Ave.  R.  R.  Co., 
12  J.  &  Sp.  (N.  Y.)  8;  Britton  v.  At- 
lanta, etc.,  R'y  Co.,  88  N.  C.  536; 
New  Orleans,  St.  L.  and  C.  R.  R.  Co. 
323 


§  348.]        THE   LAW   OF   PRIVATE   CORPORATIONS.    [CHAP.  VII. 


May  make 
reasonable 
regula- 
tions. 


§  34S.  A  carrier  has  the  right  to  make  reasonable  regulations 
for  the  management  and  ordering  of  his  business  ; 
and  no  cause  of  action  will  arise  against  him  for  the 
reasonable  acts  of  his  servants  done  in  carrying  out 
such  regulations.  But  a  regulation  will  be  no  pro- 
tection to  the  carrier  if  it  is  unreasonable,  or  if  his  servants  use 
undue  force  or  violence  in  enforcing  it.1  A  regulation  by  a 
railroad  company  setting  apart  in  the  first  instance  a  car  for 
females  and  their  escorts,  is  proper  and  reasonable,  and  the 
company  has  a  right  to  enforce  it.2  Likewise,  in  order  to  pre- 
serve order  and  prevent  collisions  from  well-known  race  repug- 
nances, a  carrier  may  seat  passengers  according  to  color.3    And 


v.  Burke,  53  Miss.  200;  Pittsburgh 
&  C.  R.  R.  Co.  v.  Pillow,  76  Pa.  St. 
510;  Spohn  v.  Missouri  Pac.  R'y  Co., 
87  Mo.  74.  See  Putnam  v.  Broadway, 
etc.,  R.  R.  Co.,  55  N.  Y.  108;  Barrett 
v.  Maiden,  etc.,  R.  R.  Co.,  3  Allen, 
101. 

It  is  said  that  sleeping-car  com- 
panies are  not  liable  either  as  inn- 
keepers or  as  common  carriers  for 
goods  stolen  from  the  person  of  an 
occupant  of  a  berth  in  a  sleeping-car. 
Pullman  Palace  Car  Co.  v.  Smith,  73 
111.  360.  See  Welch  v.  Pullman 
Palace  Car  Co.,  16  Abb.  Pr.  N.  S. 
(N.  Y.)  352;  Pullman's  Pal.  Car  Co. 
v.  Hall,  106  Ga.  765,  and  cases  below. 
But  it  is  the  duty  of  a  sleeping-car 
company  vigilantly  to  protect  in 
their  persons  and  property  the  occu- 
pants of  berths  when  asleep;  and  the 
company  is  liable  to  them  for  goods 
stolen  from  their  persons  while 
asleep,  through  want  of  care  on  its 
part  and  on  the  part  of  its  servants. 
Woodruff  Sleeping,  etc.,  Co.  v.  Diehl, 
84  Ind.  474;  Pullman's  Pal.  Car  Co. 
v.  Adam,  120  Ala.  581  ;  Cooney  v. 
Pullman  Pal.  Car  Co.,  121  Ala.  368; 
Lewis  v.  N.  Y.  S.  C.  Co.,  143  Mass. 
267.  A  palace  car  company  is 
"bound  so  to  manage  its  cars  as  not 
unreasonably  to  expose  a  passenger's 

324 


property  to  risk  of  loss  by  theft  or 
otherwise."  Dawley  v.  Wagner  Pal- 
ace Car  Co.,  169  Mass.  315.  See, 
also,  Whicher  v.  B.  &  A.  R.  R.  Co., 
176  Mass.  275. 

1  Peck  v.  N.  Y.  C.  and  H.  R.  R.  R. 
Co.,  70  N.  Y.  587;  Chicago,  B.  and 
Q.  R.  R.  Co.  v.  Griffin,  68  111.  499; 
Pennsylvania  R.  R.  Co.  v.  Vandiver, 
42  Pa.  St.  365;  Chicago,  B.  &  Q. 
R.  R.  Co.  u.  Byran,  90  111.  126.  A 
passenger  should  inform  himself  of 
the  carrier's  regulations.  McRae  v. 
Wilmington,  etc.,  R.  R.  Co.,  88  N.  C. 
526;  Britton  v.  Atlanta,  etc.,  R'y 
Co.,  ib.  536. 

2  Peck  v.  N.  Y.  C.  &  H.  R.  R.  R. 
Co.,  70  N/.  Y.  587.  So  a  regulation 
that  no  man,  unaccompanied  by  a 
woman,  shall  enter  the  ladies'  private 
room  is  reasonable.  Toledo,  Wabash 
and  W.  R'y  Co.  v.  Williams,  77  111. 
354.  See  also,  McRae  v.  Wilming- 
ton,  etc.,    R.  R.    Co.,  88  N.    C.  526. 

3  West  Chester,  etc.,  R.  R.  Co.  v. 
Miles,  55  Pa.  St.  209.  See  Derry  v. 
Lowry,  6  Phila.  30.  Changed  by  act 
of  Pennsylvania  legislature  in  1867. 
And  see,  as  opposed  to  the  Penn- 
sylvania decisions,  Chicago  and  N. 
W.  R'y  Co.  v.  Williams,  55  111.  185. 
A  passenger  must  observe  proper 
decorum  and  reasonable  rules,  and 


I 


PART  IV.]  LIABILITY    FOR    TORTS    OF    AGENTS. 


[§  349. 


gamblers  and  raonte-men,  who  travel  on  a  train  to  ply  their 
vocation,  may  be  excluded  ;'  ora  person  who  is  so  drunk  as  to 
be  offensive.2 

A  regulation  by  a  railroad  company  requiring  passengers  to 
exhibit  their  tickets  whenever  requested  by  the  conductor,  and 
directing  the  ejection  from  the  cars  of  those  who  refuse  to  com- 
ply, is  reasonable  and  proper.  A  passenger  is  bound  to  comply, 
and  by  refusing  forfeits  his  right  to  be  carried  farther.3  On  the 
other  hand,  it  is  unreasonable  to  require  that  a  passenger  shall 
not  leave  the  train  or  station  without  showing  a  ticket  or  pay- 
ing his  fare ;  and  if  in  carrying  out  this  regulation  a  passenger 
is  detained  or  arrested  by  the  employes  of  the  carrier,  the  car- 
rier will  be  liable  for  damages  in  a  suit  for  false  imprisonment.4 

§  349.  The  most  numerous  and  on  that  account  the  most 


is  not  justified  in  resisting  every 
trivial  imposition  to  which  he  may 
be  exposed,  so  that  his  resistance 
must  be  overcome  by  counter-force 
to  preserve  subordination.  Chicago, 
B.  and  Q.  R.  R.  Co.  v.  Griffin,  68  111. 
499. 

1  Thurston  v.  Union  Pac.  R.  R.  Co., 
4  Dill.  321.  See,  also,  Pearson  v. 
Duane,  4  Wall.  605.  A  regulation 
forbidding  hackmen,  peddlers,  ex- 
pressmen, and  loafers  from  coming 
within  a  passenger  depot  is  reasona- 
ble. Summitt  v.  State,  8  Lea(Tenn.), 
413. 

2  Pittsburgh,  C.  and  St.  L.  R'y 
Co.  v.  Vandyne,  57  Ind.  576.  See 
Railway  Co.  v.  Valleley,  32  O.  St. 
345;  Murphy  v.  Union  R'y  Co.,  118 
Mass.  228. 

3  Hibbard  v.  N.  Y.  and  Erie  R.  R. 
Co.,  15  N.  Y.  455  ;  Crawford  v.  Cin- 
cinnati, etc.,  R.  R.  Co.,  26  O.  St.  580. 
Carriers  may  require  passengers  to 
purchase  and  show  tickets.  Pullman 
Palace  Car  Co.  ».  Reed,  75  111.  125  ; 
Lane  v.  Railroal  Co.,  5  Lea  (Tenn.), 
124  ;  Price  v.  C.  &  O.  R'y  Co.,  46  W. 
Va.  538.  A  carrier  may  discriminate 
between  the  amount  of  fare  when  a 


ticket  is  purchased,  and  when  the  fare 
is  paid  on  the  train.  Swan  v.  Man- 
chester, etc.,  R.  R.,  132  Mass.  116  ; 
Indianapolis,  etc.,  R.  Co.  v.  Rinard, 
46  Ind.  293  ;  Toledo,  W.  and  W.  R. 
R.  Co.  ».  Wright,  68  Ind.  586  ;  Du 
Laurens  v.  First  Division  St.  P.  and 
P.  R.  R.,  15  Minn.  49  ;  see  Jefferson- 
ville  R.  R.  Co.  v.  Rogers,  38  Ind.  116. 
A  regulation  requiring  stop-over  tick- 
ets is  reasonable.  Yorton  v.  Milwau- 
kee, etc.,  R'y  Co.,  54  Wis.  234;  Stone 
v.  C.  and  N.  W.  R.  Co.,  47  Iowa,  82. 
A  regulation  requiring  the  purchase 
of  tickets  before  entering  the  cars  is 
unreasonable,  unless  proper  facilities 
for  the  purchase  of  tickets  are  fur- 
nished. Evans  v.  Memphis,  etc.,  R. 
R.  Co.,  56  Ala.  246  ;  Du  Laurens  v. 
First  Division  St.  P.  and  P.  R.  R.  Co., 
15  Minn.  49  ;  St.  Louis,  A.  and  C.  R. 
R.  Co.  v.  Dalby,  19  111.  353.  Com- 
pare Thorpe  v.  New  York  C.  and  H. 
R.  R.  R.  Co.,  76  N.  Y.  402. 

4  Lynch  v.  Metropolitan  Elevated 
R'y  Co.,  90  N.  Y.  77.  Under  such 
circumstances  the  carrier  may  have 
an  action  to  recover  the  fare,  but  no 
right  to  arrest  or  imprison  the  pas- 
senger,    lb. 

325 


§  350.]  THE    LAW    OF   PRIVATE   CORPORATIONS.  [CHAP.  VII. 


important  class  of  cases  in  which  carriers  are  held  liable  for 
.   misfeasance  of  their  employes  which  causes  a  breach 

Liability  of  ,     ,        ,,.      ,:      ;  ,  .. 

carriers  for  of  the  carrier  s  obligations,  are  cases  01  negligence. 
And  here  we  may  consider,  first,  the  responsibility 
of  carriers  for  negligence  towards  persons  to  whom  they  owe 
some  special  duty,1  and,  secondly,  their  responsibility  to  per- 
sons towards  whom  they  are  affected  only  with  the  general 
duty  arising  under  the  maxim,  Sic  utere  tuo  ut  alienum  non 
Icedas. 

§  350.  The  primary  or  fundamental  obligations  and  liabilities 
of  a  common  carrier  are  imposed  on  him  by  law,  on 
account  of  the  nature  of  his  employment ;  and  do  not 
arise  exclusively  from  the  expressed  contract  between 
the  carrier  and  the  person  dealing  with  him  ;  although 
these  obligations  may  be  modified  and  limited  by  contract.* 
The  preceding  proposition  requires  explanation. 

When  a  common  carrier  is  incorporated,  the  law,  from 
motives  of  public  policy,  imposes  on  it  certain  duties.  Its 
primary  duty  is  to  carry ;  and  to  carry  whatever  freight  is 
offered,  and  whatever  passengers  present  themselves,  to  the 
extent  of  its  capacity.3     Moreover,  common  carriers  of  freight 


Carrier's 
fundanien 
tal  obliga- 
tions. 


1  In  actions  by  passengers  against 
railroad  companies  for  personal  inju- 
ries caused  by  negligence,  whether 
the  action  is  in  tort  or  on  contract, 
the  burden  is  on  the  plaintiff  either 
to  prove  negligence  of  the  company 
or  show  facts  which  raise  a  presump- 
tion of  such  negligence.  Stokes  v. 
Saltonstall,  13  Pet.  181.  A  passenger 
makes  out  a  prima  facie  case  by  show- 
ing that  he  was  injured  through  a  de- 
fect in  the  road,  in  the  cars,  or  in  any 
portion  of  the  apparatus  used  by  the 
company  in  carrying  passengers. 
Curtis  v.  Rochester,  etc.,  R.  R.  Co., 
18  N.  Y.  534  ;  Meier  v.  Pennsylvania 
R.  R.  Co.,  04  Pa.  St.  225  ;  Pittsburgh, 
C.  and  St.  L.  R'y  Co.  v.  Thompson, 
56  111.  138;  Toledo,  W.  and  N.  R.  R. 
Co.  v.  Beggs,  85  111.  80;  George  v. 
St.  Louis,  etc.,  Ry.  Co.,  34  Ark.  613; 
Yonge  v.  Kinney,  28  Ga.  Ill;  Hig- 

326 


gins  v.  Hannibal  and  St.  Jo.  R.  R. 
Co.,  36  Mo.  418;  Wilson  v.  Northern 
Pac.  R.  R.  Co.,  26  Minn.  278;  Wall 
v.  Livezay,  6  Col.  465;  Railroad  Co. 
v.  Waliath,  38  O.  St.  461;  Pittsburgh, 
C.  and  St.  L.  R.  R.  Co.  v.  Williams, 
74  Ind.  462.  Proving  injury  from  a 
collision  of  trains  raises  prima  facie 
presumption  of  negligence.  Iron  R. 
R.  Co.  v.  Mowery,  36  O.  St.  418  ; 
New  Orleans  J.  and  G.  N.  R.  R.  Co. 
v.  Allbiitton,  38  Miss.  242. 

2  Hannibal  R.  R.  Co.  v.  Swift,  12 
Wall.  262. 

3  A  common  carrier  is  bound  to 
carry  when  called  on,  and  to  charge 
only  a  reasonable  compensation. 
Winona,  etc.,  R.  R.  Co.  v.  Blake,  94 
U.  S.  180.  See  §  309,  note.  In  some 
states  this  is  provided  for  by  statute. 
But  a  carrier  is  not  bound  to  allow  a 
business  interfering  with  his  interest 


PART  IV.]  LIABILITY   FOR   TORTS   OF   AGENTS. 


[§  350. 


are  bound  to  take  what  goods  are  offered,  and  transport  them 
safely,  insuring  them  against  all  loss  and  damage  except  that 
arising  from  the  act  of  God  or  of  the  public  enemy,1  or  from  the 
inherent  damnifying  or  perishable  qualities  of  the  goods  them- 
selves.2 And  a  common  carrier  of  passengers  is  bound  to  use 
every  care  and  precaution  for  the  safety  of  passengers  carried  by 
it.3    This  duty  or  obligation  on  the  part  of  the  carrier  has  its 


to  be  transacted  on  his  vehicles;  e.  g., 
he  may  refuse  passage  to  an  express 
agent  who  persists  in  transacting  ex- 
press business  on  his  boat.  The  D. 
R.  Martin,  11  Blatch.  233;  Barney  v. 
Oyster  Bay  Steamboat  Co.,  67  N.  T. 
301.  Railroad  companies  are  not  re- 
quired by  usage  or  by  common  law 
to  transport  the  traffic  of  independ- 
ent express  companies  in  the  manner 
in  which  such  traffic  is  usually  car- 
ried and  handled.  Express  Cases, 
117  U.  S.  1.  See  §309  and  notes. 
Compare  Thurston  v.  Union  Pac.  R. 
R.  Co.,  4  Dill.  321,  §348. 

1  Propeller  Niagara  v.  Cordes,  21 
How.  7;  Merritt  v.  Earle,  29  N.  Y. 
115;  Colt  v.  McMechen,  6  Johns.  (N. 
Y.)  160;  Fillobrown  v.  Grand  Trunk 
R.  Co.,  55  Me.  462;  South  and  North 
Ala.  R.  R.  Co.  v.  Wood,  66  Ala.  167. 
A  carrier  is  bound  to  use  due  dili- 
gence to  prevent  the  destruction  of 
goods  by  the  act  of  God  or  the  public 
enemy;  and  if  his  negligence  occa- 
sions the  loss  of  goods  through  one 
of  these  causes  he  is  liable.  Holla- 
day  v.  Kennard,  12  Wall.  254;  Micha- 
els v.  N.  Y.  Central  R.  R.  Co.,  30  ST. 
Y.  564;  Read  v.  Spalding,  ib.  630; 
Packard  ».  Taylor,  35  Ark.  402; 
Caldwell  v.  Southern  Express  Co.,  1 
Flip.  C.  Ct.  85;  Wallace  v.  Clayton, 
42  Ga.  443.  Compare  Gillespie  v.  St. 
Louis,  etc.,  R'y  Co.,  6  Mo.  App.  554. 
Where  liquors  were  shipped  to 
Maine,  and  were  there  seized  and 
destroyed  under  the  Maiue  laws,  the 
carrier  was  not  held  liable.     Wells 


v.  Maine  Steamship  Co.,  4  Cliff.  C. 
Ct.  228.  But  the  carrier  should  im- 
mediately notify  shipper  of  seizure. 
Ohio,  etc.,  R.  Co.  v.  Yohe,  51  Ind. 
181. 

2  Illinois  Central  R.  R.  Co.  v.  Mc- 
Clellan,  54  111.  58. 

8  Philadelphia*  Reading R.  R.  Co. 
v.  Derby,  14  How.  468;  Pennsylvania 
Co.  v.  Roy,  102  U.  S.  451;  Warner  v. 
B.  &  O.  R.  R.  Co.,  168  U.  S.  339;  Mc- 
Elroy  v.  N.  &  L.  R.  R.  Co.,  4  Cush. 
400;  Meier  v.  Pennsylvania  R.  R.  Co., 
64  Pa.  St.  225;  Louisville  City  R'y  v. 
Weams,  80  Ky.  420;  Brunswick,  etc., 
R.  R.  Co.  v.  Gale,  56  Ga.322;  Kansas 
Pac.  R'y  Co.  v.  Miller,  2  Col.  442; 
Sherlock  v.  Ailing,  44  Ind.  184;  Gil- 
lenwater  o.  Madison,  etc.,  R.  R.  Co., 
5  Ind.  339;  Indianapolis  B.  and  W.  R. 
Co.  v.  Beaver,  41  Ind.  493;  Gilson  v. 
Jackson  County  Horse  R'y  Co.,  76 
Mo.  282;  Taylor  v.  Grand  Trunk  R'y 
Co.,  48  N.  H.  304;  Chicago,  B.  and 
Q.  R.  R.  Co.  v.  George,  19  111.  510; 
McCurrie  v.  So.  Pac.  R.  R.  Co.,  122 
Cal.  558.  The  railroad  company  re- 
mains liable  although  the  car  in 
which  the  plaintiff  was  injured  be- 
longed to  the  Pullman  Palace  Car 
Co.  Pennsylvania  Co.  v.  Roy,  supra. 
To  same  effect  is  N.  Y.,etc,  R.  R. 
Co.  v.  Cromwell,  98  Va.  227.  The 
care  which  the  carrier  is  bound  to  use 
is  not  affected  by  the  fact  that  the 
person  is  travelling  in  a  cattle  train. 
Indianapolis,  etc.,  R.  R.  Co.  v.  Hoist, 
93  U.  S.  291.  See  Ohio  &  M.  R.  R. 
Co.  v.  Dickerson,  59  Ind.  317;  Edger- 
327 


§  351.]         THE   LAW    OF    PRIVATE   CORPORATIONS.    [CHAP.  VII. 


complement  in  a  right  on  the  part  of  the  public  and  of  every  in- 
dividual citizen  ;  a  right  by  comity  extended  to  persons  who  are 
not  citizens.  In  respect  of  carriers  of  goods  this  right  of  every 
person  is  to  have  carried  whatever  harmless  and  lawful  goods  he 
may  offer  for  carriage,1  and  to  have  them,  during  the  carriage, 
insured  by  the  carrier  against  all  loss  and  damage,  except  such 
as  may  arise  from  one  of  the  causes  excepted  above ;  and  in  re- 
spect of  carrier  of  passengers  it  is  the  right  of  every  one  to  be 
carried,  and  to  have  every  precaution  used  to  insure  his  personal 
safety  during  the  passage.  These  rights  do  not  depend  on  any 
specific  agreement,  but  belong  to  every  person  placing  himself, 
in  regard  to  the  carrier,  in  the  position  of  shipper  or  passenger.2 
The  contractual  element  in  the  causation  of  these  rights  is  the 
voluntary  act  whereby  a  person  places  himself  in  such  a  posi- 
tion.    That,  without  further  stipulation,  occasions  them. 

§  351.  These  legal  relations  are  as  it  were  stereotyped  ;  and 
from  motives  of  public  policy  courts  hold  that  with- 
out the  consent  of  the  person  dealing  with  the  car- 
rier, they  may  not  be  materially  varied;3  and  that 
even  with  his  consent  certain  modifications  in  them 
may  not  be  made.     With  the  consent  of  such  person 


Modifica- 
tions of 
carrier's 
common 
law  liabil- 
ity. 


ton  v.  New  York,  etc.,  R.  R.  Co.,  39 
N.  Y.  227;  Dunn  v.  Grand  Trunk 
R'y  Co.,  58  Me.  187;  Creed  v.  Penn- 
sylvania R.  R.  Co.,  86  Pa.  St.  139. 
But  see  Player  v.  Burlington,  etc., 
R'y  Co.,  62  Iowa,  723.  And  it  is  no 
defence  that  the  plaintiff,  a  passen- 
ger, was  pregnant,  and  her  injuries 
were  due  rather  to  her  condition 
than  to  the  accident.  Sawyer  v. 
Dulany,  30  Tex.  479. 

1  Pittsburgh,  Cincinnati,  etc.,  R. 
Co.  v.  Morton,  61  Ind.  539;  Chicago 
&  A.  R.  R.  Co.  v.  Erickson,  91  111. 
613.  See  Western  Un.  Tel.  Co.  v. 
Ferguson,  57  Ind.  495;  Evansville, 
etc.,  R.  R.  Co.  v.  Duncan,  28  Ind.  441, 
446.  Compare  Pittsburgh,  etc.,  R. 
Co.  v.  Hollowell,  65  Ind.  188; 
Phelps  v.  Illinois  Central  R.  R.  Co., 
94  111.  548;  Illinois  Central  R.  R.  Co. 
V.  Cobb,  64  111.  128. 

328 


2  To  constitute  a  passenger  it  is  not 
necessary  that  a  person  should  pay 
fare  eo  nomine,  when  he  is  riding  on 
a  train  with  consent  of  the  company 
and  some  form  of  consideration 
moves  to  the  company  from  him. 
Railroad  Co.  v.  Lockwood,  17  Wall. 
357;  Railway  Co.  v.  Stevens,  95  U.  S. 
655;  Commonwealth  v.  Vermont, 
etc.,  R.  R.  Co.,  108  Mass.  7;  Yeomaus 
v.  Contra  Costa  Steam  Nav.  Co.,  44 
Cal.  71 ;  Kentucky  Central  R.  R.  Co.  v. 
Thomas,  79  Ky.  160;  Pennsylvania 
Co.  v.  Woodworth,  26  O.  St.  585. 

3  A  carrier  may  by  special  agree- 
ment restrict  his  liability  for  goods 
carried.  The  consent  of  the  shipper, 
however,  is  necessary;  for  he  can 
compel  the  carrier  to  carry  with  all 
responsibilities.  New  Jersey  Steam 
Navigation  Co.  v.  Merchants'  Bank, 
6  How.  344,  378;  Hollister  v.  Nowlen, 


PART  IV.]  LIABILITY   FOR   ACTS    OF    AGENTS. 


[§  352. 


the  carrier  may  stipulate  that  it  shall  not  be  responsible  for  losses 
arising  from  lire;1  and  indeed  for  any  loss  not  occasioned  by 
its  negligence  or  that  of  its  employes.2 

§  352.  But  neither  a  carrier  of  passengers  nor  a  carrier  of 
goods  can  competently  stipulate  for  immunity  from 
liability  for  losses  or  injuries  caused  by  negligence   cannot 
for  which  it  is  responsible.     Such  a  stipulation  is   f^Tmstfua- 
void  as  against  public  policv.      On  this  point  the   bili*y for 

o  r  r         .  r  negligence. 

leading  case  is  Railroad  Company  v.  Lockwood.3     Its 
reasoning  is  unanswerable ;  and  the  importance  of  the  matter 
warrants  somewhat  extended  quotation  from  the  opinion  of  the 
court,  which  was  given  by  Justice  Bradley. 

"  As  the  duties  and  responsibilities  of  public  carriers  were 
prescribed  by  public  policy,  it  has  been  seriously  doubted 
whether  the  courts  did  wisely  in  allowing  that  policy  to  be  de- 
parted from  without  legislative  interference,  by  which  needed 
modifications  could  have  been  introduced  into  the  law.  But  the 
great  hardship  on  the  carrier  in  certain  special  cases,  where 
goods  of  great  value  or  subject  to  extra  risk  were  delivered  to 
him  without  notice  of  their  character,  and  where  losses  hap- 
pened by  sheer  accident  without  any  possibility  of  fraud  or  collu- 
sion on  his  part,  such  as  collisions  at  sea,  accidental  fire,  etc.,  led 
to  a  relaxation  of  the  rule  to  the  extent  of  authorizing  certain 
exemptions  from  liability  in  such  cases  to  be  provided  for,  either 


19  Wend.  234;  Cole  v.  Goodwin,  ib. 
251;  Clark  v.  Faxton,  21  Wend.  153; 
Dorr  v.  New  Jersey  Steam  Naviga- 
tion Co.,  11  N.  Y.  485;  Western 
Transn.  Co.  v.  Newhall,  24  111.  466; 
Merchants'  Despatch  Trans.  Co.  v. 
Theilbar,  86  111.  71 ;  Michigan  Central 
R.  R.  Co.  v.  Hale,  6  Mich.  243;  Kansas 
Pac.  Ry.  Co.  v.  Reynolds,  17  Kan.  251 ; 
York  Co.  v.  Central  R.  R.,  3  Wall. 
107. 

1  Lamb  v.  Camden  and  Amboy  R. 
R.  Co.,  46  N.  Y.  271;  Steinweg  v. 
Erie  Railway,  43  N.  Y.  123;  Squire 
v.  N.  Y.  Central  R.  R.  Co.,  98  Mass. 
239;  Grace  v.  Adams,  100  Mass.  505; 
Hoadley  v.  Northern  Trans.  Co.,  115 
Mass.  304. 

When  a  loss  arises  from  a  cause  in 


respect  of  which  the  carrier  has  stipu- 
lated for  freedom  from  liability,  a 
person  damaged  may  show  that  had 
it  not  been  for  the  negligent  or  other- 
wise improper  conduct  of  the  carrier, 
that  cause  would  not  have  operated. 
Transportation  Co.  v.  Downer,  11 
Wall.  129;  see  Holladay  v.  Kennard, 
12  Wall.  254;  Railroad  Co.  v.  Reeves, 
10  Wall.  176;  Propeller  Niagara  v. 
Cordes,  21  How.  7;  Nelson  v.  Wood- 
ruff, 1  Black,  156;  Little  Rock,  etc., 
R'y  Co.  v.  Talbot,  39  Ark.  523;  com- 
pare Stokes  v.  Saltonstall,13  Pet.  181; 
Railroad  Co.  v.  Pollard,  22  Wall.  341. 

2  York  Co.  v.  Central  Railroad,  3 
Wall.  107.  See  Camp  v.  Hartford, 
etc.,  Steamboat  Co.,  43  Conn.  333. 

3  17  Wall.  357. 

329 


§  352.]         THE   LAW   OF   PK1VATE   CORPORATIONS.   [CHAP.  VII. 

by  public  notice  brought  borne  to  the  owners  of  the  goods  or 
by  inserting  exemptions  from  liability  in  the  bill  of  lading,  or 
other  contract  of  carriage.  A  modification  of  the  strict  rule 
of  responsibility,  exempting  the  carrier  from  liability  for  acci- 
dental losses  where  it  can  be  safely  done,  enables  the  carrying 
interest  to  reduce  its  rates  of  compensation.  .  .  . 

"  The  question  is,  whether  such  modification  of  responsibility 
by  notice  or  special  contract  may  not  be  carried  beyond  legiti- 
mate bounds,  and  introduce  evils  against  which  it  was  the  direct 
policy  of  the  law  to  guard  ;  whether,  for  example,  a  modifica- 
tion which  gives  license  and  immunity  to  negligence  and  care- 
lessness on  the  part  of  the  public  carrier,  or  his  servants,  is  not 
so  evidently  repugnant  to  that  policy  as  to  be  altogether  null 
and  void  ;  or  at  least  null  and  void  under  certain  circum- 
stances. .  .  . 

"It  is  a  favorite  argument  in  the  cases  which  favor  the  ex- 
tension of  the  carrier's  right  to  contract  for  exemption  from 
liability,  that  men  must  be  permitted  to  make  their  own  agree- 
ments, and  that  it  is  no  concern  of  the  public  on  what  terms 
an  individual  chooses  to  have  his  goods  carried.  .  .  . 

"  Is  it  true  that  the  public  interest  is  not  affected  by  the 
individual  contracts  of  the  kind  referred  to?  Is  not  the  whole 
business  community  affected  by  holding  such  contracts  valid  ? 
If  held  valid,  the  advantageous  position  of  the  companies  exer- 
cising the  business  of  common  carriers  is  such  that  it  places  it 
in  their  power  to  change  the  law  of  common  carriers  in  effect, 
by  introducing  new  rules  of  obligation. 

"  The  carrier  and  his  customer  do  not  stand  on  a  footing  of 
equality.1  The  latter  is  only  one  individual  of  a  million. 
He  cannot  afford  to  higgle  or  stand  out  and  seek  redress  in 
the  courts.  His  business  will  not  admit  such  a  course.  He 
prefers  rather  to  accept  any  bill  of  lading,  or  sign  any  paper 
the  carrier  presents;  often,  indeed,  without  knowing  what  the 
one  or  the  other  contains.  In  most  cases  he  has  no  alternative 
but  to  do  this  or  abandon  his  business.  ...  If  the  customer 
had  any  real  freedom  of  choice,  if  he  had  a  reasonable  and 
practicable  alternative,  and  if  the  employment  of  the  carrier 
was  not  a  public  one,  charging  him  with  the  duty  of  accommo- 

1  See  Mobile  and  Montgomery  R'y  Co.  v.  Steiner,  61  Ala.  559. 

330 


PART    IV.]  LIABILITY   FOR    TORTS    OF   AGENTS. 


[§  352. 


dating  the  public  in  the  line  of  his  employment ;  then,  if  the 
customer  chose  to  assume  the  risk  of  negligence,  it  could  with 
more  reason  be  said  to  be  his  private  affair,  and  no  concern  of 
the  public. 

"  But  the  condition  of  things  is  entirely  different,  and  espe- 
cially so  under  the  modified  arrangements  which  the  carrying 
trade  has  assumed.  The  business  is  mostly  concentrated  in  a 
few  powerful  corporations,  whose  position  in  the  bod}7  politic 
enables  them  to  control  it.  They  do,  in  fact,  control  it,  and 
impose  such  conditions  upon  travel  and  transportation  as  they 
see  fit,  which  the  people  are  compelled  to  accept.  .  .  . 

"  The  conclusions  to  which  we  have  come  are  : — 

"  First.  That  a  common  carrier  cannot  lawfully  stipulate  for 
exemption  from  responsibility  when  such  exemption  is  not  just 
and  reasonable  in  the  eye  of  the  law. 

"  Secondly.  That  it  is  not  just  and  reasonable  in  the  eye 
of  the  law  for  a  common  carrier  to  stipulate  for  exemption 
from  responsibility  for  the  negligence  of  himself  or  his  ser- 
vants. 

"  Thirdly.  That  these  rules  apply  both  to  carriers  of  goods 
and  to  carriers  of  passengers  for  hire,  and  with  special  force  to 
the  latter. 

"  Fourthly.  That  a  drover  travelling  on  a  pass,  such  as  was 
given  in  this  case,  for  the  purpose  of  taking  care  of  his  stock 
on  the  train,  is  a  passenger  for  hire.1 

"  We  purposely  abstain  from  expressing  any  opinion  as  to 
what  would  have  been  the  result  of  our  judgment  had  we  con- 
sidered the  plaintiff  a  free  passenger  instead  of  a  passenger  for 
hire." 2 


1  Railroad  Co.  v.  Lockwood,  17 
Wall.  357,  384.  This  case,  also,  dis- 
approves distinctions  between  de- 
grees of  negligence. 

2  See,  also,  Railway  Co.  v.  Stevens, 
95  U.  S.  655;  Bank  of  Kentucky  v. 
Adams  Ex.  Co.,  93  U.  S.  174;  Ex- 
press Co.  v.  Kountze  Bros.,  8  Wall. 
342;  Chicago,  M.  &  St.  P.  R'y  Co. 
v.  Solan,  169  U.  S.  133 ;  Calderon  v. 
Atlas  St'mship  Co.,  170  U.  S.  272. 
Compare    Philadelphia    and    Read- 


ing R.  R.  Co.  v.  Derby,  14  How. 
468;  Steamboat  New  World  v.  King, 
16  How.  469;  Molton  v.  Western  R. 
R.  Co.,  15  N.  Y.  444.  In  Jacobus  v. 
St.  P.  and  Chi.  R'y  Co.,  20  Minn. 
125,  it  was  held  that  a  railroad  com- 
pany could  not  exempt  itself  from 
liabilities  caused  by  its  negligence 
to  a  person  travelling  on  a  free  pass. 
Contra,  as  to  an  express  messenger 
travelling  under  a  contract  between 
the  railroad  and  the  express  com- 

331 


§  353.]         THE   LAW   OF   PRIVATE   CORPORATIONS.    [CHAP.  VII. 

§  353.  With  one  or  two  exceptions,  the  reasoning  in  Rail- 
road Company  v.  Lockwood  has  been  followed  in  every  state 
where  decisions  conformable  to  the  principles  therein  stated  had 
not  previously  been  rendered.  Tlie  authorities  for  the  propo- 
sition that  a  common  carrier  cannot  validly  stipulate  for  ex- 
emption from  liability  for  its  negligence  and  that  of  its  servants 
are  given  in  the  note.1 


pany.     Bait.  &  O.,  S.  W.  Ry.  Co.  v. 

Voight,  176  U.  S.  498.  But  the  doc- 
trine of  the  case  of  R.  R.  Co.  v. 
Lockwood  has  no  application  to  a 
stipulation  in  a  lease  given  by  the 
railroad,  releasing  it  from  the  lia- 
bility imposed  by  statute  for  dam- 
ages caused  by  fires.  Hartford  Ins. 
Co.  v.  Chicago,  etc.,  Ry.  Co.,  175  U. 
S.  91. 

1  Alabama:  Alabama  Gt.  Southern 
R.  R.  Co.  v.  Thomas,  89  Ala.  294; 
South  and  North  Ala.  R.  R.  Co.  v. 
Henlein,  52  Ala.  606;  Southern  Ex- 
press Co.  v.  Crook,  44  Ala.  468;  Mo- 
bile and  Ohio  R.  R.  Co.  v.  Hopkins, 
41  Ala.  486;  Steele  v.  Townsend,  37 
Ala.  247.  Arkansas:  Taylor  &  Co. 
v.  Little  Rock,  etc.,  R.  R.  Co.,  39 
Ark.  148;  Little  Rock,  etc.,  R'y  Co. 
v.  Talbot,  id.  523.  California:  Pierce 
v.  So.  Pac.  R.  R.  Co.,  120  Cal.  156. 
Colorado:  Merchants'  Despatch 
Trans.  Co.  v.  Cornforth,  3  Col.  280. 
Connecticut:  Welch  v.  Boston  &  Al- 
bany R.  R.  Co.,  41  Conn.  333.  See 
Camp  v.  Hartford,  etc.,  Steamboat 
Co.,  43  Conn.  333.  Delaware:  See 
Flinn  v.  Phila.,  W.  and  B.  R.  R.  Co., 
1  Houston,  472.  Georgia:  Borry  v. 
Cooper,  28  Ga.  543;  Purcell  v.  South- 
ern Exp.  Co.,  34  Ga.  315;  Georgia 
R.  R.  Co.  v.  Gann,  68  Ga.  350.  Indi- 
ana: Indianapolis,  etc.,  R.  R.  Co.  v. 
Allen,  31  Ind.  394;  Ohio  and  Miss.  R. 
Co.  v.  Selby,  47  Ind.  471;  Michigan 
Southern,  etc.,  R.  R.  Co.  v.  Heaton, 
37  Ind.  448;  Rosenfeld  v.  Peoria,  etc., 
Ry.  Co.,  103  Ind.  121.  (Earlier  Indi- 
332 


ana  cases  holding  contrary  doctrines 
overruled. )  A  carrier  may,  however, 
limit  his  extreme  common  law  lia- 
bility. Adams  Express  Co.  v.  Fen- 
drick,  38  Ind.  150;  provided  the  limi- 
tation is  reasonable.  Adams  Express 
Co.  v.  Reagan,  29  Ind.  21.  See 
Evansville,  etc.,  R.  R.  Co.  v.  Young, 
28  Ind.  516.  Iowa:  Rose  v.  Des 
Moines  Valley  R.  R.  Co.,  39  Iowa, 
246.  Kansas:  St.  Louis,  K.  C.  &  N. 
R'y  Co.  v.  Piper,  13  Kan.  505.  See 
Kansas  Pac.  R.  R.  Co.  v.  Reynolds,  8 
Kan.  623,  641.  Kentucky:  Orndorff 
v.  Adams  Express  Co.,  3  Bush,  194; 
Louisville,  etc.,  R.  R.  Co.  v.  Brown- 
lee,  14  Bush,  590.  Maine:  Willis  v. 
Grand  Trunk  R.  Co.,  62  Me.  488; 
Sager  v.  Portsmouth,  etc.,  R.  R.  Co., 
31  Me.  228.  Massachusetts:  See 
Commonwealth  v.  Vermont,  etc.,  R. 
R.  Co.,  108  Mass.  7;  School  District 
v.  Boston,  Hartford  and  E.  R.  R.  Co., 
102  Mass.  552.  Minnesota:  Shriver 
v.  Sioux  City,  etc.,  R.  R.  Co.,  24 
Minn.  506;  Christenson  v.  American 
Express  Co.,  15  Minn.  270;  Jacobus 
v.  St.  Paul,  etc.,  R'y  Co.,  20  Minn. 
125.  Mississippi:  Mobile  and  Ohio 
R.  R.  Co.  v.  Weiner,  49  Miss.  725; 
Southern  Express  Co.  v.  Moon,  39 
Miss.  822.  Missouri:  Clark  v.  St. 
Louis,  etc.,  R'y  Co.,  64  Mo.  440; 
Reed  v.  Same,  60  Mo.  199;  Ketchum 
v.  American  Merch.  Union  Exp.  Co., 
52  Mo.  390;  Lupe  v.  Atlantic,  etc., 
R.  R.  Co.,  3  Mo.  App.  77.  Nebraska: 
Atchison  and  Neb.  R.  R.  Co.  v.  Wash- 
burn, 5  Neb.  117.     New  Hampshire: 


PART    IV.]  LIABILITY   FOR   TORTS   OF   AGENTS. 


[§  354. 


§  354.  It  is  also  held  that  when  a  railroad  or  an  express  com- 
pany agrees  to  transport  a  package  beyond  its  terminus,  or  over 


See  Hall  v.  Cheney,  36  N.  H.  26. 
North  Carolina:  Smith  v.  North  Caro- 
lina R.  R.  Co.,  64  N.  C.  235.  Ohio: 
Welsh  v.  Pittsburgh,  Ft.  W.  and  C. 
R.  R.  Co.,  10  Ohio  St.  65;  Cleve- 
land, Painsville,  etc.,  R.  R.  Co.  v. 
Curran,  19  Ohio  St.  1;  Cincinnati, 
etc.,  R.  R.  Co.  v.  Pontius,  19  Ohio  St. 
221;  Union  Exp.  Co.  v.  Graham,  26 
Ohio  St.  595,  598.  Pennsylvania: 
American  Express  Co.  v.  Second  Nat. 
13k.,  69  Pa.  St.  394;  Camden  and 
Amboy  R.  R.  v.  Baldauf,  16  Pa.  St. 
67;  Pennsylvania  R.  R.  Co.  v.  Hen- 
derson, 51  Pa.  St.  315.  See  Lancas- 
ter Co.  Nat.  Bk.  v.  Smith,  62  Pa.  St. 
47;  Delaware,  etc.,  Tow  Boat  Co.  v. 
Starrs,  69  Pa.  St.  36.  South  Carolina : 
Swindler  v.  Hilliard,  2  Rich.  L.  286. 
Tennessee:  Dillard  v.  L.  and  N.  R. 
R.  Co.,  2  Lea,  288.  Vermont:  Mann 
v.  Birchard,  40  Vt.  326.  See  Farmers 
and  Mec.  Bk.  v.  Champlain  Trans'n 
Co.,  23  Vt.  205.  Virginia:  Virginia 
and  Tenn.  R.  R.  Co.  v.  Sayers,  26 
Gratt.  328.  West  Virginia:  Maslin 
v.  Bait,  and  Ohio  R.  R.  Co.,  14  West 
Va.  180;  Brown  v.  Adams  Express 
Co.,  15  West  Va.  812.  Wisconsin: 
Black  v.  Goodrich  Trans'n  Co.,  55 
Wis.  319.  (Gross  negligence  or 
fraud. ) 

Out  of  accord  with  the  better  and 
generally  accepted  doctrine  are  the 
courts  of  New  York,  Illinois,  Louisi- 
ana (semble),  and,  perhaps,  New  Jer- 
sey. New  York  :  A  carrier  may 
exempt  himself  from  liability  for 
personal  injuries  occasioned  by  its 
negligence  to  a  person  travelling  gra- 
tuitously or  on  a  drover's  pass. 
Poucher  v.  New  York  C.  R.  R.  Co., 
49  N.  Y.  263;  Bissell  ?;.  N.  Y.  C.  R.  R. 
Co.,  25  N.  Y.  442;  Wells  v.  N.  Y.  C. 
R.  R.  Co.,  24  N.  Y.  181.  See  Per- 
kins c.  N.  Y.  C.  R.  R.   Co.,   ib.  196. 


Likewise,  carriers  of  goods  may  ex- 
empt themselves  from  liability  even 
for  negligence.  Knell  v.  U.  S.  and 
Brazil  Steamship  Co.,  1  J.  &  Sp.  423; 
Lee  v.  Marsh,  43  Barb.  102;  Boswell 
v.  Hudson  River  R.  R.  Co.,  5  Bos.  699; 
Prentice  v.  Decker,  49  Barb.  21.  But 
the  New  York  courts  have  narrowed 
their  decisions  down  to  the  smallest 
possible  scope;  and  unless  exemption 
from  liability  for  negligence  is  ex- 
pressly stipulated  for,  no  general  ex- 
emption, however  sweeping,  will  be 
held  to  include  losses  arising  from 
negligence.  Mynard  v.  Syracuse, 
etc.,  R.  R.  Co.,  71  N.  Y.  180;  Blair  v. 
Erie  R'y  Co.,  66  N.  Y.  313;  Magnin  v. 
Dinsmore,  56  N.  Y.  168;  Holsapple 
v.  Rome,  etc.,  R.  R.  Co.,  86  N.  Y. 
275,  277;  Nicholas  v.  N.  Y.  Cent,  and 
H.  R.  R.  R.  Co.,  89  N.  Y.  370.  Com- 
pare Goldey  v.  Pennsylvania  R.  R. 
Co.,  30  Pa.  St.  242;  Canfield  v.  Balti- 
more &  Ohio  R.  R.  Co.,  93  N.  Y.  532; 
Powell  v.  Same,  32  Pa.  St.  414;  Penn- 
sylvania R.  R.  Co.  v.  Butler,  57  Pa. 
St.  335;  Empire  Trans'n  Co.  v.  Wam- 
sutta  Oil  Co.,  63  Pa.  St.  14.  And 
exemptions  cover  only  losses  arising 
from  lack  of  ordinary  care  ;  not 
those  arising  from  gross  negligence 
or  fraud.  Westcott  v.  Fargo,  63 
Barb.  349;  Heiueman  v.  Grand  Trunk 
R.  Co.,  31  How.  Pr.  430. 

In  Illinois  "the  doctrine  is  settled 
that  railroad  companies  may  by  con- 
tract exempt  themselves  from  liabil- 
ity on  account  of  the  negligence  of 
their  servants,  other  than  that  which 
is  gross  or  wilful."  Arnold  v.  Illi- 
nois Cent.  R.  R.  Co.,  83  111.  273,  280; 
Illinois  Cent.  R.  R.  Co.  v.  Read,  37 
111.  484;  Same  v.  Morrison,  19  111.  136; 
Western  Trans'n  Co.  v.  Newhall,  24 
111.  466;  Illinois  Cent.  R.  R.  Co.  v. 
Adams,  42  111.  474;  Adams  Exp.  Co. 

333 


§  355.]  THE   LAW    OF    PRIVATE   CORPORATIONS.   [CHAP.  VH. 


roads  belonging  to  others,  it  cannot  exempt  itself  from  liability 
for  losses  arising  from  the  negligence  of  another  carrier  over 
whose  road  it  has  contracted  to  transport  the  goods.1 

§  355.  A  carrier  may  establish  reasonable  regulations  for  the 
safety  of  baggage,  and  is  not  liable  when  a  passen- 

Carrier's 

liability  for  ger,  knowing  of  such  regulations,  loses  his  baggage 
through  failure  to  comply  with  them.2  Giving  the 
opinion  of  the  Federal  Supreme  Court,  in  Railroad  Co.  v.  Fra- 
loff,3  Justice  Harlan  said  :  "  It  is  undoubtedly  competent  for 
carriers  of  passengers  by  specific  regulations,  distinctly  brought 
to  the  knowledge  of  the  passenger,  which  are  reasonable  in 
their  character,  and  not  inconsistent  with  any  statute  or  their 
duties  to  the  public,  to  protect  themselves  against  liability,  as 
insurers,  for  baggage  exceeding  a  fixed  amount  in  value,  ex- 
cept upon  additional  compensation  proportioned  to  the  risk. 
And,  in  order  that  such  regulations  may  be  practically  ef- 
fective, and  the  carrier  advised  of  the  full  extent  of  its  re- 
sponsibility, and  consequently  of  the  degree  of  precaution  nec- 
essary on  its   part,  it  may  rightfully  require,  as  a  condition 


v.  Haynes,  ib.  89;  compare,  however, 
Boscowitz  v.  Adams  Exp.  Co.,  93  111. 
523,  534;  and  Adams  Exp.  Co.  v. 
Stettaners,  61  111.  184.  (Illinois  de- 
cisions seem  hardly  consistent  on 
this  point.)  When  a  person  rides  on 
a  non-transferable  free  pass  issued  to 
another,  he  commits  a  fraud  that 
will  relieve  the  railroad  company 
from  responsibility  for  injuries  to 
him,  except  for  such  as  arise  from 
gross  or  reckless  negligence.  Toledo, 
W.  and  W.  R'y  Co.  v.  Beggs,  85  111. 
80.  New  Jersey  :  A  railroad  com- 
pany is  not  liable  for  the  negligent 
killing  of  a  person  accepting  a  free 
pass  with  a  stipulation  against  liabil- 
ity for  negligence.  Kinney  v.  Cen- 
tral R.  R.  Co.,  32  N.  J.  L.  407;  aff' d 
34  N.  J.  L.  513.  But  see  Ashmore  v. 
Penn  Steam  Tow  Co.,  28  N.  J.  L. 
180,  192.  Louisiana:  A  carrier  may 
stipulate  for  exemption  from  liabil- 
ity for  personal  injuries  to  a  news 
agent  on  the  train,  arising  through 

334 


the  negligence  of  its  servants;  pro- 
vided the  servants  are  guilty  of  no 
fraudulent,  wilful,  or  reckless  mis- 
conduct. Higgins  v.  New  Orleans, 
etc.,  R.  R.  Co.,  28  La.  Ann.  133. 

1  Bank  of  Kentucky  v.  Adams  Exp. 
Co.,  93  U.  S.  174;  Cincinnati,  etc., 
R.  R.  Co.  v.  Pontius,  19  Ohio  St.  221; 
Galveston,  etc.,  Ry.  Co.  v.  Allison,  59 
Tex.  193.  Contra,  Gibson  v.  Amer- 
ican Merchants'  Union  Exp.  Co.,  1 
Hun  (N.  Y.),  387.  For  liability  of  a 
carrier  for  losses  occurring  at  con- 
necting lines,  see  §§  362-304. 

2Gleason  v.  Goodrich  Trans'n  Co., 
32  Wis.  85.  Or  through  his  own 
act.  E.  r/.,  a  passenger  dropped  her 
bag  from  a  car  window.  The  con- 
ductor refused  to  stop  the  train  in 
order  to  let  the  passenger  recover  it, 
and  the  bag  was  lost.  Held,  that 
the  railroad  company  was  not  liable. 
Henderson  v.  Louisville,  etc.,  R.  R., 
123  U.  S.  61. 

3100U.  S.  24,  27. 


PART  IV.]  LIABILITY   FOR   TORTS   OF   AGENTS.  [§  355. 

precedent  for  any  contract  for  the  transportation  of  baggage 
information  from  the  passenger  as  to  its  value  ;  and  if  the 
value  thus  disclosed  exceeds  that  which  the  passenger  may 
reasonably  demand  to  be  transported  as  baggage  without  ex- 
tra compensation,  the  carrier,  at  its  option,  can  make  such 
additional  charge  as  the  risk  fairly  justifies.  And  the  carrier 
may  be  discharged  from  liability  for  the  full  value  of  the  pas- 
senger's baggage,  if  the  latter,  by  false  statements,  or  by  any 
device  or  artifice,  puts  off  inquiry  as  to  such  value,  whereby  is 
imposed  upon  the  carrier  responsibility  beyond  that  which  it 
was  bound  to  assume  in  consideration  of  the  ordinary  fare 
charged  for  the  transportation  of  the  person  [so  far  obiter]. 
But  in  the  absence  of  legislation  limiting  the  responsibility  of 
carriers  for  the  baggage  of  passengers ;  in  the  absence  of  rea- 
sonable regulations  upon  the  subject  by  the  carrier,  of  which 
the  passenger  has  knowledge ;  in  the  absence  of  inquiry  of  the 
passenger  as  to  the  value  of  articles  carried,  under  the  name  of 
baggage,  for  his  personal  use  and  convenience  in  travelling ; 
and  in  the  absence  of  conduct  upon  the  part  of  the  passenger 
misleading  the  carrier  as  to  the  value  of  his  baggage,  the  court 
cannot  in  law  declare  that  the  mere  failure  of  the  passenger  to 
disclose,  unasked,  the  value  of  his  baggage  is  a  fraud  upon  the 
carrier,  which  defeats  all  rights  of  recovery." 

There  is  in  law  no  fixed  limit  to  the  value  of  bao-p-ap-e  for 
which  the  carrier  is  responsible,  when  he  does  not  limit  his  re- 
sponsibility by  special  contract.  But  his  responsibility  as  in- 
surer is  limited  to  such  articles  as  it  is  customary  or  reasonable 
for  travellers  of  the  same  class  in  life  to  which  the  passenger 
may  belong  to  take  for  the  journey  in  hand,  and  does  not  ex- 
tend to  those  which  the  caprice  of  a  particular  passenger  might 
lead  him  to  take;  and  it  rests  with  the  jury  to  determine  the 
special  case  in  accordance  with  these  principles.1 


1  Railroad  Co.  v.  Fraloff,  100  IT.  S. 
24,  supra.  In  this  case  the  carrier 
was  held  liable  for  laces  stolen  from 
the  baggage  of  a  Russian  countess, 
and  valued  by  the  jury  at  ten  thou- 
sand dollars.  See,  also,  Del  Valle  v. 
Steamboat  Richmond,  27  La.  Ann. 
90;  Rutland  R.  R.  Co.  v.  Ramchau, 
71  Vt.  142. 


A  carrier  is  liable  for  money  in 
baggage  to  an  amount  bona  fide 
taken  for  travelling  purposes,  and 
not  more  than  a  prudent  person 
would  deem  necessary  and  proper  to 
take.  Jordan  v.  Fall  River  R.  R. 
Co.,  5  Cush.  69;  Merrill  v.  Grinnel,30 
N.  Y.  594.  See  Dunlap  v.  Interna- 
tional Steamboat  Co.,  98  Mass.  371; 

335 


§  356.]        THE   LAW   OF   PRIVATE   CORPORATIONS.   [CHAP.  VII. 


Limita- 
tions of 
carrier's 
liability  in 
amount. 


§  356.  Just  as  carriers  of  passengers  may  place  a  limit  on  the 
value  of  baggage  for  which  they  will  be  liable,  unless 
the  value  is  disclosed  and  additional  compensation 
paid,  so  carriers  of  goods  may  limit  their  liability  in 
the  same  respect.  And  when  the  value  of  goods  is 
agreed  on,  the  railroad  company  is  not  liable  above  that  amount 
even  when  the  loss  is  caused  by  its  negligence.  "  Where  a  con- 
tract of  this  kind,  signed  by  the  shipper,  is  fairly  made  agree- 
ing on  the  valuation  of  the  property  carried,  with  the  rate  of 
freight  based  on  the  condition  that  the  carrier  assumes  liability 
only  to  the  extent  of  the  agreed  valuation,  even  in  cases  of  loss 
or  damage  by  the  negligence  of  the  carrier,  the  contract  will  be 
upheld  as  a  proper  and  lawful  mode  of  securing  a  due  propor- 
tion between  the  amount  for  which  the  carrier  may  be  respon- 
sible and  the  freight  he  receives,  and  of  protecting  himself 
against  extravagant  and  fanciful  valuations." x  When,  however, 
there  is  no  notice  of  such  limitation,  a  person  delivering  goods 
to  a  carrier  is  not  bound  to  state  their  value.2    Restrictions  as 


Orange  County  Bank  v.  Brown,  9 
Wend.  85;  Hawkins  v.  Hoffman,  6 
Hill  (N.  Y.),  586;  Doyle  v.  Kiser,  6 
Ind.  242;  Toledo,  W.  and  W.  R.  R. 
Co.  v.  Hammond,  33  Ind.  379.  A 
carrier  is  not  liable  as  such  for 
sixteen  thousand  dollars'  worth  of 
bonds  violently  taken  from  the  per- 
son of  a  passenger.  Weeks  v.  N.  Y., 
N.  H.  and  H.  It.  R.  Co.,  72  N.  Y.  50; 
nor  for  thirty  thousand  dollars' 
worth  of  jewelry  in  baggage.  Mich- 
igan Central  R.  R.  Co.  u.  Carrow,  73 
111.  348.  See  Humphreys  v.  Perry, 
148  U.  S.  627.  Nor  for  a  loss  of  mer- 
chandise carried  as  baggage.  Stim- 
son  v.  Connecticut  River  R.  R.  Co., 
98  Mass.  83;  Ailing  v.  Boston  and 
Albany  R.  R.  Co.,  126  Mass.  121; 
Pardee  u.  Drew,  25  Wend.  459.  Un- 
less, having  been  advised  of  the 
merchandise,  it  charges  and  receives 
a  sum  in  addition  to  the  passenger's 
fare  for  the  extra  weight.  Perley  v. 
N.  Y.  C.  and  H.  R.  R.  R.  Co.,  65  N. 
Y.  374. 

336 


1  Hart  v.  Pennsylvania  R.  R.  Co., 
112  U.  S.  331,  343;  op'n  of  court  per 
Blatchford,  J. ;  Graves  v.  Lake  Shore, 
etc.,  R.  R.  Co.,  137  Mass.  33;  Graves 
v.  Adams  Express  Co.,  170  Mass.  280; 
Harvey  v.  Terre  Haute,  etc.,  R.  R. 
Co.,  74  Mo.  538;  Magnin  v.  Dinsmore, 
70  N.  Y.  410;  S.  C,  62  N.  Y.  65;  Con- 
tra, Chicago,  St.  L.  &  N.  O.  R.  R.  Co.  v. 
Abels,  60  Miss.  1017;  Pierce  v.  So.  Pac. 
R.  R.  Co.,  120  Cal.  156.  But  a  clause 
limiting  liability  will  not  hold  good 
after  the  carrier  has  disregarded  the 
shipper's  order  to  stop  the  goods  in 
transit.  Rosenthal  v.  Weir,  170  N.  Y. 
148. 

2  Little  v.  Boston  and  Maine  R.  R., 
66  Me.  239;  Phillips  v.  Earle,  8  Pick. 
182;  see,  also,  Chicago  and  Alton  R. 
R.  Co.  v.  Shea,  66  111.  471;  Houston, 
etc.,  R.  R.  Co.  v.  Burke,  55  Tex.  323. 
But  the  carrier  may  inquire  as  to 
value,  and  the  shipper  is  bound  by 
his  answer.     Same  cases. 


i 


PART    IV.]        LIABILITY   FOR   TORTS    OF   AGENTS. 


[§  357. 


to  the  time  within  which  a  loss  must  be  notified  to  the  carrier 
in  order  to  render  him  liable,  are  generally  held  reasonable  and 
valid.1 

§  357.  Although  telegraph  companies,  according  to  the  gen- 
erally accepted  view,  are  not  common  carriers,2  they 
exercise  a  function  of  great  public  importance  ;3  and  ^ffames. 
the  reasoning  on  which,  in  Railroad  Company  v. 
Lockwood,4  the  court  based  the  rule  that  common  carriers  can 
not  validly  stipulate  for  immunity  from  responsibility  for  their 
negligence,  applies  to  telegraph  companies  with  equal  force.5 
Accordingly,  the  better  and  more  salutary  view  seems  to  be, 
that  any  stipulation  inserted  in  a  telegraph  blank,  restricting 
the  liability  of  the  company  unless  the  message  is  repeated, 
will  not  exempt  it  from  responsibility  for  errors  occasioned  by 
the  negligence  of  its  employes.6     But  many  authorities  oppose 


1  Within  five  days  valid,  Black  v. 
Wabash,  etc.,  R'y  Co.,  Ill  111.  351; 
contra,  Cox  v.  Central  Vt.  R.  R.  Co., 
170  Mass.  129;  within  ninety  days 
valid,  Express  Co.  v.  Caldwell,  21 
Wall.  264;  within  thirty  days,  United 
States  Express  Co.  v.  Harris,  51  Ind. 
127;  Weir  v.  Express  Co.,  5  Pliila. 
355.  Contra,  Southern  Exp.  Co.  v. 
Caperton,  44  Ala.  101.  A  stipulation 
in  a  bill  of  lading  that  damage  must 
be  adjusted  before  the  articles  are 
taken  from  the  station,  and  a  claim 
presented  within  thirty  days  to  "a 
trace-agent,"  is  unreasonable  and 
void.  Capehart  v.  Seaboard,  etc.,  R. 
R.  Co.,  81  N.  C.  438. 

2  Leonard  v.  N.  Y.,  etc.,  Tel.  Co., 
41  N.  Y.  544;  Breese  v.  U.  S.  Tel. 
Co.,  48  N.  Y.  132;  Schwartz  v.  At- 
lantic, etc.,  Tel.  Co.,  18  Hun,  157; 
Pinckney  v.  Western  Un.  Tel.  Co., 
19  S.  C.  71;  Ellis  v.  American  Tel. 
Co.,  13  Allen,  226;  Birney  v.  N.  Y., 
etc.,  Tel.  Co.,  18  Md.  341;  Western 
Union  Tel.  Co.  v.  Fontaine,  58  Ga. 
433;  Same  v.  Carew,  15  Mich.  525; 
Western  Union  Tel.  Co.  v.  Nei.ll,  57 
Tex.  283.     Contra,  Parks  v.  Tel,  Co, 

22 


13  Cal.  422.    Compare  Western  Union 
Tel.  Co.  v.  Meyer,  61  Ala.  158. 

3  The  right  of  eminent  domain  may 
properly  be  granted  to  a  telegraph 
company;  property  taken  by  such  a 
company  is  taken  for  a  public  use. 
Pierce  v.  Drew,  136  Mass.  75.  Com- 
pare Central  Union  Telephone  Co.  v. 
Bradbury,  106  Ind.  1;  Hockett  v. 
State,  105  Ind.  250. 

4  §  352. 

5  See  Telegraph  Co.  v.  Griswold, 
37  O.  St.  301,  313. 

6  Western  Union  Tel.  Co.  v.  Blanch- 
ard,  68  Ga.  299;  Telegraph  Co.  v. 
Griswold,  37  O.  St.  301;  Western 
Union  Tel.  Co.  v.  Fontaine,  58  Ga. 
433;  Sweatland  v.  111.  and  Miss.  Tel. 
Co.,  27  Iowa,  433;  Manville  v.  West- 
ern Union  Co.,  37  Iowa,  214;  West- 
ern Union  Tel.  Co.  v.  Graham,  1 
Col.  230;  Tyler  v.  Western  Union 
Tel.  Co.,  60  111.  421;  S.  C,  74  111. 
168;  United  States  Tel.  Co.  v.  Gil- 
dersleeve,  29  Md.  232;  Western  Un- 
ion Tel.  Co.  v.  Neill,  57  Tex.  283; 
Same  v.  Short,  53  Ark.  434;  Same  v. 
Linn,  87  Tex.  7;  W.  U.  Tel.  Co.  v. 
Beals,  56  Neb.  415.     Even  though  it 

337 


§  357.]         THE   LAW    OF    PRIVATE   CORPORATIONS.    [CHAP.  VTI. 

this  view,  holding  that  a  telegraph  company  may  thus  exempt 
itself,  except  for  such  errors  as  arise  from  "  gross  negligence" 
or  wilful  misconduct  on  the  part  of  its  employes.1 

The  failure  to  transmit  and  deliver  the  message  as  received 
is  prima  facie  negligence,  rendering  the  company  liable;  and 
the  burden  of  proof  rests  on  it  to  clear  itself  from  fault.2 


be  a  "night  message,"  company  li- 
able for  errors  from  negligence 
(nothing  contained  in  blank  as  to 
repeating).  Bartlett  v.  Western  Un- 
ion Tel.  Co.,  62  Me.  209;  Hibbard  v. 
Western  Union  Tel.  Co.,  33  Wis.  558; 
Candee  v.  Same,  34  Wis.  471.  Contra, 
Schwartz  v.  Atlantic,  etc.,  Tel.  Co., 
18  Hun,  157;  or  a  cipher  message, 
W.  U.  Tel.  Co.  v.  Eubauks,  100  Ky. 
591.  Nor  can  the  company  stipulate 
that  the  damages  arising  from  mis- 
takes in  unrepeated  messages  shall 
not  exceed  the  price  of  the  message. 
Western  Union  Tel.  Co.  v.  Blanch- 
ard,  68  Ga.  299;  Thompson  v.  West- 
ern Union  Tel.  Co.,  64  Wis.  531.  A 
telegraph  company  cannot  avoid  the 
penal  liability  imposed  by  statute  for 
failure  to  transmit  a  message  cor- 
rectly, by  a  contract  fixing  its  liabil- 
ity at  a  less  sum.  Western  Union 
Tel.  Co.  v.  Adams,  87  Ind.  598.  See 
Same  v.  Young,  93  Ind.  118.  Com- 
pare Same  v.  Jones,  95  Ind.  228; 
Same  v.  Meredith,  ib.  93;  Same  v. 
Pendleton,  ib.  12. 

1  Primrose  v.  W.  U.  Tel.  Co.,  154 
U.  S.  1;  Grinnell  v.  Same,  113  Mass. 
299;  Kiley  v.  Same,  109  N.  Y.  231; 
Breeze  v.  U.  S.  Tel.  Co.,  48 N.  Y.  132; 
Becker  v.  Western  Union  Tel.  Co., 
11  Neb.  87;  Ellis  v.  Amer.  Tel.  Co., 
13  Allen,  226;  Passmore  v.  Western 
Union  Tel.  Co.,  78  Pa.  St.  238;  AVest- 
ern  Union  Tel.  Co.  v.  Carew,  15 
Mich.  525;  Camp  v.  Western  Union 
Tel.  Co.,  1  Mete.  (Ky.)  164;  Wann 
v.  Western  Union  Tel.  Co.,  37  Mo. 
338 


472;  MacAndrew  v.  Electric  Tel.  Co., 
17  C.  B.  3.  It  may  be  said,  however, 
that  in  these  cases  no  negligence 
appeared  beyond  the  fact  that  there 
was  an  error;  and  perhaps  they  are 
not  to  be  regarded  as  express  au- 
thorities for  the  statement  that  these 
stipulations  cover  negligence  on  the 
part  of  the  telegraph  company  or  its 
employes.  A  stipulation  in  a  tele- 
graph blank  that  the  company  will 
not  be  responsible  for  mistakes  in 
unrepeated  messages  is  reasonable; 
but  would  not  cover  gross  negligence 
or  wilful  misconduct.  Lassiter  v. 
Western  Union  Tel.  Co.,  89  N.  C. 
334;  Hart  v.  Western  U.  Tel.  Co., 
66  Cal.  579.  See  Redington  v.  Tel. 
Co.,  107  Cal.  317. 

2  Telegraph  Co.  v.  Griswold,  37 
Ohio  St.  301  ;  Bartlett  v.  Western 
Un.  Tel.  Co.,  62  Me.  209  ;  Ritten- 
house  v.  Independent  Line  of  Tele- 
graph, 44  N.  Y.  263  ;  Baldwin  v.  U. 
S.  Tel.  Co.,  45  N.  Y.  744  ;  Western 
Un.  Tel.  Co.  v.  Carew,  15  Mich.  525, 
533  ;  Tyler  v.  Western  Un.  Tel.  Co., 
60  111.  421  ;  De  La  Grange  v.  South 
Western  Tel.  Co.,  25  La.  Ann.  383  ; 
Western  Un.  Tel.  Co.  v.  Meek,  49 
Ind.  53  ;  Turner  v.  Hawkeye  Tel. 
Co.,  41  Iowa,  458  ;  Western  Un.  Tel. 
Co.  u.  Short,  53  Ark.  434.  Compare 
Koons  v.  Western  Union  Tel.  Co., 
102  Pa.  St.  164  ;  Western  Union  Tel. 
Co.  v.  Reynolds,  77  Va.  173.  Contra, 
Aiken  v.  Western  Union  Tel.  Co.,  69 
Iowa,  31. 


. 


PART    IV.]        LIABILITY   FOR    TORTS    OF   AGENTS.  [§  359. 

§  358.  At  this  point  it  will  be  well  to  consider  what  evidence 
will  show  an  agreement,  consent,  or  acquiescence  on 
the  part  of  a  passenger  or  shipper  to  limitations  on  of  assent 
the  liability  of  the  carrier.  As  there  is  rarely  an  tionsof^ 
express  assent  in  such  cases,  whether  there  was  any  j^?^ s 
assent  at  all  becomes  a  question  for  the  jury  to  guess 
at  under  the  guidance  of  the  court,  unless  the  circumstances  are 
such  as  to  estop  the  person  dealing  with  the  carrier  from  deny- 
ing his  assent.  The  cardinal  distinction  seems  to  lie  here :  the 
passenger  or  shipper  will  be  presumed — though  the  presump- 
tion will  not  always  be  conclusive — to  have  agreed  to  whatever 
lawful  terms  are  expressed  on  the  face  of  a  paper  received  by 
him  from  the  agent  of  the  carrier,  when  that  paper  contains 
the  contract  between  the  carrier  and  the  person  dealing  with 
it.  If,  however,  the  paper  so  received  does  not  express  the  con- 
tract of  the  parties,  and  is  but  a  mere  check,  or  ticket  given  by 
the  carrier,  there  will  arise  no  presumption  that  the  person 
dealing  with  the  carrier  assented  to  its  terms.  The  general 
idea  is  well  expressed  by  Judge  Boardman  in  Kirkland  v.  Dins- 
more  : x  "  When  a  person,  from  the  nature  of  the  business,  the 
manner  in  which  it  is  transacted,  and  all  the  circumstances  sur- 
rounding it,  knows  or  has  reason  to  believe  he  is  receiving  a 
contract  that  will  bind  him,  he  will  be  bound  whether  he  reads 
or  not.  But  where  he  may  honestly,  and  in  good  faith,  sup- 
pose he  is  receiving  a  check,  token,  receipt,  or  voucher  of  some 
kind,  or  ticket,  as  evidence  of  money  paid,  he  will  not  be  bound 
by  a  contract  attached  thereto,  forming  no  necessary  part 
thereof,  to  which  his  attention  is  not  called,  and  which  through 
ignorance,  haste,  or  inadvertence,  he  neglects  to  read  or  assent 
to." 

§  359.  In  accordance  with  this  rule,  a  shipper  of  goods  will 
be  presumed  to  have  agreed  to  the  terms  of  a  bill  of  lading  or 
"receipt"  received  by  him  ;  as  this  ordinarily  contains  the  con- 
tract between  the  shipper  and  the  carrier.2     Indeed,  it  is  held 


1  2  Hun,  46,  51.  See,  also,  Blos- 
som v.  Dodd,  43  N.  Y.  264  ;  Madan 
v.  Sherard,  73  N.  Y.  329. 

Magnin  v.  Dinsmore,  70  N.  Y. 
410  ;  S.  C,  62  N.  Y.  35  ;  Cincinnati, 
etc.,  R.  R.  Co.  v.  Pontius,  19  Ohio  St. 


221  ;  Hill  v.  Syracuse,  etc.,  R.  R. 
Co.,  73  N.  Y.  351;  Grace  v.  Adams, 
100  Mass.  505;  Louisville,  etc.,  R.  R. 
Co.  v.  Brownlee,  14  Bush  (Ky.),590; 
Farnham  v.  Camden  and  Amhoy  R. 
R.  Co.,  55  Pa.  St.  53;  Patterson  V. 
339 


§  359.]  THE   LAW   OF   PRIVATE   CORPORATIONS.  [CHAP.  VII. 

that  the  terms  of  a  bill  of  lading  cannot  be  contradicted  by 
parol  evidence.1  But  there  are  many  authorities  adverse  to  the 
two  propositions  last  stated.2 

There  is  no  presumption  that  a  shipper  knows  of  or  assents 
to  mere  published  notices ;  and  accordingly  they  will  not  be 
effectual  in  limiting  the  liability  of  the  carrier;3  except  as  to 
the  amount  beyond  which  he  will  not  be  liable  when  not  in- 
formed of  the  value  of  the  goods.4    A  notice  printed  on  the 


Clyde,  67  Pa.  St.  500;  Fibel  v.  Livin- 
ston,  64  Barb.  179;  Belger  v.  Dins- 
niore,  51  N.  Y.  166;  Newburger  v. 
Howard  &  Co.'s  Express,  6  Pbila. 
174;  Steers  v.  Liverpool,  etc.,Steam- 
sbip  Co.  57  N.  Y.  1;  Huntingdon  v. 
Dinsmore,  4  Hun,  66;  Prentice  v. 
Decker,  49  Barb.  21;  Knell  v.  U.  S. 
and  Brazil  Steamship  Co.,  1  J.  &  Sp. 
(N.  Y.)  423;  Lee  v.  Marsh,  43  Barb. 
102;  Boswell  o.  Hudson  River  R.  R. 
Co.,  5  Bos.  (N.  Y.)  699;  Muser  v. 
Holland,  17  Blatchf.  412;  Wertheiraer 
v.  Pennsylvania  R.  R.  Co.,  ib.  421; 
Robinson  v.  Merchants'  Despatch 
Trans.  Co.,  45  Iowa,  470;  Louisville 
and  N.  R.  R.  Co.  v.  Brownville,  14 
Bush  (Ky.),  590;  McMillan  v.  Michi- 
gan Southern,  etc.,  R.  R.  Co.,  16 
Mich.  79.  See  Pemberton  Co.  v.  N. 
Y.  C.  R.  R.  Co.,  104  Mass.  144;  Ger- 
mania  Fire  Ins.  Co.  v.  M.  and  C.  R. 
R.  Co.,  72  N.  Y.  90;  compare  Wood- 
ruff v.  Sherrard,  9  Hun,  322.  But  a 
bill  of  lading  delivered  subsequently 
to  the  shipment  may  not  have  this 
effect.  Bostwick  v.  Baltimore,  etc., 
R.  R.  Co.,  45  N.  Y.  712;  Gaines  v. 
Union  Trans.  Co.,  28  O.  St.  418; 
American  Express  Co.  v.  Spellman, 
90  111.  455.  Compare  Wilde  v.  Mer- 
chants' Dispatch  Trans.  Co.,  47  Iowa, 
272. 

1  Cincinnati,  etc.,  R.  R.  Co.  v.  Pon- 
tius, 19  Ohio  St.  221;  Hill  v.  Syra- 
cuse, etc.,  R.  R.  Co.,  73  N.  Y.  351. 
Compare  Marian  u.  Sherard,  ib.  329. 
Contra,  Dillard  v.  L.  and  N.  R.  R.  j 

340 


Co.,  2  Lea  (Tenn.),  288;  Erie  and 
Western  Trans.  Co.  v.  Dater,  91  111. 
195. 

2  Southern  Express  Co.  v.  Arm- 
stead,  50  Ala.  350;  Merchants'  Des- 
patch Trans.  Co.  v.  Theilbar,  86  111. 
71;  Same  v.  Leysor,  89  111.  43;  Field 
v.  Chicago  and  R.  I.  R.  Co.,  71  111. 
458;  Erie  and  N.  Trans.  Co.  v.  Dater, 
91  111.  195.  See  Railroad  Co.  v.  Manu- 
facturing Co.,  16  Wall.  319;  Verner 
v.  Sweitzer,  32  Pa.  St.  208;  Erie  and 
Western  Trans.  Co.  v.  Dater,  91  111. 
195;  Merchants'  Despatch  Transn. 
Co.  v.  Joesting,  89  111.  152;  Dillard 
v.  L.  and  N.  R.  R.  Co.,  2  Lea  (Tenn.), 
288. 

3  New  Jersey  Steam  Nav'n  Co.  v. 
Merchants'  Bank,  6  How.  344,  378; 
Judson  v.  Western  R.  R.  Co.,  6  Allen, 
486;  Hollister  v.  Nowlen,  19  Wend. 
(N.  Y.)  234;  Cole  v.  Goodwin,  ib. 
251;  Dorr  v.  New  Jersey  Steam  Nav. 
Co.,  11  N.  Y.  485;  Steele  v.  Town- 
send,  37  Ala.  247;  Michigan  Central 
R.  R.  Co.  ».  Hale,  6  Mich.  243;  Pitts- 
burgh, C.  &  St.  L.  Ry.  Co.  v.  Barrett, 
36  O.  St.  448.  See  Perry  v.  Thomp- 
son, 98  Mass.  249;  Baltimore  &  Ohio 
R.  R.  Co.  v.  Brady,  32  Md.  333;  Cam- 
den and  Amboy  R.  R.  Co.  v.  Baldauf, 
16  Pa.  St.  67. 

4Oppenheimer  p.  United  States 
Exp.  Co.,  69  111.  62;  Erie  Ry.  Co.  v. 
Wilcox,  84  111.  239.  Compare  Mag- 
nin  v.  Dinsmore,  70  N.  Y.  410;  S.  C, 
62  N.  Y.  35;  S.  C,  56  N.  Y.  168; 
Alabama  Gt.  Southern  R.  R.  Co.  v. 


PART  IV.]         LIABILITY    FOR    TORTS    OF   AGENTS. 


[§  360. 


back  of  a  passenger  ticket  is  not  effectual  to  limit  the  value  of 
the  baggage  for  which  the  carrier  will  be  liable  ;  at  least  in  the 
absence  of  proof  that  the  passenger's  attention  was  called  to 
it ;  and  reading  such  a  notice  after  he  has  entered  on  his  jour- 
ney does  not  affect  his  rights.1 

§  360.  The  liability  of  a  common  carrier,  as  such,  begins  as 
soon  as  goods  are  delivered  to  it  for  transportation  ; 
nothing  remaining  to  be  done  on  the  part  of  the  rier's  liabn- 
shipper.  Under  such  circumstances  the  carrier's  lia-  JSd^fases. 
bility  is  not  that  of  a  warehouseman  while  the  goods 
are  waiting  in  his  depot  before  transportation.2  The  carrier's 
liability,  as  such,  continues  until  he  has  performed  his  duties  as 
carrier,  which,  in  the  case  of  railroad  companies,  are  to  carry 
the  goods  to  the  point  on  the  road  to  which  the  goods  are 
directed,3  then  to  deliver  them  to  the  consignee  if  he  is  present, 
or  notify  him  of  their  arrival  if  he  is  absent  and  his  address  is 
known  ;  and  if  the  consignee  is  not  ready  to  accept  the  goods, 
to  warehouse  them  in  a  proper  warehouse.  Thus,  the  liability 
of  the  railroad  company  becomes  that  of  a  warehouseman  as 
soon  as  the  consignee  has  had  reasonable  time  and  opportunity 
to  remove  the  goods.4     In  Massachusetts  the  liability  of  a  rail- 


Little,  71  Ala.  611 ;  United  States  Exp. 
Co.  v.  Backman,  28  O.  St.  144;  Bos- 
cowitz  v.  Adams  Exp.  Co.,  93  111. 
523;  Kansas  City,  St.  Jo.,  etc.,  R.  R. 
Co.  v.  Simpson,  30  Kan.  645. 

1  Rawson  v.  Pennsylvania  R.  R. 
Co.,  48  N.  Y.  212;  see  Li m burger  v. 
Westcott,  49  Barb.  283;  Sunderland 
v.  Westcott,  40  How.  Pr.  ( N.  Y. ) 
468;  Brown  v.  Eastern  R,  R.  Co.,  11 
Cush.  97;  Malone  v.  Boston,  etc.,  R. 
R.  Co.,  12  Gray,  388.  Compare  Cam- 
den and  Amboy  R.  R.  Co.  v.  Baldauf, 
16  Pa.  St.  67. 

2  Grand  Trunk  M'f'g,  etc.,  Co.  v. 
Ullman,  89  111.  244;  Clark  v.  Needles, 
25  Pa.  St.  338;  O'Neill  v.  N.  Y.  C.  & 
H.  R.  R.  R.  Co.,  60  N.  Y.  138;  Pitts- 
burgh, C.  &  St.  L.  Ry.  Co.  v.  Barrett, 
36  O.  St.  448.  See  Grosvenor  v.  N. 
Y.  C.  R.  R.  Co.,  39  N.  Y.  34;  Baron 
v.  Eldredge,  100  Mass.  455;  Judson 


v.  Western  R.  R.  Co.,  4  Allen,  520; 
St.  Louis,  A.  &  T.  H.  R.  R.  Co.  v. 
Montgomery,  39  111.  335. 

3  Railroad  companies  are  not  held 
to  make  a  personal  delivery.  South 
&  North  Ala.  R.  R.  Co.  v.  Woods,  66 
Ala.  167;  Norway  Plains  Co.  v.  Bos- 
ton &  M.  R.  R.  Co.,  1  Gray  (Mass.), 
263.  Otherwise  as  to  express  com- 
panies. American  Un.  Exp.  Co.  v. 
Robinson,  72  Pa.  St.  274.  In  the 
absence  of  provision  in  the  bill  of 
lading,  the  usage  and  custom  at  the 
port  of  delivery  will  control  the 
mode  of  delivery  of  goods  carried  by 
water.  Richmond  v.  Union  Steam- 
boat Co.,  87  N.  Y.  240.  As  to  a  rail- 
road company's  duties  respecting 
the  delivery  of  live  stock  carried  by 
it,  see  Covington  Stockyards  Co.  v. 
Keith,  139  U.  S.  128. 

4  Fenner  v.  Buffalo,  etc.,  R.  R.  Co., 

841 


§  360.]        THE   LAW   OF   PRIVATE   CORPORATIONS.    [CHAP.  VII. 

road  company  as  a  common  carrier  is  held  to  cease  as  soon  as 
the  transportation  is  accomplished  and  the  goods  have  been 
stored  by  the  railroad  company,  although  the  consignee  may 
have  had  no  notice  of  their  arrival,  nor  opportunity  to  remove 
them.1 

Delivery  of  the  goods  to  a  person  other  than  the  consignee  or 
owner  is  a  conversion,  for  which,  as  a  general  rule,  the  carrier 
will  be  liable.2     Where,  however,  the  carrier  is  to  deliver  the 


44  N.  Y.  505;  Roth  i>.  Buffalo,  etc., 
R.  R.  Co.,  34  N.  Y.  548  ;  McKinney 
v.  Jewett,  90  N.  Y.  267;  Hedges  v. 
Hudson  River  R.  R.  Co.,  49  N.  Y. 
223;  Sprague  v.  New  York  Central 
R.  R.  Co.,  52  N.  Y.  637;  Pelton  v. 
Rensselaer,  etc.,  R.  R.  Co.,  54  N.  Y. 
214;  Welsh  v.  Concord  R.  R.  Co.,  68 
N.  H.  206;  Berry  v.  W.  Va.  &  P.  R. 
Co.,  44  W.  Va.  538.  Compare  Buck- 
ley v.  Great  Western  Ry.  Co.,  18 
Mich.  121;  L.  L.  &  G.  R.  R.  Co.  v. 
Maris,  16  Kan.  333;  Culbreth  v. 
Phila.,  W.  &  B.  R.  R.  Co.,  3  Houston 
(Del.),  392;  Hirshfield  v.  Central 
Pac.  R.  R.  Co.,  56  Cal.  484;  Jeffer- 
sonville  R.  R.  Co.  v.  Cleveland,  2 
Bush  (Ky.),  468;  Louisville,  C.  &  L. 
R.  R.  Co.  v.  Mahan,  8  Bush  (Ky.), 
184;  Graves  v.  Hartford,  etc.,  Steam- 
boat Co.,  38  Conn.  143;  Alabama  & 
Tennessee  Rivers  R.  R.  Co.  v.  Kidd, 
35  Ala.  209;  Mobile,  etc.,  R.  R.  Co. 
v.  Prewitt,  46  Ala.  63;  South  & 
North  Ala.  R  R.  Co.  v.  Woods, 
66  Ala.  167;  Butler  v.  Railroad 
Co.,  8  Lea  (Tenn.),  32;  Blumen- 
thal  v.  Brainerd,  38  Vt.  402;  Derosia 
v.  Winona,  etc.,  R.  R.  Co.,  18  Minn. 
133;  Pinney  v.  First  Division  St.  P., 
etc.,  R.  R.  Co.,  19  Minn.  251. 

1  Norway  Plains  Co.  v.  Boston  & 
M.  R.  R.,  1  Gray  (Mass.),  263;  Rice 
v.  Boston  &  W.  R.  R.  Co.,  98  Mass. 
212;  Thomas  v.  Boston  &  P.  R.  R. 
Co.,  10  Met.  (Mass.)  472;  Rice  v. 
Hart,  118  Mass.  201;  compare  Ste- 
vens v.  Boston  &  M.  R.  R.,  1  Gray 

342 


(Mass.),  277.  In  Illinois  the  rule  is 
the  same  as  in  Massachusetts.  Chi- 
cago &  N.  W.  Ry.  Co.  v.  Beusley,  69 
111.  630;  Cahn  v.  Michigan  Central 
R.  R.  Co.,  71  111.  96;  Rothschild  v. 
Michigan  Central  R.  R.  Co.,  69  111. 
164;  Illinois  Central  R.  R.  Co.  v. 
Friend,  64  111.  303;  Porter  v.  Chicago 
&  R.  I.  R.  R.  Co.,  20  111.  407.  See, 
also,  Bansemer  v.  Toledo,  etc.,  R.  R. 
Co.,  25  Ind.  434;  Chicago  &  C.  A.  L. 
R.  R.  Co.  v.  McCool,  26  Ind.  140; 
Pittsburgh,  C.  &  St.  L.  Ry.  Co.  v. 
Nash,  43  Ind.  423;  Francis  v.  Du- 
buque, etc.,  R.  R.  Co.,  25  Iowa,  69; 
Moln  o.  C.  &  N.  W.  R.  R.  Co.,  40 
Iowa,  579;  Southwestern  R.  R.  Co.  v. 
Felder,  46  Ga.  433. 

2  Forbes  v.  Boston  and  Lowell  R. 
R.  Co.,  133  Mass.  154;  Winslow  v. 
Vermont,  etc.,  R.  R.  Co.,  42  Vt.  700; 
Viner  v.  N.  Y.,  etc.,  Steamship  Co., 
50  N.  Y.  23;  Price  v.  Oswego,  etc.,  R. 
R.  Co.,  ib.  213;  Scheuu.  Erie  R'y  Co., 
10  Hun,  498;  Little  Rock,  etc.,  R'y 
Co.  v.  Glidewell,  39  Ark.  487;  Balto. 
and  Ohio  R.  R.  Co.  v.  Pumphrey,  59 
Md.  390.  See  Jellett  v.  St.  Paul,  etc., 
R'y  Co.,  30  Minn.  265.  Carrier  is 
liable  for  a  delivery  on  a  forged  or- 
der. American  Merchants'  Un.  Exp. 
Co.  v.  Milk,  73  111.  224;  Southern  Exp. 
Co.  v.  Van  Meter,  17  Fla.  783.  When 
the  carrier  knows  the  goods  to  be 
the  property  of  shipper,  it  is  liable 
to  him  for  their  value,  when  without 
his  knowledge  it  delivers  them  at  the 
place  of  shipment  to  a  third  person 


PART  IV.]         LIABILITY   FOR   TORTS    OF   AGENTS. 


[§  361. 


goods  to  a  succeeding  carrier  for  further  transportation,  it 
remains  liable  as  carrier  until  it  has  actually  delivered  them  to 
the  next  carrier ;  and  its  liability  does  not  become  that  of  a 
warehouseman  simply  because  the  next  carrier  fails  for  an  un- 
reasonable time  to  take  the  goods  after  notice  and  request  to 
do  so.1 

§  361.  The  duty  to  deliver,  and  the  duty  to  deliver  in  due 
time,  are  distinct  obligations.  The  time  of  deliver}7  D  j  . 
may  be  made  a  matter  of  express  contract ; 2  but  when  transporta- 
this  is  not  so,  a  carrier  must  deliver  within  a  reason- 
able time,  i.  e.,  the  time  within  which  it  can  deliver,  using  all 
reasonable  exertion,  and  taking  all  reasonable  precaution  to 
avoid  delay.3  To  excuse  a  carrier  for  unusual  delay  in  trans- 
porting goods,  the  cause  of  dela}T  must  be  something  which  the 
law  regards  as  beyond  the  carrier's  control.4     A  strike  of  its 


on  the  order  of  the  consignee. 
Southern  Exp.  Co.  v.  Dickson,  94 
U.  S.  549. 

So  a  carrier  instructed  to  deliver 
only  C.  O.  D.  is  liable  to  the  shipper 
for  damages,  if  it  violates  the  in- 
struction. Tooker  v.  Gormer,  2 
Hilt.  (N.  Y.)  71.  See  Rathbun  v. 
Citizens1  Steamboat  Co.,  7(5  N.  Y. 
376.  Misdirection  of  goods  may  re- 
lieve carrier;  see  Southern  Exp.  Co. 
v.  Kaufman,  12  Heisk.  (Tenn.)  161. 

1  Railroad  Co.  v.  Manufacturing 
Co.,  16  Wall.  319;  Goold  v.  Chapin, 
20  N.  Y.  259;  Irish  v.  Milwaukee, 
etc.,  R'y  Co.,  19  Minn.  376;  see  Mills 
».  Michigan  Cent.  R.  R.  Co.,  45  N.Y. 
622;  Pratt  v.  Railway  Co.,  95  U.  S. 
43;  compare  Louisville,  etc.,  R.  R. 
Co.  v.  Campbell,  7  Heisk.  (Tenn.) 
253:  Van  Lindley  v.  Richmond,  etc., 
R.  R.,  88  N.  C.  547;  Texas  &  Pac. 
R'y  Co.  v.  Clayton,  173  U.  S.  348. 
See,  Tex.  &  Pac.  R'y  Co.  v.  Reise, 
183  U.  S.  621;  Tex.  &  Pac.  R'y  Co. 
v.  Callender,  183  IT.  S.  632;  Morande 
v.  Tex.  &  Pac.  R'y  Co.,  184  U.  S. 
173. 


2  See  Place  v.  Union  Exp.  Co.,  2 
Hilt.  (X.  Y.)  19. 

3  Philadephia,  W.  and  B.  R.  R. 
Co.  v.  Lehman,  56  Md.  209;  Wibert 
».  New  York  and  E.  R.  R.  Co.,  12  N. 
Y.  245;  Cobb  v.  Illinois  Central  R.  R. 
Co.,  38  Iowa,  601;  Rome  R.  R.  Co. 
v.  Sullivan,  32  Ga.  400.  Similar  ob- 
ligation exists  towards  passengers. 
Weed  v.  Panama  R.  R.  Co.,  17  N.  Y. 
362.  For  measure  of  damages  for 
failure  to  deliver,  see  Balto.  and 
Ohio  R.  R.  Co.  v.  Pumpbrey,  59  Md. 
390. 

4  See  Tierney  v.  N.  Y.  C.  and  H. 
R.  R.  R.  Co.,  76  N.  Y.  305.  But  if 
a  railroad  company  knows  of  any 
cause  of  delay  on  its  lines  beyond  its 
control,  in  order  to  free  itself  from 
liability  it  must  inform  the  sbipper 
and  stipulate  against  liability  from 
delay.  Illinois  Central  R.  R.  Co.  v. 
Cobb,  54  111.  128;  Same  v.  Same,  ib. 
143;  Illinois  Central  R.  R.  Co.  v.  Ash- 
mead,  58  111.  487;  Cobb  v.  111.  Central 
R.  R.  Co.,  88  111.  394. 


343 


§  361.]         THE   LAW    OF   PRIVATE   CORPORATIONS.   [CHAP.  VII. 

locomotive  engineers  is  not  such  an  excuse,1  nor  an  increased 
charge  by  a  connecting  carrier.2  But  a  carrier  is  not  responsi- 
ble for  delay  occurring  without  its  fault,  when  there  is  no  ex- 
press agreement  to  transport  within  a  specified  time.3  In  the 
absence  of  special  contract  and  notice  to  the  carrier  of  special 
circumstances,  the  measure  of  damages  for  delay  in  the  trans- 
portation of  merchandise  is  the  difference  between  its  value  at  its 
destination  at  the  time  when  it  ought  to  have  been  delivered  in 
the  ordinary  course  of  transportation,  and  its  value  there  at 
the  time  when  actually  delivered.4  The  ordinary  measure  of 
damages  when  goods  are  lost  or  injured  is  their  value  at  the 
place  of  destination,  deducting  freight,  if  unpaid.5 


i  Blackstock  v.  N.  Y.  and  Erie  R. 
R.  Co.,  20  N.  Y.  48;  Read  v.  St. 
Louis,  etc.,  R.  R.  Co.,  60  Mo.  199; 
compare  Pittsburgh,  etc.,  R.  R.  Co.  v. 
Hollowell,  65  Ind.  188;  Pittsburgh, 
Ft.  W.  and  C.  R.  R.  Co.  v.  Hazen,  84 
111.  36. 

For  the  liability  of  a  telegraph  com- 
pany for  delay  in  transmitting  a  mes- 
sage, see  Logan  v.  Western  Un.  Tel. 
Co.,  84  111.  468;  Mackey  v.  Same,  16 
Nev.  222. 

2  Condict  v.  Grand  Trunk  R.  Co., 
54  N.  Y.  500. 

3  Wibert  ».  N.  Y.  and  Erie  R.  R. 
Co.,  12  N.  Y.  245;  see  Pittsburgh, 
Ft.  W.  and  C.  R.  R.  Co.  v.  Hazen, 
supra.  For  damages  arising  from  a 
mere  delay  occasioned  by  a  tempo- 
rary excess  of  business,  a  carrier  is 
not  responsible,  if  he  is  not  in  fault 
regarding  the  equipment  of  his  road 
and  facilities  for  doing  the  ordinary 
business.  Galena  and  C.  N.  R.  R. 
Co.  v.  Rae,  18  111.  488;  Michigan 
Central  R.  R.  Co.  v.  Burrows,  33 
Mich.  6;  Thayer  v.  Burchard,  99 
Mass.  508.  But  temporary  excess  of 
business  is  no  excuse  when  a  carrier 
has  contracted  to  deliver  within  a 
specified  time.  Deming  v.  Grand 
Trunk  R.  R.  Co.,  48  N.   H.  455.     In 

344 


regard  to  the  effect  of  time  tables, 
see  Gordon  v.  Mauchaster,  etc.,  R.  R., 
52  N.  H.  596;  Le  Blanche  v.  London, 
etc.,  Railway  Co.,  24  W.  R.  808. 

4  Ward  v.  New  York  Central  R.  R. 
Co.,  47  N.  Y.  29;  Cutting  v.  Grand 
Trunk  Ry.  Co.,  13  Allen  (Mass.), 
381;  lngledew  v.  Northern  Railroad, 
7  Gray  (Mass.),  86;  Galena  and  C.  N. 
R.  R.  Co.  v.  Rae,  18  111.  488;  Sher- 
man v.  Hudson  River  R.  R.  Co.,  64 
N.  Y.  254;  see  Devereux  v.  Buckley, 
34  O.  St.  16;  Illinois  Central  R.  R. 
C.  v.  Cobb,  72  111.  148.  Compare 
Priestley  v.  Northern  Indiana,  etc., 
R.  R.  Co.,  26  111.  205.  See  as  to  per- 
ishable goods,  Place  v.  Union  Exp. 
Co.,  2  Hilt.  (N.  Y.),  19;  American 
Exp.  Co.  v.  Smith,  33  O.  St.  511; 
Michigan  Central  R.  R.  Co.  v.  Bur- 
rows, 33  Mich.  6. 

5  Northern  Trans.  Co.  v.  McClary, 
66  111.  23:5;  Ringgold  v.  Haven,  1  Cal. 
108;  Taylor  v.  Collier,  26  Ga.  122; 
Michigan  Southern,  etc.,  R.  R.  Co.  v. 
Caster,  13  Ind.  164;  McGregors.  Kil- 
gore,  6  Ohio,  359;  Robinsons.  Mer- 
chants' Dispatch  Trans.  Co.,  45  Iowa, 
470.  Compare  Winne  v.  Illinois  Cen- 
tral R.  R.  Co.,  31  Iowa,  583;  Breed 
v.  Mitchell,  48  Ga.  533. 


PART  IV.]  LIABILITY   FOR   TORTS   OF   AGENTS. 


[§  363. 


§  362.  Prima  facie  a  railroad  company  or  other  carrier  is 
responsible  only  for  the  negligence  and  misfeasance         .    , 
of  its  own  servants,  and  consequently  is  liable  only   liability  for 

„       .  .     .  .  . ,  ,  losses  on 

for  losses  or  injuries  occurring  on  its  own  road,  or  on  connecting 
a  road  which  it  leases  or  otherwise  controls.1  But  it  mes" 
may  contract  to  transport  passengers  or  goods  to  a  point  be- 
yond its  terminus,2  and  having  made  such  a  contract  will  be 
liable  as  carrier  for  the  whole  trip,  whether  the  loss  occur  on 
its  own  or  on  a  connecting  line.3 

§  363.  So  far  the  authorities  may  be  regarded  as  unanimous. 
But  in  regard  to  the  evidence  from  which  a  jury  may  be  allowed 
to  infer  a  contract  on  the  part  of  the  carrier  to  transport  be- 
yond its  terminus,  there  is  a  difference  of  judicial  opinion.4  In 
England  and  a  few  of  the  states,  it  is  held  that  from  the  mere 
receipt  of  goods  directed  to  a  point  beyond  its  own  line,  a  con- 
tract to  carry  the  whole  distance  may  be  inferred.5     This  is  not, 


1  Pennsylvania  R.  R.  Co.  v.  Jones, 
155  U.  S.  333.  Cf.  Nashville,  etc., 
R.  R.  Co.  v.  Carroll,  6  Heisk.  (Tenn.) 
347;  Mallory  v.  Tioga  R.  R.  Co.,  39 
Barb.  488;  De  Mott  v.  Laraway,  14 
Wend.  225;  Macon,  etc.,  R.  R.  Co.  v. 
Mayes,  49  Ga.  355;  Illinois  Central 
R.  R.  Co.  t>.  Kanouse,  39  111.  272,  and 
§170. 

2  This  proposition  is  universally 
accepted  in  the  United  States.  Rail- 
road Co.  ».  Pratt,  22  Wall.  123; 
Wheeler  v.  San  Francisco,  etc.,  R.  R. 
Co.,  31  Cal.  46;  Peet  v.  Chicago  and 
N.  W.  Ry.  Co.,  19  Wis.  118;  Kyle  v. 
Laurens  R.  R.  Co.,  10  Rich.  L.  (S.  C.) 
3S2;  Baltimore,  etc.,  Steamboat  Co. 
v.  Brown,  54  Pa.  St.  77;  St.  Louis 
and  I.  M.  R.  R.  Co.  v.  Larned,  103 
111.  293.  Unless  perhaps  in  Connecti- 
cut. See  Hood  v.  X.  Y.  and  N.  H.  R. 
R.  Co.,  22  Conn.  502. 

3  Railway  Co.  v.  McCarthy,  90  U. 
S.  258;  Railroad  Co.  v.  Androscoggin, 
Mills,  22  Wall.  594.  Cases  in  the 
following  notes.  Compare  Wilson 
v.  Harry,  32  Pa.  St.  270;  Germain 
Fruit  Co.  v.  Cal.  So.  R.  R.  Co.,  133 


Cal.  426.  A  railroad  company  is  lia- 
ble as  a  common  carrier  to  anotber 
railroad  company  for  a  car  of  the  lat- 
ter, and  the  contents  hauled  by  the 
former  over  its  road.  Peoria  and  P. 
V.  Ry.  Co.  v.  Chicago,  etc.,  Ry.  Co., 
109  111.  135;  Same  v.  United  States 
Rolling  S'k  Co.,  136  111.  643. 

4  When  a  carrier  receives  express 
goods,  the  question  whether  he  con- 
tracts to  carry  them  to  their  destina- 
tion, or  only  to  deliver  safely  to  the 
next  carrier,  is  one  of  fact  for  the 
jury,  dependent  on  the  circumstan- 
ces. Phila.  and  Reading  R.  R.  Co.  v. 
Ramsey,  89  Pa.  St.  474.  Compare 
Penn.  R.  R.  Co.  v.  Berry,  68  Pa.  St. 
272;  see,  also,  Talcott  v.  Wabash  R. 
R.  Co.,  159  N.  Y.  461;  Kimball  v.  N. 
Y.  C.  &  H.  R.  R.  Co.,  162  N.  Y.  84; 
Lissard  v.  B.  &  M.  R.  R.  Co.,  69  N. 
H.  648. 

5  Muschamp  v.  Lancaster  Ry.  Co., 
8  M.  &  W.  421;  Webber  v.  Great 
Western  Ry.  Co.,  3  H.  &  C.  771;  Wa- 
bash, St.  L.  &  P.  Ry.  Co.  v.  Jagger- 
man,  115  111.  407;  Mobile  and  Girard 
R.  R.  Co.  v.  Copeland,  63  Ala.  219; 

345 


§  363.]         THE    LAW    OF    PRIVATE   CORPORATIONS.    [CHAP.  VII. 

however,  the  prevailing  doctrine  in  this  country,  where  the  rule 
generally  followed  is  as  stated  by  Justice  Field,  delivering  the 
opinion  of  the  Supreme  Court  of  the  United  States,  in  Myrick 
v.  Michigan  Central  R.  II.  Co.1 

"  A  railroad  company  is  a  carrier  of  goods  for  the  public, 
and,  as  such,  is  bound  to  carry  safely  whatever  goods  are  in- 
trusted to  it  for  transportation,  within  the  course  of  its  busi- 
ness, to  the  end  of  its  route,  and  there  deposit  them  in  a  suit- 
able place  for  their  owners  or  consignees.  If  the  road  of  the 
company  connects  with  other  roads,  and  goods  are  received  for 
transportation  beyond  the  termination  of  its  own  line,  there  is 
superadded  to  its  duty  as  a  common  carrier  that  of  a  forwarder 
by  the  connecting  line ;  that  is,  to  deliver  safely  the  goods  to 
such  line — the  next  carrier  on  the  route  beyond.  This  forward- 
ing duty  arises  from  the  obligation  implied  in  taking  the  goods 
for  the  point  beyond  its  own  line.  The  common  law  imposes 
no  greater  duty  than  this.  If  more  is  expected  from  the  com- 
pany receiving  the  shipment,  there  must  be  a  special  agreement 
for  it.  This  is  the  doctrine  of  this  court,  though  a  different 
rule  of  liability  is  adopted  in  England  and  in  some  of  the 
states.  .  .  .  The  general  doctrine,  then,  as  to  transportation 
by  connecting  lines,  approved  b}T  this  court,  and  also  by  a  ma- 
jority of  state  courts,  amounts  to  this :  that  each  road  confining 
itself  to  its  common  law  liability  is  only  bound,  in  the  absence 
of  a  special  contract,  to  safely  carry  over  its  own  route  and 
safely  to  deliver  to  the  next  connecting  carrier,  but  that  any 
one  of  the  companies  may  agree  that  over  the  whole  route  its 
liability  shall  extend.  In  the  absence  of  a  special  agreement  to 
that  effect  such  liability  will  not  attach,  and  the  agreement  will 
not  be  inferred  from  doubtful  expressions  or  loose  language,  but 


Louisville,  etc.,  R.  Co.  v.  Weaver,  9 
Lea(Tenn.),  38.  See,  also,  East  Tenn. 
and  Va.  R.  R.  Co.  v.  Rogers,  6  Heisk. 
(Tenn.)  143;  Western  and  Atlantic 
R.  R.  Co.  v.  McElwee,  ib.  208;  Mosher 
o.  Southern  Exp.  Co.,  38  Ga.  37; 
Southern  Exp.  Co.  v.  Sliea,  38  Ga. 
519;  Cohen  v.  Southern  Exp.  Co.,  45 
Ga.  148.  If  goods  are  delivered  to  a 
carrier  to  be  carried  to  a  place  be- 
yond its  terminus,  and  no  receipt  is 

346 


taken,  but  freight  is  paid  for  the 
whole  distance,  the  carrier  will  be 
liable  for  a  loss  occurring  beyond  its 
own  line.  Adams  Exp.  Co.  v.  Wilson, 
81  111.  339.  A  carrier  checking  bag- 
gage beyond  his  line  remains  liable 
as  insurer  if  he  forwards  baggage  by 
a  route  other  than  that  by  which  he 
has  agreed.  Isaacson  v.  N.  Y.  C.  <fe 
H.  R.  R.  R.  Co.,  94  N.  Y.  278. 
i  107  U.  S.  102. 


PAKT  IV.]  LIABILITY   FOR   TORTS   OF   AGENTS. 


[§  363. 


only  from  clear  and  satisfactory  evidence."  *  The  same  general 
doctrine  is  also  clearly  stated  by  Judge  Rapallo,  of  the  New- 
York  Court  of  Appeals,  in  Root  v.  Great  Western  R.  R.  Co.2 
"  The  receipt  of  goods  marked  for  a  place  beyond  the  terminus 
of  the  carrier's  route  does  not  import  a  contract  to  carry  them 
to  their  final  destination  ;  but,  in  the  absence  of  a  special  con- 
tract, and  of  a  partnership  between  the  connecting  lines,  the 
carrier  is  only  responsible  to  the  extent  of  his  own  route,  and 
for  the  safe  delivery  to  the  next  succeeding  carrier ;  in  such  a 
case  the  carrier  is  merely  a  forwarder  from  the  terminus  of  his 
own  line,  and  where  goods  thus  marked  are  delivered  to  a 
carrier,  unaccompanied  by  any  particular  directions,  except  such 
as  might  be  inferred  from  the  marks  themselves,  the  carrier  is 
only  bound  at  the  terminus  of  his  own  line,  to  deliver  them 
according  to  the  established  usage  of  the  business  in  which  he 
is  engaged."3  On  the  other  hand,  from  the  bill  of  lading  taken 
in  connection  with  the  circumstances  of  the  case,  a  court  may 
allow  a  jury  to  find  a  contract  for  through  transportation, 
which  will  render  liable  the  carrier  who  received  the  goods,  no 
matter  wrhere  the  loss  occurs.4 


1  Myrick  v.  Michigan  Central  R.  R. 
Co.,  107  U.  S.  102,  106. 

2  45  N.  Y.  524,  530. 

8  Accord  Van  Santvoord  v.  St. 
John,  6  Hill,  158;  Railroad  Co.  v. 
Pratt,  22  Wall.  123;  Jenneson  v. 
Railroad  Co.,  4  Am.  Law  Reg.  234 
and  note;  Rome  R.  R.  Co.  v.  Sulli- 
van, 25  Ga.  228;  Piedmont  M'f'g  Co. 
v.  Columbia,  etc.,  R.  R.  Co.,  19  S.  C. 
353;  Brintnall  v.  Saratoga,  etc.,  R.  R. 
Co.,  32  Vt.  665;  Lawrence  v.  Winona, 
etc.,  R.  R.  Co.,  15  Minn.  390;  Irish  v. 
Milwaukee,  etc.,  R.  R.  Co.,  19  Minn. 
376.  See  Mullarkey  ».  P.  W.  and  B. 
R.  R.  Co.,  9  Phila.  114  (with  which 
last  case  compare  St.  Louis  and  I.  M. 
R.  R.  Co.  v.  Larned,  103  111.  293); 
Skinner  v.  Hall,  60  Me.  477;  Hadd  v. 
U.  S.  and  Can.  Exp.  Co.,  52  Vt.  335; 
Clyde  v.  Hubbard,  88  Pa.  St.  358; 
Penn.  R.  R.  Co.  v.  Schwarzenberger, 
45  Pa.  St.  208  ;  Burroughs  v.  Nor- 
wich, etc.,  R.  R.  Co.,  100  Mass.  26; 


Mitting  v.  Conn.  River  R.  R.  Co.,  1 
Gray,  502;  Montgomery,  etc.,  R.  R. 
Co.  v.  Moore,  51  Ala.  394;  Crawford 
v.  Southern  R.  R.  Ass'n,  51  Miss. 
222;  Gray  v.  Jackson,  51  N.  H.  9; 
Darling  v.  Boston  and  Worcester  R. 
R.  Co.,  11  Allen,  295;  Washburn,  etc., 
M'f'g  Co.  v.  Providence,  etc.,  R.  R. 
Co.,  113  Mass.  490.  Compare  Newell 
v.  Smith,  49  Vt.  255  ;  Goodrich  v. 
Thompson,  44  N.  Y.  324. 

4  See  Railroad  Co.  v.  Pratt,  22 
Wall.  123;  Clyde  v.  Hubbard,  88  Pa. 
St.  358;  Peet  v.  Chicago  and  N.  W. 
Ry.  Co.,  19  Wis.  118;  Kyle  v.  Lau- 
rens R.  R.  Co.,  10  Rich.  L.  (S.  C.) 
3S2.  Compare  Insurance  Co.  v.  Rail- 
road Co.,  104  IT.  S.  146;  Philadelphia 
and  R.  R.  R.  Co.  v.  Ramsey,  89  Pa. 
St.  474;  Washburn  M'f'g  Co.  v.  Prov- 
idence, etc.,  R.  R.  Co.,  113  Mass.  490; 
Hill  M'f'g  Co.  v.  Boston  and  L.  R.  R. 
Co.,  104  Mass.  122;  Cincinnati  H. 
and  D.  R.  R.  Co.  v.  Pontius,  19  O.  St. 
347 


§  364.]        THE   LAW   OF    PRIVATE   COUP  ORATION  8.    [CHAP.  VII. 


§  364.  And  it  has  been  also  held,  though  with  some  adverse 
judicial  opinion,  that  where  several  carriers  owning  connecting 
lines  make  general  agreements,  under  which  they  act  in  con- 
cert and  as  each  other's  agents  in  receiving  and  carrying 
freight  and  passengers,  any  one  of  them  over  whose  route  have 
been  transported  the  goods  which  are  lost  or  damaged,  may  be 
held  liable ;  or  they  may  all  be  sued  jointly.1 


221;  Clyde  v.  Hubbard,  88  Pa.  St. 
358;  Baltimore  and  P.  Steamboat  Co. 
v.  Brown,  54  Pa.  St.  77;  Pennsylvania 
R.  R.  Co.  v.  Berry,  68  Pa.  St.  272. 
But  compare  Converse  v.  Norwicb, 
etc.,  Trans.  Co.,  33  Conn.  166;  El- 
more ».  Naugatuck  R.  R.  Co.,  23 
Conn.  457;  Lawrence  v.  New  York, 
etc.,  R.  R.  Co.,  36  Conn.  63.  The 
way-bill  also  is  admissible  as  evi- 
dence of  a  through  contract.  Rail- 
road Co.  v.  Androscoggin  Mills,  22 
Wall.  594.  The  doctrine  of  a  num- 
ber of  cases  is  that  the  acceptance 
of  goods  for  carriage  marked  for  a 
point  beyond  the  terminus  of  the 
carrier's  line,  is  prima  facie  evidence 
of  a  contract  for  through  transporta- 
tion; but  the  carrier  may  limit  its 
responsibility  to  its  own  line;  e.  gr., 
by  a  clause  in  the  receipt  given  for 
the  goods,  although  not  signed  by 
the  shipper.  Erie  Ry.  Co.  b.  Wilcox, 
84  111.  239;  Illinois  Central  R.  R.  Co. 
v.  Frankenberg,  54  111.  88;  Illinois 
Central  R.  R.  Co.  v.  Johnson,  34  111. 
389;  Field  v.  Chicago  and  R.  I.  R.  R. 
Co.,  71  111.  458;  Adams  Exp.  Co.  v. 
Wilsou,  81  111.  339;  Mulligan  v.  Illi- 
nois Central  Ry.  Co.,  36  Iowa,  181; 
Angle  u.  Mississippi,  etc.,  R.  R.  Co., 
9  Iowa,  487.  Compare  Merchants' 
Despatch  Trans.  Co.  v.  Moore,  88  111. 
136;  Berg  v.  Atchison,  etc.,  R.  R. 
Co.,  30  Kan.  561. 

1  Barter  v.  Wheeler,  49  N.  H.  9  ; 
Wyman  v.  Chicago  and  Alton  R.  R. 
Co.,  4  Mo.  App.  35  ;  Hart  v.  Rensse- 
laer, etc.,  R.  R.  Co.,  8  N.  Y.  37  ; 
Monell  v.  Northern  Central  R.  R.  Co., 

348 


67  Barb.  531.  See  Quimby  v.  Van- 
derbilt,  17  N.  Y.  306  ;  Nashua  Lock 
Co.  v.  Worcester,  etc.,  R.  R.  Co.,  48 
N.  H.  339  (contains  review  of  author- 
ities by  Judge  Perley);  Cincinnati, 
H.  and  D.  R.  R.  Co.  v.  Spratt,2  Duv. 
( Ky. )  4.  But  compare  Insurance  Co. 
v.  Railroad  Co.,  104  U.  S.  146;  Milnor 
v.  N.  Y.  and  N.  H.  R.  R.  Co.,  53  N. 
Y.  363;  Ricketts  v.  Bait,  and  O.  R.  R. 
Co.,  59  N.  Y.  637  ;  Shiff  v.  N.  Y.  C. 
and  H.  R.  R.  R.  Co.,  16  Hun,  278  ; 
Darling  v.  Boston  and  Worcester  R. 
R.  Co.,  11  Alleu,  295;  Railroad  Co.  v. 
Brumley,  5  Lea  (Tenn.),  401;  Gass 
v.  New  York,  etc.,  R.  R.  Co.,  99 
Mass.  220  ;  Ellsworth  v.  Tartt,  26 
Ala.  733  ;  Coates  v.  United  States 
Exp.  Co.,  45  Mo.  238  ;  Hot  Springs 
R.  R.  v.  Trippe,  42  Ark.  4G5.  Where 
the  combination  extends  through  sev- 
eral states,  the  law  of  the  state  where 
the  loss  occurred  is  applicable.  Bar- 
ter v.  Wheeler,  49  N.  H.  9.  Com- 
pare Hale  v.  N.  J.  Steam  Nav.  Co., 
15  Conn.  539.  The  law  of  the  state 
where  the  contract  for  carriage  be- 
yond the  state  is  made  must  control 
as  to  the  nature,  interpretation,  and 
effect  of  the  contract.  Michigan 
Central  R.  R.  Co.  v.  Boyd,  91  111. 
268  ;  McDaniel  v.  Chicago  and  N.  W. 
R'y  Co.,  24  Iowa,  412.  But  see  Cur- 
tis v.  Delaware,  etc.,  R.  R.  Co.,  74 
N.  Y.  116.  It  is  only  where  the  con- 
tract is  for  through  transportation 
that  the  succeeding  carriers  will  be 
entitled  to  the  benefits  and  exemp- 
tions of  the  contract  between  the 
shipper  and  the  first  carrier.     Mer- 


PART  IV.]  LIABILITY   FOR   TORTS   OF   AGENTS.  [§  365. 

§  365.  A  railroad  or  other  corporation  owes  special  duties  to 
its  employes ;  and  if  these  duties  are  not  fulfilled,    Cor  ora^ 
and  injury  occurs  to  an  employe  in  consequence,  the   tion'siia- 

•  -,i         i.         -i     i      i-    ii     ■      j    •  m       bilityfor 

corporation  will  ordinarily  be  liable  m  damages,  lo  injuries  to 
render  a  corporation  liable  to  one  of  its  servants  for  emp  oy<5s" 
a  personal  injury  sustained  by  the  latter,  the  injury  must  have 
resulted  from  a  breach  of  one  of  the  following  duties  which  the 
corporation  owes  its  servants :  first,  to  use  reasonable  care  in 
selecting  co-servants  and  to  employ  a  reasonably  sufficient  num- 
ber of  them  to  make  the  employment  safe  ;*  secondly,  to  use 
reasonable  diligence  and  care  in  supplying  the  servants  with 
safe  machinery  and  inspecting  the  same ; a  thirdly,  to  apprise 


chants'  Despatch  Trans'n  Co.  v. 
Bolles,  80  111.  473  ;  Camden  and  Am- 
boy  R.  R.  Co.  0.  Forsyth,  61  Pa.  St. 
81.  See  Halliday  v.  St.  Louis,  etc., 
R'y  Co.,  74  Mo.  159  ;  Manhattan  Oil 
Co.  v.  Camden  aud  Amboy  R.  R.  Co., 
54  N.  Y.  197  ;  Whitworth  v.  Erie  Ry. 
Co..  87  N.  Y.  413  ;  ^Etna  Ins.  Co.  v. 
Wheeler,  5  Lans.  (N.  Y.)  480  ;  Mag- 
bee  v.  Camden,  etc.,  R.  R.  Co.,  45  N. 
Y.  514  ;  Railroad  Co.  v.  Androscog- 
gin Mills,  22  Wall.  594.  Compare 
Taylor  v.  Little  Rock,  etc.,  R.  R. 
Co.,  39  Ark.  148  ;  St.  Louis  Ry.  Co. 
v.  Weakly,  50  Ark.  397.  The  pre- 
sumption is  that  injury  to  baggage 
"checked  through"  occurs  while  it 
is  in  the  custody  of  the  last  carrier. 
Moore  v.  N.  Y.  N.  H.  &  H.  R.  R.  Co., 
173  Mass.  335. 

1  Wabash  Ry.  Co.  v.  McDaniels, 
107  U.  S.  454;  Laning  v.  X.  Y.  Cent. 
R.  R.  Co.,  49  N.  Y.  521;  Chicago 
and  Alton  R.  R.  Co.  v.  Sullivan,  63 
111.  293  Harper  v.  Indianapolis,  etc., 
R.  R.  Co.,  47  Mo.  567;  Besel  v.  N.  Y. 
C.  and  H.  R.  R.  R.  Co.,  70  N.  Y.  171, 
173;  Booth  v.  Boston  and  Albany  R. 
R.  Co.,  73  N.  Y.  38;  Huntington, 
etc.,  R.  R.  Co.  v.  Decker,  82  Pa.  St. 
119;  see  Atchison,  etc.,  R.  R.  Co.  v. 
Moore,  29  Kans.  632 ;  Kansas  Pac.  Ry. 
Co.  v.  Peavey,  ib.  169. 


2  Hough  v.  Railway  Co.,  100  U.  S. 
213;  Washington,  etc.,  R.  R.  Co.  v. 
McDade,  135  U.  S.  554;  Railroad  Co. 
v.  Babcock,  154  U.  S.  190;  Texas  & 
P.  R.  Co.  v.  Archibald,  170  U.  S.  665; 
Patton  v.  T.  &  P.  R.  Co.,  179  U.  S. 
658;  Keegan  v.  Western  R.  R.  Co., 
8  N.  Y.  175;  Vosburgh  v.  L.  S.,  etc., 
R.  Co.,  94  N.  Y.  374;  Mullanu.  Phila- 
delphia, etc.,  S.  S.  Co.,  78  Pa.  St.  25; 
Noyes  v.  Smith,  28  Vt.  59.  Compare 
Louisville  and  Nashville  R.  R.  Co.  v. 
Orr,  84  Ind.  50;  Wonder  v.  Balto. 
and  Ohio  R.  R.  Co.,  32  Md.  411;  Mo- 
bile and  Ohio  R.  R.  v.  Thomas,  42 
Ala.  673;  Chicago  and  N.  W.  R.  R. 
Co.  v.  Ward,  61  111.  130;  Atchison, 
etc.,  R.  R.  Co.  v.  Holt,  29  Kans.  149; 
Fay  v.  Minneapolis,  etc.,  R'y  Co.,  30 
Minn.  231  ;  Lasure  v.  Graniteville 
M'f  g  Co.,  18  S.  C.  275;  McDonald  v. 
N.  &  W.  R.  Co.,  95  Va.  98.  See  In- 
ternational, etc.,  R.  R.  Co.  v.  Kindred, 
57  Tex.  491;  Missouri  Pac.  R.  R.  Co. 
v.  Lyde,  ib.  505;  Vosburgh  v.  Lake 
Shore  and  Mich.  So.  R.  Co.,  94  N.  Y. 
374.  Although  a  railroad  company 
employ  competent  men  to  inspect 
its  machinery,  it  will  be  liable  for 
their  negligent  performance  of  their 
duty.  Kirkpatiick  v.  N.  Y.  C.  and 
H.  R.  R.  R.  Co.,  79  N.  Y.  240;  Ford 
v.  Fitchburg  R.  R.  Co.,  110  Mass.  240; 

349 


§  365.]        THE   LAW   OF   PRIVATE   CORPORATIONS.    [CHAP.  VH. 

the  servants  of  latent  dangers  connected  with,  their  employ- 
ment, or  concealed  defects  in  the  machinery  used  by  them, 
when  the  corporation  knows  or  is  affected  with  notice  of  such 
dangers  or  defects;1  fourthly,  to  protect  the  servant  against 
the  negligence  or  incompetence  of  those  who  as  to  the  servants 
represent  the  corporation ;  i.  e.,  superior  agents  who  have  au- 
thority over  them;2  and,  fifthly,  to  protect  the  servant  from 
the  negligent  acts  of  other  persons  employed  by  the  corporation 
in  an  employment  different  and  distinct  from  that  of  the  injured 
servant.3 

In  Flike  v.  Boston  and  Albany  R.  R.  Co.,  giving  the  opinion 
of  the  New  York  Court  of  Appeals,  Chief  Judge  Church  said : 
"  The  true  rule,  I  apprehend,  is  to  hold  the  corporation  liable 
for  negligence  or  want  of  proper  care  in  respect  to  such  acts 
and  duties  as  it  is  required  to  perforin  and  discharge  as  master 
or  principal,  without  regard  to  the  rank  or  title  of  the  agent 
intrusted  with  their  performance.  As  to  such  acts  the  agent 
occupies  the  place  of  the  corporation,  and  the  latter  should  be 
deemed  present  and  consequently  liable  for  the  manner  in  which 
they  are  performed." 4    And  these  acts  and  duties  which  the 


Drymala  v.  Thompson,  26  Minn.  40. 
Compare  Murphy  v.  Boston  and  A. 
R.  R.  Co.,  88  N.  Y.  146;  Bailey  v. 
Rome,  etc.,  R.  R.  Co.,  139  N.  Y.  302. 
If  the  employe  continues  to  use  ma- 
chinery which  he  knows  to  be  defec- 
tive, and  does  not  notify  the  corpo- 
ration, he  is  guilty  of  contributory 
negligence.  Washington,  etc.,  R.  R. 
Co.  v.  McDade,  135    U.  S.  554. 

1  Keegan  v.  Western  R.  R.  Co.,  8 
N.  Y.  175;  Williams  v.  Clough,  3  H. 
&  N.  258;  Paulmier  v.  Erie  R.  R.  Co., 
34  N.  J.  L.  151;  Malone  v.  Hawley,  46 
Cal.  409 ;  Ryan  v.  Fowler,  24  N.  Y. 
410.  See  Baxter  v.  Roberts,  44  Cal. 
187.  Compare  Wonder  v.  Bait,  and 
Ohio  R.  R.  Co.,  32  Md.  411. 

2  Hough  v.  Railway  Co.,  100  U.  S. 
213;  Little  Miami  R.  R.  Co.  v.  Ste- 
vens, 20  Ohio,  415;  Hoosier  Stone 
Co.  v.  McCain,  133  Ind.  231;  see 
Booth  o.  Boston,    etc.,    R.  R.  Co.,  73 

350 


N.  Y.  38;  Besel  v.  N.  Y.  C,  etc.,  R. 
R.  Co.,  70  N.  Y.  171,  173;  Northern 
Pac.  R.  R.  v.  Peterson,  162  U.  S.  346. 
Cf.  Brabbits  v.  Chic,  etc.,  Ry.  Co., 
38  Wis.  289;  Bunnell  v.  St.  Paul,  etc., 
Ry.  Co.,  29  Minn.  305. 

3  Nashville  and  C.  R.  R.  Co.  v.  Car- 
roll, 6  Heisk.  (Term.)  347;  Chicago, 
B.  and  Q.  R.  R.  Co.  v.  Gregory,  58  111. 
272;  Ryan  v.  Chicago,  etc.,  Ry.  Co., 
60  111.171;  Toledo,  W.  and  W.  Ry. 
Co.  v.  Moore,  77  111.  217;  Anderson 
Brick  Co.  v.  Sobkowick,  148  111.  573; 
Lewis  v.  St.  Louis,  etc.,  R.  Co.,  59 
Mo.  495;  Baird  v.  Pettit,  70  Pa.  St. 
477;  Cooper  v.  Mullins,  30  Ga.  146. 
See  Atchison,  etc.,  R.  R.  Co.  v. 
Moore,  29  Kans.  632;  Chicago  and  N. 
W.  Ry.  Co.  v.  Morauda,  93  111.  302; 
Dobbin  v.  Richmond,  etc.,  R.  R.  Co., 
81  N.  C.  446.  Compare  Tunney  v. 
Midland  Ry.   Co.,  L.  R.  1  C.  P.  291. 

*  53  N.  Y.  549,  553. 


PART  IV.]  LIABILITY   FOR    TORTS    OF   AGENTS. 


[§  366. 


corporation  as  master  is  bound  to  perform  for  the  safety  and 
protection  of  employes  cannot  be  delegated  so  as  to  exonerate 
it  from  liability  to  the  employes  for  omissions  in  the  discharge 
thereof.1  This  seems  the  true  principle,  though  many  author- 
ities do  not  hold  to  it.2 

§  366.  The  corporation  will  not  be  liable  unless  the  servant's 
injury  arises  from  a  breach  of  one  of  these  obligations.3  All 
other  risks  connected  with  his  employment,  as  between  himself 
and  the  corporation,  the  servant  is  held  to  assume ;  as,  for 
instance,  the  negligence  of  co-servants  who  have  been  properly 
selected,  and  the  ordinary  risks  connected  with  the  use  of  dan- 
gerous machinery.4    If,  however,  negligence  imputable  to  the 


1  Fuller  v.  Jewett,  80  N.  Y.  46; 
Northern  Pac.  R.  R.  Co.  v.  Herbert, 
116  U.  S.  642;  see,  Story  v.  Concord 
&  M.  R.  R.  Co.,  70  N.  H.  364.  A  con- 
tract by  a  railroad  company  with  the 
next  of  kin  of  a  person  about  to  enter 
its  employment,  by  which,  in  con- 
sideration of  such  employment,  the 
next  of  kin  agrees  to  release  the  rail- 
road company  for  all  liability  for 
damages  that  might  occur  to  such 
person  by  reason  of  the  company's 
negligence  during  the  employment, 
is  contrary  to  public  policy  and  void. 
Tarbell,  Admr.,  v.  Rutland  R.  R.  Co., 
73  Vt.  347. 

2  Some  decisions  hold  that  when 
one  employe  is  placed  under  the  di- 
rection of  another,  the  two  are  not 
co-employes,  and  the  corporation  is 
liable  to  the  inferior  employe  for  in- 
juries resulting  from  the  negligence 
of  the  superior  employe.  Thus,  a 
railroad  company  has  been  held  lia- 
ble to  an  engineer  or  a  brake  man  for 
injuries  caused  by  the  negligence  of 
the  conductor  of  the  same  train. 
Chicago  and  M.  R.  R.  Co.  v.  Ross, 
112  U.  S.  377  (Justices  Bradley,  Mat- 
thews, Gray,  and  Blatchford  dissent- 
ing); Cleveland,  C.  and  C.  R.  R.  Co. 
V.  Keavy,  3  O.  St.  201;  Little  Miami 
R.  R.  Co.  v.   Stevens,   20  Ohio,   415. 


See  Pittsburgh,  Ft.  W.  and  C.  Ry.  Co. 
v.  Lewis,  33  O.  St.  196;  Jackson  v.  N. 
&  W.  R.  R.  Co.,  43  W.  Va.  380.  Con- 
tra, Lawler  v.  Androscoggin  R.  R. 
Co.,  62  Me.  463;  O'Connell  v.  Balti- 
more and  O.  R.  R.  Co.,  20  Md.  212; 
Shanck  v.  Northern  Central  Ry.  Co., 
25  Md.  462;  and  Chicago  and  M.  R. 
R.  Co.  v.  Ross,  112  IT.  S.  377,  was 
overruled  in  Baltimore  and  O.  R.  R. 
Co.  v.  Baugh,  149  U.  S.  368,  which 
holds  an  engineer  and  fireman  of  a 
locomotive  to  be  co-employes  within 
the  rule.  Ace.  N.  E.  R.  R.  Co.  v. 
Conroy,  175  U.  S.  323;  Welsh  v.  P.  R. 
R.  Co.,  192  Pa.  St.  69.  A  track  layer 
and  an  engineer  are  fellow  servants. 
Benignia  v.  P.  R.  R.  Co.,  197  Pa.  St. 
384.  Inspectors  and  brakemen  are 
not  fellow  servants.  Eaton  v.  N.  Y. 
C.  &  H.  R.  R.  Co.,  163  N.  Y.  391. 

3  Henry  v.  Lake  Shore,  etc.,  Ry. 
Co.,  49  Mich.  495.  Compare  Kansas 
Pac.  Ry.  Co.  v.  Peavy,  29  Kans.  169. 

*  Gibson  v.  Erie  Ry.  Co.,  63  N.  Y. 
449;  Coon  t\  Syracuse,  etc.,  R.  R. 
Co.,  5  N.  Y.  492;  Randall  v.  Balti- 
more and  O.  R.  R.  Co.,  109  U.  S.  478; 
Morse  v.  Minneapolis,  etc.,  Ry.  Co., 
30  Minn.  465;  Wood  v.  New  Bedford 
Coal  Co.,  121  Mass.  252;  Kelley  v. 
Norcross,  ib.  508;  Ryan  v.  Cumber- 
land Valley  R.  R.  Co.,  23  Pa.  St.  384; 
351 


§  3G8.J        THE  LAW   OF   PRIVATE   CORPORATIONS.    [CHAP.  VII. 


Liability  of 
corporation 
where  it 
owes  no 
special 
duty. 


corporation  is  the  cause  of  the  servant's  injury,  the  carelessness 
of  a  co-servant  in  the  same  matter  will  be  no  defence.1 

§  367.  Hitherto  we  have  been  considering  the  liability  of 
corporations  for  negligence  or  misfeasance  of  their 
employes,  which  causes  the  breach  of  some  special 
duty  owing  by  the  corporation.  To  render  a  corpo- 
ration liable  for  the  negligence  of  its  employes,  how- 
ever, it  is  not  essential  that  the  duty,  a  breach  of 
which  is  caused  by  the  negligence,  should  be  a  special  duty 
arising  from  the  contract.  Enough,  if  it  be  the  general  duty 
owed  by  a  corporation  to  all  the  world  :  sic  utere  tuo  ut  alienum 
non  Icedas.  A  corporation  will  be  liable  for  all  injuries  and 
losses  occasioned  to  any  one  by  the  negligence  of  its  employes 
in  any  matter  connected  with  their  employment.2 

§  368.  For  instance,  it  is  the  duty  of  a  railroad  corporation, 

for  a  breach  of  which  it  will  be  responsible,  to  warn 

companies     persons  on  a  highway  crossing  its  road,  by  proper  and 

timely  signals,  of  the  approach  of  trains.3    And  if  a 

flagman  has  been  uniformly  stationed  by  the  company  at  a 

street  crossing,  his  neglect  to  give  warnings  will  be  imputable 


Holden  v.  Fitc'nburg  R.  R.  Co.,  129 
Mass.  268;  Farwell  v.  Boston  and  N. 
R.  R.  Co.,  4  Met.  (Mass.)  49;  How- 
land  e.  Milwaukee,  etc.,  Ry.  Co.,  54 
Wis.  226;  Osbourne  v.  Knox,  etc.,  R. 
R.  Co.,  68  Me.  49;  Blake  v.  Maine 
Central  R.  R.  Co.,  70  Me.  60;  Pitts- 
burgh, Ft.  W.  and  C.  Ry.  Co.  t>. 
Devinney,  17  Oh.  St.  197;  N.  &  W. 
R.  R.  Co.  v.  Houchins,  95  Va.  398; 
McDonald  v.  N.  &  W.  R.  R.  Co.,  95 
Va.  98.  See  Haugh  v.  Railway  Co., 
100  U.  S.  213;  Rounds  v.  Carter, 
91  Me.  535.  Also,  Wharton  on  Negli- 
gence, 2d  ed.  §§  224  et  seq.  A  day 
laborer  at  work  on  the  road  under 
direction  of  section  boss,  is  a  fellow 
servant  with  conductor  and  engineer 
of  a  passenger  train.  Railroad  Co. 
v.  Ilambly,  154  U.  S.  349.  See  N.  E. 
R.  R.  Co.  v.  Couroy,   175  U.  S.  323. 

1  Grand  Trunk  R.  Co.  v.  Cumniings, 
106  U.  S.  700;  Keegan  v.  Western  R. 
352 


R.  Co.,  8  N".  Y.  175;  Booth  v.  Boston, 
etc.,  R.  R.  Co.,  73  N.  Y.  38;  Stetler 
v.  Chicago,  etc.,  Ry.  Co.,  46  Wis.  497; 
S.  C,  49  Wis.  609. 

2  See  Denver  S.  P.  and  P.  R.  R.  Co. 
«.  Conway,  8  Col.  1. 

s  Dyer  v.  Erie  Ry.  Co.,  71  N.  Y.  228. 
But  compare  Vandewater  v.  New 
York,  etc.,  R.  R.  Co.,  135  N.  Y.  583. 
It  is  not  enough  to  absolve  the  com- 
pany in  all  cases  that  the  signals 
required  by  statute  have  been  given; 
other  precautions  may  be  necessary 
under  the  circumstances.  lb.  Com- 
pare Chicago,  B.  and  Q.  R.  R.  Co.  v. 
Stumps,  69  111.  409;  Continental  Im- 
provement Co.  v.  Stead,  95  U.  S.  161 ; 
Railroad  Co.  v.  Houston,  ib.  697.  But 
a  failure  to  give  the  warning  required 
by  statute  constitutes  negligence. 
Central  R.  R.,  etc.,  Co.  v.  Litcher,  69 
Ala.  106. 


PART    IV.]  LIABILITY   FOR   TORTS    OF    AGENTS. 


[§  369- 


to  the  company.1  Likewise,  a  railroad  company  is  bound  to 
use  the  most  approved  methods  to  prevent  the  escape  of  sparks 
from  its  locomotives;2  and  the  fact  that  sparks  escaped  and  set 
fire  to  property,  has  been  held  prima  facie  evidence  of  its 
negligence.3  But  the  weight  of  authority,  when  no  statute 
affects  the  case,  places  the  burden  on  the  plaintiff  to  show  neg- 
ligence on  the  part  of  the  railroad  company.4 

§  369.  In  the  absence  of  statute,  a  railroad  company  is  not 
bound  to  fence  its  road  to  keep  off  cattle ;  still,  if  cattle  get  on 
the  track  and  the  company's  servants  negligently  run  them 
down,  the  company  will  be  liable,  provided  the  accident  could 


1  Doland  v.  Del.  and  Hud.  Canal  Co., 
71  N.  Y.  285.  Compare  as  to  duties 
of  railroad  company  to  give  warning 
of  its  approaching  trains,  Parsons  v. 
N.  Y.  Central,  etc.,  R.  R.  Co.,  113 
N.  Y.  355. 

2  Wiley  u.  West  Jersey  R.  R.  Co., 
44  N.  J.  L.  247;  St.  Louis,  A.  &  T.  H. 
R.  R.  Co.  v.  Gilham,  39  111.  455;  Illi- 
nois Central  R.  R.  Co.  v.  McClelland, 
42  111.  355;  Pittsburgh,  C.  &  St.  L.  R. 
R.  Co.  u.  Nelson,  51  Ind.  150.  See 
Hoff  v.  West  Jersey  R.  R.  Co.,  45  N. 
J.  L.  400;  West  Jersey  R.  R.  Co.  v. 
Abbott,  60  X.  J.  L.  150. 

3  Simpson  v.  Railroad  Co.,  5  Lea 
(Teun. ),  456;  International  and  G.  N. 
Ry.  Co.  v.  Towusend,  61  Tex.  660; 
Burke  v.  Louisville  and  X.  R.  R.  Co., 
7  Heisk.  (Tenn.)  451;  Coates  v.  Mis- 
souri, K.  and  T.  Ry.  Co.,  61  Mo.  38. 
See  Spaulding  v.  Chicago  and  N.  W. 
Ry.  Co.,  30  Wis.  110;  Farrington  v. 
Rutland  R.  R.  Co.,  72  Vt.  24.  But 
if  it  appears  that  the  railroad  com- 
pany was  not  negligent,  it  will  not  be 
liable.  Burroughs  v.  Housatonic  R. 
R.  Co.,  15  Conn.  124;  Hinds  v.  Barton? 
25  X.  Y.  544;  Frankford,  etc.,  Turn- 
pike Co.  v.  Phila.,  etc.,  R.  R.  Co.,  54 
Pa.  St.  345;  Vaughn  v.  Taff  Vale  Ry. 
Co.,  5  H.  &  N.  679. 

4  Albert  v.  Northern  Central  Ry. 
Co.,  98  Pa.    St.   316;  Railroad  Co.  v, 

23 


Yeiser,  8  Pa.  St.  366;  Huyett  v. 
Phila.,  etc.,  R.  R.  Co.,  23  Pa.  St. 
373;  Phila.  and  Reading  R.  R.  Co. 
v.  Yeager,  73  Pa.  St.  121;  Gandy  v. 
Chicago  and  N.  W.  R'y  Co.,  30 
Iowa,  420;  McCutnmaus  v.  Same,  33 
Iowa,  187;  Burroughs  v.  Housatonic 
R.  R.  Co.,  15  Conn.  124;  Morris  and 
Essex  R.  R.  Co.  v.  State,  36  N.  J. 
L.  553;  Indianapolis  and  Cin.  R.  R. 
Co.  v.  Passmore,  31  Ind.  143;  Smith 
v.  Hannibal,  etc.,  R.  R.  Co.,  37  Mo. 
287;  McCready  t\  Railroad  Co.,  2 
Strob.  L.  (S.  C.)  356;  Firo  v.  Buffalo, 
etc.,  R.  R.  Co.,  22  N.  Y.  209;  Ruff- 
ner  v.  Cincinnati,  etc.,  R.  R.  Co.,  34 
O.  St.  96;  Jefferies  v.  Philadelphia, 
etc.,  R.  R.  Co.,  3  Houston  (Del.),  447. 
See  Kans.  Pac.  R.  R.  Co.  o.  Butts,  7 
Kans.  308.  But  see  Fitch  v.  Pacific 
R.  R.  Co.,  45  Mo.  322;  Bedford  v. 
Hannibal  and  St.  Jo.  R.  R.  Co.,  46 
Mo.  456;  Palmer  p.  Missouri  Pac.  Ry. 
Co.,  76  Mo.  217.  But  this  burden  may 
readily  be  shifted  by  circumstances 
showing  that,  without  negligence,  the 
accident  would  not  have  happened. 
Field  v.  N.  Y.  C.  R.  R.  Co.,  32  N. 
Y.  339;  Garrett  v.  Chicago  and  X.  W. 
R'y  Co.,  36  Iowa,  121.  Compare 
Lindsay  v.  Winona,  etc.,  R.  R.  Co., 
29  Minn.  411:  Woodson  v.  Milwaukee, 
etc.,  R.  R.  Co.,  21  Minn.  60. 

353 


§  371.]        THE   LAW   OF   PRIVATE   CORPORATIONS.    [CHAP.  VII. 


have  been  avoided  by  using  due  care.1  Common  carriers  are 
not  chargeable,  in  cases  free  from  suspicion  with  notice  of  the 
contents  of  packages  carried  by  them,  nor  are  they  authorized 
in  such  cases  to  require  information  as  to  the  contents.  Under 
such  circumstances  it  is  not  negligence  for  a  carrier  to  handle  a 
package  in  the  usual  way,  and  when  it  appears  damaged  to 
bring  it  into  his  place  of  business  for  examination  ;  accordingly, 
if  a  package  containing  a  dangerous  substance,  of  which  the 
carrier  has  no  knowledge,  explodes,  injuring  premises  leased 
by  him,  he  will  not  be  liable  for  the  damage  to  his  lessor.2 
The  measure  of  care  which  should  be  observed  by  a  carrier 
against  accident  to  premises  leased  by  him,  is  the  care  which 
a  person  of  ordinary  prudence  and  caution  would  use  in  his 
affairs.3 

The  responsibility  of  a  corporation  for  injuries  caused 
by  the  acts  or  omissions  of  its  servants  may  be  les- 
sened by  the  fact  that  the  injured  person  was  a  tres- 
passer at  the  time  when  the  injury  occurred  ;  or  by 
the  fact  that  he  contributed  to  his  injury  by  his  own  negligence. 
These  two  facts  often  conjoin. 

§  371.  Except  at  public  crossings,  where  the  public  has  a 
right  of  way,  a  railroad  company  has  the  exclusive 
right  to  its  track,  trestle-works,  and  bridges ;  and  ac- 
cordingly (it  has  been  held)  any  person  walking  on 
the  track  is  a  trespasser,  who  cannot  hold  the  company  liable 


§  370. 

Liability ; 
when  les- 
sened. 


Trespass- 
ers. 


1  Railroad  Co.  v.  Skinner,  19  Pa. 
St.  298;  Continental  Improvement 
Co.  v.  Phelps,  47  Mich.  299;  Perkins 
v.  Eastern  R.  R.  Co.,  29  Me.  307; 
Price  v.  New  Jersey  R.  R.  Co.,  31  N. 
J.  L.  229;  Knight  v.  New  Orleans, 
etc.,  R.  R.  Co.,  15  La.  Ann.  105; 
Oilman,  etc.,  R.  R.  Co.  v.  Spencer, 
76  111.  192;  see  Illinois  Cent.  R.  R. 
Co.  v.  Phelps,  29  111.  447;  Galpin  v. 
Chicago  and  N.  W.  R'y  Co.,  19  Wis. 
604;  Brown  v.  Hannibal,  etc.,  R.  R. 
Co.,  33  Mo.  309.  Compare  North 
Penn.  R.  R.  Co.  v.  Rehman,  49  Pa. 
St.  101;  Munger  v.  Tonawanda  R.  R. 
Co.,  4  N.  Y.  349.  Throughout  the 
states  of  the  Union,  railroad  corapa- 

354 


nies  are  now  required  by  statutes  to 
fence  their  roads,  and  if  they  fail  in 
this  duty,  are  generally  liable  for 
cattle  killed  on  their  tracks. 

2  Nitro-Glycerine  Case,  15  Wall. 
524.  Compare  Boston  and  Albany 
R.  R.  Co.  v.  Shanly,  107  Mass.  568. 
The  defendants,  at  their  own  ex- 
pense, repaired  the  portions  of  the 
premises  occupied  by  them;  as  they 
were  bound  to  do  under  the  terms  of 
their  lease;  and  it  was  for  damage 
done  by  the  explosion  to  other  por- 
tions of  the  same  premises  that  the 
court  absolved  them  from  liability. 

3  Nytro-Glycerine  Case,  supra. 


PART  IV.]  LIABILITY   FOR   TORTS    OF   AGENTS. 


[§  371. 


for  injuries  received  by  him,  unless  be  sbows  it  to  bave  been 
guilty  of  negligence  so  gross  as  to  amount  to  wantonness.1  A 
Pennsylvania  decision,  Baltimore  and  Obio  R.  R..  Co.  v. 
Scbwindling,2  carries  to  an  extreme  tbe  doctrine  tbat  a  cor- 
poration is  not  liable  for  tbe  negligence  of  its  employes  wbicb 
causes  injury  to  trespassers.  Tbe  court  beld  tbat  tbe  company 
owed  no  duty  to  tbe  plaintiff,  a  child  of  five  years,  who  was 
upon  tbe  platform  of  a  railroad  station  when  injured,  but  not 
as  a  passenger,  nor  upon  any  business  connected  with  tbe  com- 
pany ;  and  accordingly  that  the  company  was  not  liable  for 
injuries  incurred  by  him  through  negligence  imputable  to  it. 
Tbe  court  may  have  overlooked  a  principle  which  seems  not 
inapplicable  to  this  case,  and  which  might  have  altered  the  de- 
cision bad  it  been  applied.  It  is  this  :  If  a  railroad  company 
acquiesces  in  the  custom  of  the  public  in  using  or  crossing  its 
stations  or  track  at  certain  places,  it  will  be  held  by  its  acqui- 
escence or  quasi-invitation  to  have  held  the  premises  out  as 
reasonably  safe ;  and  will  accordingly  be  liable  to  a  person  for 
injuries  caused  b}r  their  unsafe  condition,  if  he  himself  was 
guilty  of  no  contributory  negligence.3  A  railroad  company 
has  a  right  to  exclude  the  general  public  from  its  stations,4  ex- 
cept such  persons  as  offer  themselves  as  passengers  or  shippers ; 
but  if  it  acquiesces — as  appears  to  have  been  the  case  in  Balti- 
more and  Ohio  R.  R.  Co.  v.  Schwindling — in  tbe  use  of  its  sta- 
tions by  the  general  public,  it  should  keep  them  safe.5 


1  Mason  v.  Missouri  Pac.  R'y  Co., 
27  Kans.  83.  See  Cauley  v.  Pitts- 
burgh, C.  and  St.  L.  R'y  Co.,  95  Pa. 
St.  398;  Omaha,  etc.,  R.  R.  Co.  v. 
Martin,  14  Neb.  295;  Highland  Ave., 
etc.,  R.  R.  Co.  v.  Robbins,  124  Ala. 
113. 

2 101  Pa.  St.  258. 

8  Bennett  v.  Railroad  Co.,  102  U. 
S.  577;  Barry  v.  New  York  Cent, 
and  H.  R.  R.  R.  Co.,  92  N.  Y.  289. 
See  Brown  v.  Hannibal,  etc.,  R.  R. 
Co.,  50  Mo.  461;  Murphy  u.  C.  R.  I. 
and  P.  R.  R.  Co.,  38  Iowa,  539; 
Fitts  v.  Cream  City  R.  R.  Co.,  59 
Wis.  323;  Illinois  Central  R.  R.  Co. 
v.  Dick,  91  Ky.  434;  Calderson  v.  Nav. 


Co.,  38  Or.  343.  Compare  Murphy  v. 
Boston  &  A.  R.  R.  Co.,  133  Mass.  121; 
Sweeny  v.  Old  Colony,  etc.,  R.  R.  Co., 
10  Allen  (Mass.),  368;  Johnson  v. 
Boston,  etc.,  R.  R.  Co.,  125  Mass.  75; 
Illinois  Central  R.  R.  Co.  v.  Godfrey, 
71  111.  500.  Adverse  to  the  statement 
in  the  text  is  Sutton  v.  N.  Y.  C.  &  H. 
R.  R.  R.  Co.,  66  N.  Y.  243. 

4  Commonwealth  v.  Power,  7  Met. 
(Mass.)  596.  See  Summit  v.  State, 
8  Lea  (Tenn.),  413. 

5Tobin  v.  Portland,  etc.,  R.  R.  Co., 
59  Me.  183;  Nagel  v.  Missouri  Pac. 
Ry.  Co.,  75  Mo.  653;  Evansich  v.  G. 
C.  &  S.  F.  Ry.  Co.,  37  Tex.  123;  S.  C, 
61  Tex.  3;  Keffeu.  Milwaukee  and  St. 

355 


§  372.]        THE  LAW   OF   PRIVATE   CORPORATIONS.    [CHAP.  VII. 

§  372.  Undoubted^,  as  we  have  seen,  there  is  authority  for 
the  proposition  that  a  railroad  company  owes  no  duty  to  tres- 
passers, except  not  wantonly  to  injure  them.1  But  the  weight 
of  authority  seems  to  be  in  favor  of  the  rule  stated  by  the 
Federal  Supreme  Court  as  follows  :  "  While  a  railway  company 
is  not  bound  to  the  same  degree  of  care  in  regard  to  mere 
strangers  who  are  unlawfully  upon  its  premises  that  it  owes  to 
passengers  conveyed  by  it,  it  is  not  exempt  from  responsibility 
to  such  strangers  for  injuries  arising  from  its  negligence  or  from 
its  tortious  acts."  2 

Accordingly,  it  would  seem  that  a  trespasser  who  is  not 
guilty  of  contributory  negligence  should  be  allowed  to  recover 
if  his  injuries  are  caused  by  the  negligence  of  the  servants  of 
the  corporation.  But  there  must  have  been  negligence  imput- 
able to  the  corporation,  for  if  no  duty  on  its  part  is  violated, 
there  is  no  cause  of  action  against  it.  And  the  circumstances 
are  to  be  considered.  Thus,  to  run  a  train  rapidly  and  without 
signals  across  a  highway  crossing  is  in  itself  negligent ;  but  not 
so  to  run  the  train  at  full  speed  and  without  continual  whistling 
along  the  ordinary  track.3  Except  when  crossing  a  highway, 
or  passing  through  the  streets  of  a  town,  the  engineer  of  a  train 
has  no  reason  to  expect  persons  on  the  track.  Moreover,  to  be 
walking  on  a  railroad  track  may  itself  constitute  contributory 
negligence,  barring  recovery  if  the  person  is  an  adult.4  If,  on 
the  other  hand,  the  person  injured  is  a  child,  and  its  parents  are 


P.  Ry.  Co.,  21  Minn.  207;  Texas  and 
St.  L.  Ry.  v.  Orr,  46  Ark.  182.  But 
see  Pittsburgh,  Ft.  W.  &  C.  Ry.  Co. 
v.  Bingham,  29  O.  St.  364. 

1  See,  also,  Morrissey  v.  Eastern  R. 
R.  Co.,  126  Mass.  377;  McAlpin  v. 
Powell,  55  How.  Pr.  (N.  Y.)  163; 
Hughes  v.  Macfie,  2  H.  &  C.  744; 
Mangan  v.  Atterton,  4  H.  &  C.  388; 
Brague  v.  No.  Cent.  R'y  Co.,  192  Pa. 
St.  242;  Alabama  Gt.  So.  R'y  Co.  v. 
Moorer,  116  Ala.  642. 

2  Railroad  Co.  v.  Stout,  17  Wall. 
657,  661;  Benton  v.  C.  R.  I.  and  P. 
R.  R.  Co.,  55  Iowa,  496  ;  Daley  v. 
Norwich,  etc.,  Railroad  Co.,  26  Conn. 
591;  Whirley  v.  Whiteman,   1   Head. 

356 


610;  Keffe  v.  Milwaukee,  etc.,  Rail- 
road Co.,  21  Minn.  207;  Koons  v.  St. 
Louis,  etc.,  Railroad  Co.,  65  Mo. 
592;  T.  and  P.  R'y  Co.  v.  O'Dunnell, 
58  Tex.  27;  Lynch  v.  Nurden,  1  Q. 
B.  29;  Williams  v.  Great  Western 
Railway  Co.,  L.  R.  9  Exch.  157. 
Compare  Opsahl  v.  Judd,  30  Minn. 
126;  Gradin  v.  St.  Paul,  etc.,  R'y  Co., 
30  Minn.  217;  Boyden  ».  Fitchburg 
R.  R.  Co.,  70  W.  125;  Mitchell  v.  B. 
&  M.  R.  R.  Co.,  68  N.  H.  96. 

8  See  St.  Louis,  etc.,  R'y  Co.  t>. 
Payne,  29  Kans.  166. 

*  Baltimore  and  Potomac  R.  R.  Co. 
v.  State,  54  Md.  648;  Northern  Cen- 
tral R'y  Co.  v.  State,  ib.  113. 


PART  IV.]  LIABILITY    FOR   TOUTS    OF    AGEXTS. 


[§  374. 


free  from  fault,  still,  if  it  is  walking  on  a  railroad  track,  away 
from  the  public  crossing,  an  engineer  running  over  it  might  be 
entirely  free  from  negligence  under  circumstances  that  would 
have  rendered  the  conduct  of  the  engineer  negligent  indeed, 
had  the  accident  occurred  in  a  place  where  he  was  bound  to 
keep  a  special  lookout  for  travellers.1 

§  373.  The  responsibility  of  corporations  for  injuries  done  by 
their  employes,  as  disminished  by  the  fact  that  the   „ 

r     J  .J  Contribu- 

injured  person  was  a  trespasser,  is  closely  connected   torynegii- 
with  their  liability  as  released  by  the  contributory   * 
negligence  of  the  injured  person.     The  principle  is,  he  whose 
own  negligence  occasions  his  injury  cannot  recover  damages 
therefor.2 

This  rule  implies  a  statement  often  made  as  a  qualification 
to  it.  Between  the  negligence  of  the  plaintiff  and  his  injury 
there  must  be  the  relation  of  ordinary  and  immediate  antece- 
dent and  consequent,  or  what  is  usually  called  a  causal  relation. 
This  qualification  is  also  connoted  by  the  term  contributory. 
The  plaintiff's  negligence  must  have  been  the  proximate  not 
the  remote  cause  or  occasion  of  his  injury.3 

§  374.  The  question  of  the  negligence  of  the  defendant,  and 
the  contributory  negligence  of  the  plaintiff,  is  ordinarily  for  the 
jury,  under  the  direction  of  the  court,  to  determine  from  the 


1  Philadelphia  and  Reading  R.  R. 
Co.  v.  Spearen,  47  Pa.  St.  300,  303; 
Prendergast  v.  N.  Y.  C.  &  H.  R.  R. 
R.  Co.,  58  N.  Y.  652;  Alabama  Gt. 
So.  R.  Co.  v.  Moorer,  116  Ala.  642. 

2  "  Quod  quis  ex  culpa  sua  damnum 
sentit,  non  intelligitur  damnum  sen- 
tire,"  Dig.  lib.  50,  tit.  17,  §  203;  see 
Wharton  on  Negligence,  2d  ed.  §§  300 
et  seq.,  where  the  subject  of  contrib- 
utory negligence  is  fully  and  satis- 
factorily treated. 

Where  a  telegraph  company  incor- 
rectly transmitted  a  message  so  that 
as  transmitted  it  was  unintelligible 
jargon,  yet  the  receiver  (the  sender's 
agent)  acted  on  it,  the  sender  cannot 
hold  the  company  for  the  loss,  which 
was  due  to  the  negligent  act  of  his 
own  agent  in  acting  on  the  message. 


Hart  v.  Direct  U.  S.  Cable  Co.,  86 
N.  Y.  633. 

Not  every  degree  of  negligence, 
however  slight,  will  bar  a  recovery; 
the  negligence  of  the  plaintiff  to  have 
this  effect  must  amount  to  an  absence 
of  ordinary  care.  Strong  v.  Sacra- 
mento, etc.,  R.  R.  Co.,  (51  Cal.  326. 
Compare  Kansas  Pac.  R'y  Co.  v.  Pea- 
vey,  29  Kans.  169. 

s  Kline  v.  Central  Pac.  R.  R.  Co., 
37  Cal.  400;  Flynn  v.  San  Francisco, 
etc.,  R.  R.  Co.,  40  Cal.  14;  Murphy 
v.  Deane,  101  Mass.  455;  Trow  v. 
Vermont  Cent.  R.  R.  Co.,  24  Vt.  487; 
Pennsylvania  R.  R.  Co.  v.  Richter, 
42  N.  J.  L.  180.  See  Indianapolis 
and  St.  L.  R.  R.  Co.  v.  Stout,  53  Ind. 
143;  Houston  and  T.  C.  Ry.  Co.  v. 
Smith,  52  Tex.  178. 

357 


§  374.]         THE   LAW    OF    PRIVATE   CORPORATIONS.    [CHAP.  VII. 


circumstances  of  the  case.1  The  circumstances  of  negligence 
cases  are  so  diverse  that  a  discussion  of  them  would  be  of  little 
practical  value  unless  the  greatest  detail  were  gone  into.  On 
general  principles,  a  person  is  not  guilty  of  negligence  or  of 
contributory  negligence  for  doing  what  he  has  a  right  to  do.2 
Thus,  every  one  has  a  right  to  cross  the  railroad  track  at  a  pub- 
lic crossing.  To  do  so  is  not  negligence.  But  if  in  so  doing, 
a  person  does  not  make  a  vigilant  use  of  his  eyes  and  ears,  he 
is  negligent  and  cannot  recover  for  injuries  which  would  not 
have  happened  had  he  been  vigilant.3 


1  Railroad  Co.  v.  Stout,  17  Wall. 
657;  see  Hays  v.  Miller,  70  N.  Y. 
112;  Lambert  v.  Staten  Island  R.  R. 
Co.,  ib.  104;  Thurberr.  Harlem,  etc., 
R.  R.  Co.,  60  N.  Y.  331. 

A  statute  may  render  inapplicable 
the  general  principles  of  the  law  of 
contributory  negligence.  Thus,  in 
Michigan,  it  is  held  that  the  liability 
of  a  railroad  company  for  injuries 
to  cattle  resulting  from  its  failure  to 
fence  its  track,  is  not  affected  by 
the  contributory  negligence  of  the 
owner  of  the  cattle.  Grand  Rapids, 
etc.,  R.  R.  Co.  v.  Cameron,  45  Mich. 
451. 

2  Thus,  a  person  is  not  guilty  of 
contributory  negligence  in  pasturing 
his  horses — as  he  has  a  right  to  do — 
on  a  town-common,  even  though  it 
be  dangerous;  and  he  may  still  re- 
cover from  a  railroad  company,  if  the 
latter  injures  them  through  its  fault. 
Chicago  R.  R.  Co.  v.  Jones,  59  Miss. 
465;  compare  Lindsay  v.  Winona, 
etc.,  R.  R.  Co.,  29  Minn.  411.  Like- 
wise a  railroad  company  has  a  right 
to  use  its  own  land  for  any  legitimate 
purpose  in  the  prosecution  of  its 
business.  Such  a  use  cannot  be  re- 
garded as  unlawful  or  negligent  be- 
cause it  may  obstruct  the  vision  of 
those  crossing  the  track.  Cordell  ». 
N.  Y.  C.  and  H.  R.  R.  R.  Co.,  70  N. 
Y.  119.  A  passenger  is  not  ordinarily 
guilty  of  contributory  negligence  in 

358 


acting  on  the  assumption  that  the 
carrier  is  not  negligent.  Brassell  v. 
New  York  C.  &  H.  R.  R.  R.  Co.,  84 
N.  Y.  241 ;  Chaffee  v.  Boston  &  L. 
R.  R.  Co.,  104  Mass.  108;  Baltimore 
&  O.  R.  R.  Co.  v.  State,  60  Md.  449. 

It  is  not  contributory  negligence 
for  a  passenger,  in  a  railroad  car, 
with  a  headache,  to  support  his  head 
on  his  hand  with  his  elbow  resting 
on  the  sill  of  an  open  window.  Far- 
low  v.  Kelly,  108  U.  S.  288;  German- 
town  Passenger  Ry.  Co.  v.  Brophy, 
105  Pa.  St.  38.  But  to  ride  with  his 
arm  outside  the  window  is  contribu- 
tory negligence.  Todd  v.  Old  Colony, 
etc.,  R.  R.  Co.,  3  Allen  (Mass.),  18; 
S.  C,  7  Allen  (Mass.),  207. 

8  Salter  v.  Utica,  etc.,  R.  R.  Co., 
75  N.  Y.  273;  Lake  Shore  and  M.  S. 
R.  R.  Co.  v.  Miller,  25  Mich.  274; 
International  and  G.  N.  Ry.  Co.  v. 
Graves,  59  Tex.  330;  Pennsylvania 
R.  R.  Co.  v.  Richter,  42  N.  J.  L.  180; 
Terre  Haute  and  I.  R.  R.  Co.  v.  Clark, 
73  Ind.  168;  C.  C.  C.  &  St.  L.  R'y 
Co.  v.  Miller,  149  Ind.  490;  New  Or- 
leans, J.  and  G.  R.  R.  Co.  v.  Mitchell, 
52  Miss.  808;  Gahagan  v.  B.  &  M.  R. 
R.  Co.,  70  N.  H.  441;  Carter  v.  Cen- 
tral Vt.  R.  R.  Co.,  72  Vt.  190;  Cen- 
tral R.  R.  Co.  v.  Smalley,  61  N.  J.  L. 
277;  Berkeley  v.  C.  &  O.  Ry.  Co.,  43 
W.  Va.  11;  Phila.  &  Balto.  R.  R.  Co. 
o.  Holden,  93  Md.  447;  Cole  v.  N.  Y., 
N.  H.  &  H.  R.  R.  Co.,  174  Mass.  537. 


PART  IV.]  LIABILITY    FOR   TORTS    OF   AGENTS. 


[§  376. 


§  375.  Further,  an  act  will  not  be  negligent  if  at  the  time 
the  person  doing  it  was  not  a  free  agent ; 1  or  was  a  little  child. 
This  applies  to  persons  who  in  a  panic  caused  by  an  imminent 
collision  on  a  railroad  leap  from  the  cars ; 3  or  to  any  person  who 
instinctively  does  a  sudden  act  to  escape  an  imminent  peril.3 
In  regard  to  a  child,  the  caution  and  discretion  required  are 
according  to  its  age  and  capacity.4  But  in  some  instances  the 
negligence  of  the  persons  having  him  in  charge  is  held  to  bar  a 
suit  by  his  family,  or  his  personal  representatives,  or  perhaps 
by  the  child  himself.5 

§  376.  Kegarding  the  burden  of  proof  where   contributory 
negligence  is  relied  on  by  a  defendant,  the  weight  of 
authority  is,  that  contributory  negligence  is  matter  proof?n° 
of  defence  to  be  alleged  and  proved  by  the  defend- 
ant.6   But  a  number  of  decisions  hold  a  contrary  doctrine.7 

0**^ 


Compare  Cleveland,  C.  and  C.  R.  R. 
Co.  v.  Crawford,  24  O.  St.  631. 

If  a  railroad  crosses  a  common  road 
on  the  same  level,  those  travelling  on 
either  have  a  legal  right  to  pass  over 
the  point  of  crossing,  and  to  require 
due  care  from  those  travelling  on  the 
other  to  avoid  collisions.  The  train 
has  the  preference  and  right  of  way; 
but  is  bound  to  give  due  warning. 
Continental  Improvement  Co.  v. 
Stead,  95  U.  S.  161.  See  Railroad 
Co.  v.  Houston,  ib.  697;  Shaw  v.  Bos- 
ton and  W.  R.  R.  Co.,  8  Gray  (Mass.), 
45;  Black  v.  Burlington,  etc.,  Ry.  Co., 
38  Iowa,  515;  Nor.  Pac.  R.  R.  Co.  v. 
Freeman,  174  U.  S.  379.  Compare 
B.  &  P.  R.  R.  Co.  v.  Cumberland,  176 
U.  S.  232. 

1  See  Wharton  on  Neg.,  2d  ed.  §§ 
301  et  seq. 

2  Frink  v.  Potter,  17  111.  406. 

8  Larrabee  v.  Sewall,  66  Me.  376  ; 


Indianapolis,  etc.,  R.  R.  Co.  v.  Carr, 
35  Ind.  510  ;  Stokes  v.  Saltonstall,  13 
Pet.  181.  See  Eckert  v.  Long  Island 
R.  R.  Co.,  43  N.  Y.  502. 

4  Railroad  Co.  v.  Gladmon,  15  Wall. 
401  ;  Same  v.  Stout,  17  Wall.  657  ; 
Chicago  and  A.  R.  R.  Co.  v.  Becker, 
76  111.  25;  Daniels  v.  Clegg,  28  Mich. 
33  ;  Dowd  v.  Chicopee,  116  Mass.  93  ; 
Wendell  v.  New  York  Cent,  and  H. 
R.  R.  R.  Co.,  91  N.  Y.  420. 

5  Fitzgerald  v.  St.  Paul,  etc.,  R'y 
Co.,  29  Minn.  336. 

Here  the  authorities  are  very  con- 
flicting. The  question  is  discussed 
at  length,  with  a  full  citation  of  au- 
thorities in  Wharton  on  Neg.,  2d  ed. 
§§  310  et  seq. 

6  Railroad  Co.  v.  Gladmon,  15  Wall. 
401  ;  Indianapolis,  etc.,  R.  R.  Co.  v. 
Horst,  93  U.  S.  291 ;  Durant  v.  Pal- 
mer, 29  N.  J.  L.  544  ;  Penn.  Canal 
Co.  v.  Bentley,  66  Pa.  St.  30  ;  Cleve- 


7  Murphy  v.  Deane,  101  Mass.  457  ;    248  ;  Warner  v.  New  York  Cent.  R 


Lake  Shore,  etc.,  R.  R.  Co.,  v.  Miller, 
25  Mich.  274;  Daniels  v.  Clegg,  28 
Mich.  33  ;  Tolman  v.  Syracuse,  etc., 
R.  R.  Co.,  98  N.  Y.  198  ;  Button  v. 
Hudson   River  R.  R.  Co.,    18  N.  Y. 


R.  Co.,  44  N.  Y.  465  ;  Owens  v.  Rich- 
mond, etc.,  R.  R.  Co.,  88  N.  C.  502. 
See  Wheelock  v.  Boston  and  Albany 
R.  R.  Co.,  105  Mass.  203. 

359 


§  378.]        THE   LAW   OF   PRIVATE   CORPORATIONS.    [CHAP.  VII. 


Damages 
recover- 
able.    Ex- 
emplary 
damages. 


§  377.  In  assessing  damages  against  a  corporation  for  per- 
sonal injuries  caused  by  the  negligence  or  other 
wrongful  acts  of  its  servants,  the  measure  of  damages 
is  the  same  as  in  actions  against  individual  principals 
or  masters.  According  to  the  law  as  declared  in  the 
majority  of  the  states,  exemplary  damages  may  be  allowed 
against  a  corporation  ; 1  but  ouly  when  the  wrongful  act  was 
clone  wilfully,  or  with  that  indifference  to  the  rights  of  others 
which  is  equivalent  to  an  intentional  violation  of  them.2 

§  378.  The  doctrine  of  other  cases,  however,  is  to  the  general 


land  and  Pittsburgh  R.  R.  Co.  v. 
Rowan,  66  Pa.  St.  393  ;  Pennsylvania 
R.  R.  Co.  o.  Weber,  76  Pa.  St.  157  ; 
Weiss  v.  Pennsylvania  R.  R.  Co.,  79 
Pa.  St.  387  ;  Freeh  ».  Phila.,  W.  and 
B.  R.  K.  Co.,  39  Md.  574  ;  State  v. 
Balto.  and  Potomac  R.  R.  Co.,  58 
Md.  482  ;  Smoot  v.  Wetiunpka,  24 
Ala.  112  ;  Strablendorf  v.  Rosenthal, 
30  Wis.  675  ;  Kansas  Pac.  R'y  Co.  v. 
Pointer,  14  Kaus.  37  ;  Kansas  City 
L.  and  S.  R.  R.  Co.  v.  Phillibert,  25 
Kan.  582  ;  Baltimore  and  O.  R.  R.  Co. 
v.  Whittington,  30  Grat.  (Va.)  805  ; 
Thompson  v.  Duncan,  76  Ala.  334  ; 
Thompson  v.  North  Missouri  R.  R. 
Co.,  51  Mo.  190  ;  St.  Anthony  Falls 
Co.  v.  Eastman,  20  Minn.  277  ;  Mc- 
Quilken  v.  Cent.  Pac.  R.  R.  Co.,  50 
Cal.  7  ;  MacDougal  v.  Central  R.  R. 
Co.,  63  Cal.  431  ;  Paducah,  etc.,R.  R. 
Co.  v.  Hoehl,  12  Bush  (Ky.),  42; 
Texas  and  Pac.  R.  R.  Co.  v  Murphy, 
46  Tex.  356  ;  Evansville,  etc.,  R.  R. 
Co.  v.  Hiatt,  17  Ind.  102  ;  Hathaway 
v.  Toledo,  etc.,  R.  R.  Co.,  46  Ind.  25  ; 
Jackson  v.  Indianapolis,  etc.,  R.  R. 
Co.,  47  Ind.  454;  Higgins  v.  Jeffersou- 
ville,  etc.,  R.  R.  Co.,  52  Ind.  110  ; 
Galena,  etc.,  R.  R.  Co.  v.  Fay,  16  111. 
558  ;  Baird  v.  Morford,  29  Iowa,  531  ; 
Reynolds  v.  Hind  man,  32  Iowa,  14(5  ; 
Patterson  v.  B.  and  M.  R.  R.  Co.,  38 
Iowa.  279  ;  Fowler  v.  Baltimore  and 
O.  R.  R.  Co.,  18  W.  Va.  579  ;  Street 
R.  R.  Co.  v.  Nolthenins,  40  O.  St. 
360 


376.     Compare  Hinckley  i\  Cape  Cod 
R.  R.,  120  Mass.  257. 

Circumstances  may  make  out  a 
prima  facie  case  of  contributory  neg- 
ligence, thus  throwing  on  the  plaintiff 
the  burden  of  proving  due  care.  See 
Allyn  v.  Boston  and  Albany  R.  R. 
Co.,  105  Mass.  77  ;  Johnson  v.  Hud- 
son River  R.  R.  Co.,  20  N.  Y.  65. 

1  Phila.,  W.  and  B.  R.  R.  Co.  v. 
Larkin,  47  Md.  155;  Gasway  v.  At- 
lanta, etc.,  R'y  Co.,  58  Ga.  216; 
Western  Un.  Tel.  Co.  v.  Eyser,  2  Col. 
141  ;  Hinckley  v.  Chicago,  etc.,  R'y 
Co.,  38  Wis.  194  ;  Taylor  v.  Grand 
Trunk  R'y  Co.,  48  N.  H.  304  ;  Male- 
cek  v.  Tower  Grove,  etc.,  R'y  Co.,  57 
Mo.  17  ;  Beale  v.  Railway  Co.,  1  Dill. 
568  ;  Singer  M'f'g  Co.  v.  Holdfodt, 
86  111.  455  ;  Atlantic,  etc.,  R'y  Co.  v. 
Dunn,  19  Ohio  St.  162  ;  Hopkins  v. 
Atlantic,  etc.,  R.  R.  Co.,  36  N.  H.  9  ; 
Allbritton  v.  J.  &  G.  N.  R.  R.  Co.,  38 
Miss.  242  ;  Jefferson  County  Savings 
Bk.  v.  Eborn,  84  Ala.  529  ;  compare 
C raker  v.  Chicago  and  N.  W.  R'y  Co., 
36  Wis.  657;  Pittsburgh,  Ft.  W.  and 
C.  R.  R.  Co.  v.  Slusser,  19  Ohio  St. 
157;  Chicago  R.  R.  Co.  v.  Scurr,  59 
Miss.  456;  Same  v.  Jarrett,  ib.  470; 
Trigg  v.  St.  Louis,  etc.,  R'y  Co,  74 
Mo.  147;  Memphis  Packet  Co.  v. 
Nagel,  97  Ky.  9;  L.  &.  N.  R.  R.  Co, 
v.  Kelly,  100  Ky.  421. 

2  Milwaukee,  etc.,  R.  R.  Co.  v. 
Arms,  91  U.  S.  489;  Holmes  v.  Caro- 


PART  IV.]  LIABILITY   FOR   TORTS   OP   AGENTS.  [§  378. 

effect  that  to  justify  the  allowance  of  exemplary  damages  against 
a  corporation,  the  superior  corporate  agents  must  either  have 
been  negligent  in  their  choice  of  employes,  or  must  have  rati- 
fied the  act  in  some  way ;  e.  g.,  by  retaining  the  servant  in  the 
employ  of  the  company.  As  said  by  the  late  Chief  Judge 
Church,  giving  the  opinion  of  the  New  York  Court  of  Appeals 
in  Cleghorn  v.  New  York  Central  Railroad  Co.  : l  "  For  injuries 
by  the  negligence  of  a  servant  while  engaged  in  the  business  of 
the  master,  within  the  scope  of  his  employment,  the  latter  is 
liable  for  compensatory  damages  ;  but  for  such  negligence,  how- 
ever gross  or  culpable,  he  is  not  liable  to  be  punished  in  puni- 
tive damages,  unless  he  is  also  chargeable  with  gross  miscon- 
duct. Such  misconduct  may  be  established  by  showing  that 
the  act  of  the  servant  was  authorized  or  ratified,  or  that  the 
master  employed  or  retained  the  servant,  knowing  that  he  was 
incompetent,  or,  from  bad  habits,  unfit  for  the  position  he  occu- 
pied. Something  more  than  ordinary  negligence  is  required  ; 
it  must  be  reckless  and  of  a  criminal  nature,  and  clearly  estab- 
lished. Corporations  may  incur  this  liability  as  well  as  private 
persons.2  If  a  railroad  company,  for  instance,  knowingly  and 
wantonly  employs  a  drunken  engineer,  or  switchman,  or  retains 
one  after  knowledge  of  his  habits  is  clearly  brought  home  to 
the  company,  or  to  a  superintending  agent  authorized  to  em- 
ploy and  discharge  him,  and  injury  occurs  by  reason  of  such 
habits,  the  company  may  and  ought  to  be  amenable  to  the 
severest  rule  of  damages  ;  but  I  am  not  aware  of  any  principle 
which  permits  a  jury  to  award  exemplary  damages  in  a  case 
which  does  not  come  up  to  this  standard,  or  to  graduate  the 
amount  of  such  damages  by  their  view  of  the  propriety  of  the 
conduct  of  the  defendant,  unless  such  conduct  is  of  the  character 
before  specified."  3 


lina  Central  R.  R.  Co.,  94  N.  C.  318. 
See  Baltimore,  etc.,  Turnpike  Co.  v. 
Boone,  45  Md.  344;  Belknap  v.  Bos- 
ton and  M.  R.  R.  Co.,  49  N.  H.  358; 
Louisville,  etc.,  R'y  Co.  v.  Shanks,  94 
Ind.  598;  South  &  North  Ala.  R.  R. 
Co.  v.  McLendon,  63  Ala.  2(36. 

1  56  N.  Y.  44,  47. 

2  Citing  Caldwell  v.  N.  J.  Steam- 
boat Co.,  47  N.  Y.  282. 


3  Accord,  Goddard  v.  Grand  Trunk 
R'y,  57  Me.  202;  Lake  Shore,  etc., 
Ry.  Co.  v.  Prentice,  147  U.S.  101; 
Perkins  o.  Missouri,  etc.,  R.  R.  Co., 
55  Mo.  201;  Hays  v.  Houston,  etc., 
R.  R.  Co.,  46  Tex.  272;  New  Orleans, 
etc.,  R.  R.  Co.  v.  Burke,  53  Miss. 
201;  Hinckley  v.  Chicago,  M.  &  St. 
P.  R'y  Co.,  38  Wis.  194.  Compare 
Townseud  v.  N.  Y.  C.  and  H.  R.  R. 
301 


§  378.]        THE    LAW    OF    PRIVATE   CORPORATIONS.    [CHAP.  VII. 


R.  Co.,  56  N.  Y.  295;  Edleman  v.  St. 
Louis  Transfer  Co.,  3  Mo.  App.  503. 
A  legislature  cannot  by  statute  re- 
strict the  amount  recoverable  from 
railroad  companies  for  personal  in- 
juries caused  by  their  negligence. 
Passenger  R'y  Co.  v.  Boudrou,  92 
Pa.  St.  475.  (Of  course,  a  very  dif- 
ferent case  from  that  where  a  legis- 

362 


lature  creates  the  right  of  action  for 
injuries  resulting  in  death  and  limits 
the  amount  of  damages  recoverable.) 
A  statute  giving  double  damages  for 
cattle  killed  by  a  railroad  company, 
through  its  failure  to  fence,  is  con- 
stitutional. Minneapolis  Ry.  Co.  v. 
Beckwith,  129  U.  S.  26. 


PAliT  V.]     CORPORATE    ACTS    WITHOUT   THE    STATE.         [§  380. 


PART  V. 

LEGAL  EFFECT  OF  ACTS  DONE  WITHOUT  THE  STATE 
INCORPORATING  THE  CORPORATION. 


The  two  questions,  §  379. 

Legal  effect  of  the   act  within  the 

limits  of  the  home  state,  §§  380- 

382. 
Legal  effect  of  the  act  in  the  foreign 

state,  §  383. 
Comity  among  states,  §  384. 
Limits  to  this  comity,  §  385. 
Foreign  corporations  cannot  exercise 

special  franchises,  §  386; 
Nor  act  contrary  to  the  laws  or  pub- 
lic policy  of  the  state,  §§  387,  388; 
Nor   do   acts   beyond   their  powers, 

§§  389-391. 
Actions  against  foreign  corporations, 

§  392. 


Penal  provisions,  when  enforced  out- 
side the  state  enacting  them. 
Statutory  liability,  §  393. 

Jurisdiction  over  assets  of  foreign 
corporations,   §  394. 

Service  on  foreign  corporations,  §§ 
395,  396. 

Statutes  regulating  service,  §  397. 

New  York  doctrine,  §  398. 

Proceedings  in  rem,  §  399. 

Statutes  imposing  terms  on  foreign 
corporations,  §  400. 

Effect  of  non-compliance  with  these 
statutes,  §  401. 

Statute  of  limitations,  §  402. 


§  379.  This  topic  relates  to  the  territorial  extent  of  corporate 
powers,  and  involves  a  consideration  of  two  distinct 
questions.     When  an  act  is  done  by  or  on  behalf  of   questions. 
a  corporation  outside  of  the  state  incorporating  it, 
what  is  the  legal  effect  of  that  act  (1)  in  the  state  incorporating 
the  corporation  ;  (2)  in  the  state  where  act  was  done? 

§  380.  Within  the  limits  of  the  state  incorporating  the  cor- 
poration, the  legal  effect  of  an  act  done  without  the 
limits  of  that  state  depends  primarily  on  a  construc- 
tion of  the  provisions  in  the  corporate  constitution   JT1**1™1*"5 
regarding  the  corporate  powers.     The  question  will   the  home 
be,  do  they  authorize  the  given  act  to  be  done  beyond 
the  limits  of  the  state  ?     "  It  may  safely  be  assumed  that  a 
corporation  can  make  no  contract,  and  do  no  acts,  either  within 
or  without  the  state  which  creates  it,  except  such  as  are  author- 
ized by  its  charter ;  and  these  acts  must  also  be  done  by  such 
officers  or  agents,  and  in  such  manner,  as  the  charter  author- 

3G3 


Legal  effect 
of  the  act 


§  381.J        THE   LAW   OF   PRIVATE   CORPORATIONS.    [CHAP.  VII. 

izes.r  1  If  the  corporate  powers  authorize  the  act  to  be  done 
outside  the  state,  it  will  be  valid  as  to  all  persons  within  the 
jurisdiction  of  the  state.2  If  they  do  not  authorize  the  act  to 
be  so  done,  the  rules  applicable  to  ultra  vires  acts  generally  will 
apply  ;  though  the  fact  that  the  act  was  done  outside  of  the 
state  will  not  prejudice  any  person,  acting  on  the  faith  of  the 
act,  who  had  no  reason  to  know  that  it  was  done  outside  the 
state.3 

§  381.  It  may  be  stated  as  a  proposition  of  general  truth  and 
applicability,  that  with  respect  to  the  jurisdiction  of  the  state 
incorporating  the  corporation,  acts  done  on  behalf  of  the  cor- 
poration, if  done  outside  the  state,  are  valid,  in  the  absence  of 
special  restriction  ; 4  for  a  grant  of  franchises  without  restric- 
tion is  equivalent  to  a  specific  authority  to  exercise  them 
wherever  the  corporation  may  find  it  convenient  or  profitable 
to  do  so.5  Accordingly,  directors  may  act  as  a  board  outside 
the  state  limits.6 


1  Taney,  C.  J.,  in  Bank  of  Augusta 
v.  Earle,  13  Pet.  588.  "  Its  residence 
in  oue  state  creates  no  insuperable 
objection  to  its  power  of  contracting 
in  another."  lb.  See  Evving  v.  Tol- 
edo S'v'gs  Bk.,  43  O.  St.  31;  State  v. 
So.  Pac.  R.  R.  Co.,  52  La.  Ann.  1822; 
Angell  and  Ames  on  Corp.,  §  104. 

The  two  cases  of  Middle  Bridge 
Co.  v.  Marks,  26  Me.  326,  and  Miller 
v.  Ewer,  27  Me.  509,  seem  to  imply 
that  it  is  incompetent  for  a  legisla- 
ture to  authorize  a  corporation  to 
act  outside  the  boundaries  of  the 
state.  But  this  seems  incomprehen- 
sible. Merrick  v.  Van  Santvoord, 
34  N.  Y.  208,  holds  that  the  charter 
of  a  corporation  may  confer  powers 
without  territorial  limitation,  which, 
accordingly,  may  be  exercised  be- 
yond the  jurisdiction  of  the  sovereign 
granting  the  charter. 

2  Hutchins  v.  New  England  Coal 
M'gCo.,  4  Allen,  580. 

8  Galveston  Railroad  v.  Cowdrey, 
11  Wall.  459.  This  on  principles  re- 
gulating the   effect  of    acts   appar- 

364 


ently  within  the  scope  of  the  cor- 
porate powers,  §§  284-286. 

4  Bank  of  Augusta  u.  Earle,  13  Pet. 
519,  588;  Hutchins  v.  New  England 
Coal  M'g  Co.,  4  Allen,  580;  Blair  v. 
Perpetual  Ins.  Co.,  10  Mo.  559;  New 
York  Floating  Derrick  Co.  v.  New 
Jersey  Oil  Co.,  3  Duer  (N.  Y.),  648; 
Tombigbee  R.  R.  Co.  v.  Kneeland,  4 
How.  16;  Wood  Hydraulic  Hose  M'g 
Co.  v.  King,  45  Ga.  34;  Dodge  v. 
City  of  Council  Bluffs,  57  Iowa,  560. 
See  Mumford  v.  Am.  Life  Ins.,  etc., 
Co.,  4  N.  Y.  463. 

6 Merrick  v.  Van  Santvoord,  34  N. 
Y.  208;  Day  v.  Ogdensburgh,  etc.,  R. 
R.  Co.,  107  N.  Y.  129;  Kerchner  v. 
Gettys,  18  S.  C.  521;  Atchison,  T.  & 
S.  F.  R.  R.  Co.  v.  Fletcher,  35  Kan. 
236. 

6  Galveston  Railroad  v.  Cowdrey, 
11  Wall.  459;  Bellows  ».  Todd,  39 
Iowa,  209;  Thompson  v.  Natchez 
Water  Co.,  68  Miss.  423;  Missouri 
Lead  M'g  Co.  v.  Reinhard,  114  Mo. 
218;  Arms  v.  Conant,  36  Vt.  745; 
Bassett  v.  Monte  Christo  M.  Co.,  15 


PART    V.]    CORPORATE   ACTS    WITHOUT   THE   STATE.  [§  382. 

§  382.  The  rule  is  otherwise  in  regard  to  the  acts  of  the  body 
corporate  itself.  These,  when  clone  beyond  the  limits  of  the 
state,  are  ordinarily  held  invalid.1  It  is  submitted,  however, 
that  the  reason  of  this  does  not  lie  in  the  imaginative  notion 
that  a  corporation  "  must  dwell  in  the  place  of  its  creation,  and 
cannot  migrate  to  another  sovereignty ;" 2  but  rather  in  the 
hardship  and  fraud  it  might  entail  on  shareholders  to  permit 
corporate  meetings  to  be  held  outside  the  state.3  Accordingly, 
there  seems  to  be  no  reason  for  holding  invalid  acts  done  at  cor- 
porate meetings  assembled  without  the  state,  if  all  the  share- 
holders acquiesce  in  the  holding  of  such  meetings.4 


Nev.  293;  Ohio  &  M.  R.  R.  Co.  v. 
MePherson,  35  Mo.  13;  Wright  v. 
Bandy,  11  Ind.  398;  McCall  v.  Byram 
Mfg.  Co.,  6  Conn.  428;  Wood  Hy- 
draulic Hose  Mfg.  Co.  v.  King,  45  Ga. 
34;  Smith  v.  Alvord,  63  Barb.  415; 
Reichwald  v.  Commercial  Hotel  Co., 
106  111.  439,  450;  Singer  v.  Salt  Lake 
Copper  M.  Co.,  17  Utah,  143.  See 
Franco-Texan  Land  Co.  v.  Laigle, 
59  Tex.  339;  Saltmarsh  v.  Spaulding, 
147  Mass.  224;  Smith  v.  Silver  Valley 
Mfg.  Co.,  64  Md.  86.  But  see  Hilles 
v.  Parrish,  14  N.  J.  Eq.  380;  Ormsby 
v.  Vt.  C.  Mfg.  Co.,  56  X.  Y.  623.  A 
statute  forbidding  directors  to  hold 
meetings  outside  the  state  may  be 
availed  of  by  creditors  of  the  corpo- 
ration: it  is  not  for  the  benefit  of 
shareholders  only.  Sta.  Nat.  Bk.  v. 
Union  Nat.  Bk.,  168  111.  519. 

1  Miller  v.  Ewer,  27  Me.  509  ;  Aspin- 
wall  v.  Ohio,  etc.,  R.  R.  Co.,  20  Ind. 
492  ;  Freeman  v.  Machias  W.  P.  Co., 
38  Me.  343  ;  Ormsby  v.  Vermont  C. 
M'g  Co.,  56  N.  Y.  623  ;  Jones  v.  Pearl 
M'g  Co.,  20  Col.  417.  Cf.  Copp  v. 
Lamb,  12  Me.  312.  No  legal  or- 
ganization of  a  corporation  can  be 
affected  by  action  taken  outside  of 
the  state  granting  the  charter.  Free- 
man v.  Machias  W.  P.  Co.,  supra; 
Smith  v.  Silver  Valley  M'g  Co.,  64 
Md.  86;     Taylor  v.  Branham,  35  Fla. 


j  297.     Compare   Camp  v.    Byrne,    41 
Mo.    525.     Authority    in    charter   to 

■  transact  business  at  points  without 
1  the  state  does  not  authorize  acts  by 
!  the  corporation  directly,  such  as  cor- 
I  porate  meetings.  An  election  of  di- 
rectors by  a  corporate  meeting  held 
outside  the  state  is  void.     A  share- 

j  holder  is  not  bound  by  a  by-law  passed 
|  by  directors  elected  without  the 
state,  although  his  own  shares  were 
voted,  by  proxy,  at  the  meeting 
which  elected  the  said  directors. 
Franco-Texan  Land  Co.  v.  Laigle, 
j  59  Tex.  339  ;  ace.  Hodgson  ».  Du- 
luth,  etc.,  R.  Co.,  46  Minn.  454. 

2  Bank  of  Augusta  v.  Earle,  13  Pet. 
519,  588,  per  Taney,  C.  J.  It  is  held 
that  a  corporation  dwells  in  the  place 
where  its  business  is  carried  on. 
Taylor  i\  Gas  and  Coke  Co.,  11  Ex. 
1  ;  see  Connecticut  and  Passumsic 
Rivers  R.  R.  Co.  v.  Cooper,  30  Vt. 
476,  481  ;  Stout  p.  Sioux  City,  etc.,  R. 
R.  Co.,  3  McCrary,  1  ;  but  see  Plimp- 
ton 15.  Bigelow,  93  N.  Y.  592,  revers- 
ing S.    C,    12   Abb.  N.    C.    (N.  Y.) 

i  202. 

3  Derby  Council  v.  State  Council, 
j  197  Pa.  St.  413  ;  Sovereign  Camp  W. 
!  O.  W.  v.  Fraley,  94  Tex.  200. 

4  Missouri  Lead  M'g  Co.  v.  Rein- 
I  hard,    114  Mo.    218.     See    Camp    v. 

■  Byrne,  41  Mo.  525.     Resolutions  (to 

365 


§  383.]         THE   LAW   OF   PRIVATE   CORPORATIONS.  [CHAP.  VII. 

§  383. 


Legal  effect 
of  the  act 
in  the  for- 
eign state. 

poration. 


A  different  question  is  the  one  regarding  the  legal 
effect  of  the  act  within  the  limits  of  the  state  where 
it  was  done.  There  the  legal  effect  depends  ordina- 
rily on  whether  that  state  will  give  effect  to  provi- 
sions in  the  laws  of  the  state  incorporating  the  cor- 
For  corporations  are  not  citizens  within  the  meaning 
of  the  provisions  in  the  Federal  constitution  guaranteeing  to  the 
citizens  of  each  state  all  the  privileges  and  immunities  of  citi- 
zens in  the  several  states ; 1  and,  accordingly,  a  state  may  pro- 
hibit a  corporation  incorporated  by  another  state  from  contract- 
ing within  the  limits  of  the  former,2  or  may  exact  a  license  fee 
from  the  corporation  for  the  privilege  of  having  an  office  within 
the  state,  unless  that  corporation  be  engaged  in  interstate 
commerce,  or  the  service  of  the  Federal  government;3  or  may 
deny  to  a  foreign  corporation  the  right  to  share  in  the  assets  of 
an  insolvent  corporation,  in  course  of  distribution  in  its  courts.4 


increase  capital  stock)  passed  at  a 
stockholders1  meeting  held  without 
the  state  are  binding  on  all  taking 
part  or  profiting  by  them  (as  e.  <)., 
by  accepting  the  new  shares).  Hand- 
ley  v.  Stutz,  139  U.  S.  417. 

1  Art.  IV.,  §  2. 

2  Paul  o.  Virginia.  8  Wall.  168  ; 
Lafayette  Ins.  Co.  v.  French,  18  How. 
404,  407  ;  Ducat  o.  Chicago,  10  Wall. 
410;  Liverpool  Ins.  Co.  v.  Massachu- 
setts, ib.  566  ;  Doyle  p.  Continental 
Ins.  Co.,  94  U.  S.  535  ;  Pembina 
Mining  Co.  v.  Pennsylvania,  125  U. 
S.  181;  Orient  Ins.  Co.  v.  Daggs,  172 
U.  S.  557;  Warren  M'f'g  Co.  v.  ^Etna 
Ins.  Co.,  2  Paine,  501  ;  Home  Ins.  Co. 
v.  Davis,  29  Mich.  238;  Common- 
wealth v.  Milton,  12  B.  Mon.  (Ky.) 
212  ;  Phoenix  Ins.  Co.  v.  Common- 
wealth, 5  Bush  (Ky.),  68;  Gill's 
Adm.  v.  Kentucky,  etc.,  Gold  M'g 
Co.,  7  Bush,  635  ;  Matthews  v.  Trus- 
tees, 2  Brewst.  (Pa.)  541  ;  Fire  Dept. 
v.  Noble,  3  E.  D.  Smith  (N.  Y.),  449  ; 
Slaughter  v.  Commonwealth,  13 
Gratt.  ( Va. )  767  ;  Western  Union 
Tel.  Co.  o.   Mayer,  28  Ohio  St.  521. 

366 


See  Milnor  v.  N.  Y.  and  N.  H.  R.  R. 
Co.,  53  N.  Y.  363  ;  People  v.  Fire 
Ass'n,  92  N.  Y.  311  ;  Tatem  v. 
Wright,  23  N.  J.  L.  429  ;  cf.  Sandal 
v.  Atlanta  L.  I.  Co.,  53  S.  C.  241  ; 
also  §  480. 

But  it  is  doubtful,  when  congress 
has  conferred  on  a  railroad  corpora- 
tion created  by  a  state  the  power  to 
construct  its  road  within  an  organ- 
ized territory,  whether  such  terri- 
tory after  it  has  become  a  state  can 
impose  any  impediment  to  the  full 
enjoyment  of  the  right  thus  con- 
ferred. Van  Wyck  v.  Knevals,  106  TJ. 
S.  360,  369  ;  Railroad  Co.  v.  Baldwin, 
103  TJ.  S.  426.  "  It  could  only  do 
this  on  the  same  terms  that  it  could 
refuse  a  recognition  of  its  own  pre- 
viously granted  right,  for  in  such 
matters  the  state  would  succeed 
only  to  the  authority  of  congress 
over  the  territory."  Railroad  Co.  ». 
Baldwin,  103  U.  S.  426,  431. 

8  Pembina  Mining  Co.  v.  Penn- 
sylvania, 125  U.  S.  181.  See  Southern 
B'ld'g  Ass'n  v.  Norman,  98  Ky.  294. 

«  Blake  v.  McClung,  172  U.  S.  239. 


PART  V.]  CORPORATE  ACTS  WITHOUT  THE  STATE.    [§  384. 


"  Every  power  which  a  corporation  exercises  in  another  state 
depends  for  its  validity  upon  the  laws  of  the  sovereignty  in 
which  it  is  exercised,  and  no  corporation  can  make  a  valid 
contract  without  the  sanction,  expressed  or  implied,  of  such 
sovereignty ;  unless  a  case  should  be  presented  in  which  the 
right  claimed  by  the  corporation  should  appear  to  be  secured 
by  the  constitution  of  the  United  States."1 

§  384.  The  right,  however,  of  a  state  to  exclude  foreign 
corporations  and  prevent  them  from  making  con- 
tracts  or  transacting  business  within  the  state  is  not  among 
ordinarily  exercised ;  and  the  general  rule  may  be 
stated,  subject  to  qualifications  hereafter  to  be  mentioned,  that 
the  various  states  of  the  Union  will  permit  foreign  corpora- 
tions, which  are  not  expressly  or  impliedly  forbidden  by  their 
respective  constitutions  to  transact  business  outside  of  the  state 
incorporating  them,  to  contract  and  transact  such  business  as 
their  constitutions  authorize  them  to  execute  ;  and  to  resort 
to  the  state  courts  for  the  enforcement  of  their  rights.2  This 
general  rule  was  first  authoritatively  expressed  in  Bank  of 
Augusta  v.  Earle,3  as  follows :  "  We  think  it  is  well  settled 
that  by  the  law  of  comity  among  nations,  a  corporation  created 
by  one  sovereignty  is  permitted  to  make  contracts  in  another, 
and  to  sue  in  its  courts ;  and  that  the  same  law  of  comity  pre- 
vails among  the  several  sovereignties  of  this  Union.  The 
public  and  well-known  and  long-continued  usages  of  trade,  the 
general  acquiescence  of  the  states,  the  particular  legislation  of 


1  Runyan  v.  Coster's  Lessee,  14 
Pet.  122,  129.  A  state  cannot  deny 
to  a  corporation  any  right  protected 
by  the  Federal  constitution  ;  see  Erie 
R.  Co.  v.  State,  31  N.  J.  L.  531;  State 
v.  American  Exp.  Co.,  7  Biss.  230; 
and  see  §  400.  Nor  can  state  legisla- 
tion restrict  foreign  corporations 
when  by  so  doing  it  interferes  with 
Federal  powers,  as,  e.  g.,  the  power 
to  regulate  interstate  commerce. 
See  Pensacola  Tel.  Co.  v.  Western 
Un.  Tel.  Co.,  96  U.  S.  1  ;  American 
Un.  Tel.  Co.  v.  Western  Un.Tel.  Co., 
67  Ala.  26;  Pembina  Mining  Co.  v. 
Pennsylvania,  125  U.  S.  181 ;  Western 


Union  Tel.  Co.  v.  Massachusetts,  125 
U.  S.  530  ;  also  §  480. 

2  A  foreign  corporation  in  suing 
need  not  set  out  in  its  pleading  the 
terms  of  its  charter  showing  its 
capacity  to  maintain  the  action. 
Smith  v.  Weed  Sewing  Machine  Co., 
26  Ohio  St.  563.  But  see  Savage  v. 
Russell,  84  Ala.  103.  It  is  not 
against  public  policy  to  organize  a 
corporation  to  act  as  the  agent  with- 
in the  state  of  a  foreign  corporation. 
Day  v.  Postal  Telegraph  Co.,  66  Md. 
355. 

8  13  Pet.  519,  592,  per  Taney,  C.  J. 

367 


§  384.]  THE    LAW    OF   PRIVATE   CORPORATIONS.  [CHAP.  VII. 

some  of  them,  as  well  as  the  legislation  of  Congress,  all  concur 
in  proving  the  truth  of  this  proposition."  In  Christian  Union 
v.  Yount,1  the  rule  was  restated  thus:  "In  harmony  with  the 
general  law  of  comity,  obtaining  among  the  states  composing 
the  Union,  the  presumption  should  be  indulged  that  the  cor- 
poration of  one  state,  not  forbidden  by  the  law  of  its  being, 
may  exercise  within  any  other  state  the  general  powers  con- 
ferred by  its  own  charter,  unless  it  is  prohibited  from  so  do- 
ing either  in  the  direct  enactments  of  the  latter  state,  or  by 
its  public  policy  to  be  deduced  from  the  general  course  of  its 
legislation  or  from  the  settled  adjudications  of  its  highest 
court." 2 


i  101  U.  S.  352,  356,  per  Harlan,  J. 

2  In  accordance  with  these  princi- 
ples are  the  following  authorities: 
Tombigbee  R.  R.  Co.  v.  Kneelantl,  4 
How.  16;  Cowell  v.  Spring  Co.,  100 
TJ.  S.  55;  Williams  v.  Creswell,  51 
Miss.  817;  Silver  Lake  Bank  v.  North, 
4  Johns.  Ch.  (N.  Y.)  370;  Bard  v. 
Poole,  12  N".  Y.  495;  Merrick  v.  Van 
Santvoord,  34  N.  Y.  208;  British  Am. 
Land  Co.  v.  Ames,  6  Mete.  391; 
Martin  v.  Mobile,  etc.,  R.  R.  Co.,  7 
Bush  (Ky.),  116;  Guaga  Iron  Co.  v. 
Uawson,  4  Blackf.  (Ind.)  202;  Lea- 
sure  v.  Union  Mut.  Life  Ins.  Co.,  91 
Pa.  St.  491;  Dodge  v.  City  of  Council 
Bluffs,  57  Iowa,  560;  Life  Ass'n  v. 
Levy,  33  La.  Ann.  1203;  Kennebec 
Co.  v.  Augusta  Ins.  Co.,  6  Gray,  204; 
Flash  ».  Conn,  16  Fla.  428;  Newburg 
Petroleum  Co.  v.  Weare,  27  Ohio  St. 
343;  Bank  of  Washtenaw  b.  Mont- 
gomery, 3  111.  422;  Lycoming  Fire 
Ins.  Co.  «.  Langley,  62  Md.  196.  See 
Mut.  Ben.  Life  Ins.  Co.  v.  Davis,  12 
N.  Y.  569;  Eslava  b.  Ames  Plow  Co., 
47  Ala.  384;  Floyd  v.  Nat.  Loan  Inv. 
Co.,  49  W.  Va.  327;  State  v.  Water 
Co.,  61  Kas.  547.  A  foreign  corpora- 
tion may  sue  as  administrator  in  Del- 
aware when  authorized  by  the  state 
creating  it  (Pennsylvania)  to  admin- 
ister decedents1  estates.     Deringer's 

368 


Adm'r  v.  Deringer's  Adm'r,  5  Houst. 
(Del.)  410;  see  ib.,  6  Houst.  64. 

When  there  is  nothing  to  the  con- 
trary in  the  policy  of  the  state  as  de- 
clared by  its  legislature,  a  foreign 
corporation  may  purchase  real  estate. 
Cowell  v.  Springs  Co.,  100  U.  S.  55; 
Christian  Union  v.  Yount,  101  U.  S. 
352;  Lancaster  v.  Amsterdam  Imp. 
Co.,  140  N.  Y.  576;  State  p.  Boston, 
etc.,  R.  R.  Co.,  25  Vt.  433;  Claremont 
Bridge  Co.  v.  Royce,  42  Vt.  730; 
Thompson  v.  Waters,  25  Mich.  214; 
Lumbard  v.  Aldrich,  8  N.  H.  30; 
Santa  Clara  Female  Academy  v.  Sul- 
livan, 116  111.  375;  Taylor  v.  Trust 
Co.,  71  Miss.  694.  See  Runyan  v. 
Coster's  Lessee,  14  Pet.  122;  Whit- 
man M'g  Co.  v.  Baker,  3  Nev.  386. 
A  foreign  corporation  may  take  a 
lease  of  premises  for  its  business. 
Steamboat  Co.  v.  McCutcheon,  13  Pa. 
St.  13;  Northern  Trans'n  Co.  v.  Chi- 
cago, 7  Biss.  45;  Black  v.  Dela- 
ware and  R.  Canal  Co.,  22  N.  J. 
Eq.  130,  422.  Or  a  mortgage  on  real 
estate.  National  Trust  Co.  v.  Mur- 
phy, 30  N.  J.  Eq.  408 ;  Lebanon  Sav- 
ings  Bank  v.  Hollenbeck,  29  Minn. 
322;  American  Mut.  Life  Ins.  Co.  v. 
Owen,  15  Gray,  491;  Silver  Lake 
Bank  v.  North,  4  Johns.  Ch.  370; 
Lathrop    v.    Commercial     Bank,    8 


PART  V.]  CORPORATE  ACTS  WITHOUT  THE  STATE.    [§  386. 


§  385.  The  general  rule  is  subject  to  the  following  qualifica- 
tions :  The  comity  between  states  does  not  extend  so 
far  that  a  state  will  allow  a  foreign  corporation  to  J£fe  comity. 
(1)  exercise  any  extraordinary  franchise,  or  (2)  do 
any  act  contrary  to  the  laws,  or  the  public  policy  of  the  state 
as  indicated  by  its  legislation,  or  (3)  any  act  unauthorized  by 
the  constitution  of  the  corporation.  Moreover,  in  applying 
general  principles  of  corporation  law  to  contracts  made  or  to  be 
performed  by  a  foreign  corporation  within  the  state,  its  courts 
will  not  necessarily  follow  the  decisions  of  the  state  that  incor- 
porated the  corporation.1 

§  386.  (1)  A  foreign  corporation  cannot  exercise  any  extra- 
ordinary franchise  or  special  privilege  granted  by 
the  state  incorporating  it ;  as,  for  instance,  the  right  of 
eminent  domain,  or  the  privilege  of  exemption  from 
taxation.'2  It  has  even  been  said  that  a  contract  of  a 
foreign  corporation  to  be  valid  "  must  be  one  which 


Foreign 
corpora- 
tions can- 
not exer- 
cise special 
franchises ; 


Dana  (Ky.),  114;  New  York  Dry 
Dock  v.  Hicks,  5  McLean,  111; 
Farmers'  Loan  and  Trust  Co.  v.  Mc- 
Kinney,  6  McLean,  1;  Life  Ins.  Co. 
v.  Overholt,  4  Dill.  287.  See  Leasure 
v.  Union  Mut.  Life  Ins.  Co.,  91  Pa.  St. 
491.  A  foreign  corporation,  in  whose 
favor  a  foreclosure  decree  is  render- 
ed, may  hold  and  convey  real  estate 
purchased  under  the  decree,  when 
there  is  no  prohibitory  statute.  Els- 
ton  v.  Piggott,  94  Ind.  14.  Though 
a  statute  forbid  foreign  corporations 
to  purchase  real  estate,  only  the 
state  can  take  advantage  of  it.  Car- 
low  v.  Aultman,  28  Neb.  672.  See 
§  388,  n.  5. 

This  rule  does  not  enable  a  cor- 
poration to  exercise  in  a  foreign 
state  powers  not  granted  to  it  by  its 
constitution.  Pierce  v.  Crompton, 
13  R.  I.  312.  See  Thompson  v. 
Waters,  25  Mich.  214,  and  §§  389-391, 
post. 

The  comity  of  a  state  does  not  ex- 
tend so  far  as  to  allow  a  foreign  cor- 
poration, authorized  by  its  constitu- 

24 


tion  to  do  business  in  any  state 
except  the  state  incorporating  it,  to 
transact  business  within  the  limits 
of  the  former  state.  Land  Grant 
Ry.  Co.  v.  Commissioners,  6  Kan. 
245;  Compare  Hanna  i\  International 
Petroleum  Co.,  23  Ohio  St.  622.  But 
no  principle  of  public  policy  forbids 
citizens  of  New  York  to  form  a  cor- 
poration in  another  state  and  do 
business  in  New  York  as  a  foreign 
corporation.  Demarest  v.  Flack,  128 
N.  Y.  205  ;  Lancaster  v.  Amsterdam 
Imp.  Co.,  140  N.  Y.  576.  Oakdale 
Mfg.  Co.  v.  Garst,  18  R.  I.  484.  No 
principle  of  law  requires  all  or  any 
of  the  shareholders  to  be  residents 
of  the  state  incorporating  the  cor- 
poration. Rolling  Stock  Co.  v.  Peo- 
ple, 147  111.  234. 

1  Milnor  v.  N.  Y.,  etc.,  R.  R.  Co., 
53  N.  Y.  303. 

2  Foreign  railroad  company  can- 
not exercise  the  right  of  eminent 
domain.  Holbert  v.  St.  L.  R.  C.  and 
N.  R.  Co.,  45  Iowa,  23.  See  State  v. 
Boston,   Concord,  etc.,  R.   R.  Co.,  25 

369 


§  388.]  THE   LAW   OF   PIUVATE   CORPORATIONS.  [CHAP.  VU. 


would  be  valid  if  made  at  the  same  place  by  a  natural  person 
not  a  resident  of  the  state."  -1 

§  387.  (2)  The  act  or  contract  must  not  be  contrary  to  the 
Nor  act        laws  of  the  state.     Accordingly,  if  those  laws  forbid 

contrary  to       ,       •         ,  ,•  i  «  '     • 

the  laws  or  devises  to  corporations,  a  devise  to  a  foreign  corpo- 
Fcy'of "the"  rati°n  *s  invalid,  although  by  its  constitution  it  may 
state;  De  authorized  to  take  in  that  manner.2 

On  similar  principles  foreign  corporations  in  transacting 
business  must  conform  to  the  usury  laws  of  the  state;  although 
by  their  constitutions  they  are  permitted  to  take  a  higher 
rate  of  interest.3  Likewise  a  foreign  corporation  is  subject  to 
the  penal  laws  of  the  state  in  which  it  carries  on  its  operations.4 

§  388.  Neither  will  a  state  permit  foreign  corporations  by 
their  acts  to  contravene  its  public  policy  as  evinced  by  its  legis- 
lation.5    But  this  public  policy  must  be  clear  and   positive. 


Vt.  433,  442;  Middle  Bridge  Co.  v. 
Marks,  26  Me.  326.  It  was  held  in 
S.  A.  &  A.  P.  R'y  Co.  v.  S.  W.  T.  & 
T.  Co.,  93  Tex.  313,  that  a  foreign 
telegraph  and  telephone  company 
complying  with  the  statutory  re- 
quirements to  do  business  in  the 
state  could  exercise  the  power  of 
eminent  domain. 

1  Bard  v.  Poole,  12  N.  Y.  495,  505. 
Without  express  permission  a  foreign 
corporation  cannot  carry  on  a  busi- 
ness not  open  to  individuals.  People 
v.  Howard,  50  Mich.  239. 

2  Starkweathers.  Amer.  Bible Soc, 
72  111.  50;  Boyce  v.  St.  Louis,  29  Barb. 
650  ;  White  v.  Howard,  46  N.  Y.  144  ; 
United  States  v.  Fox,  94  U.  S.  315  ; 
cf.  Union  Nat.  Bank  v.  State  Nat. 
B'k,  155  Mo.  95.     Compare  §  391. 

3  Hitchcock's  Heirs  v.  United 
States  Bank,  7  Ala.  386,  425  ;  U.  S. 
Savings,  etc.,  Co.  v.  Scott,  98  Ky. 
695. 

4  McGregor  qui  tarn  v.  Erie  Ry.  Co., 
35  N.  J.  L.  115  ;  Hinesv.  Wilmington, 
etc.,  R.  R.  Co.,  95  N.  C.  434. 

5  See  Ewing  v.  Toledo  Savings  Bk., 
43  O.  St.  31.  In  Illinois  the  public 
policy  is  declared  against  perpetui- 

370 


ties  in  lands,  and  the  Illinois  courts 
hold  that  a  foreign  corporation, 
which  is  authorized  by  its  charter  to 
buy  and  sell  lands,  without  any  pro- 
vision to  compel  it  to  sell  within  a 
certain  time,  cannot  purchase  land 
in  Illinois,  as  that  might  tend  to  cre- 
ate a  perpetuity.  Carroll  v.  East  St. 
Louis,  67  111.  568  ;  U.  S.  Trust  Co.  v. 
Lee,  73  111.  142.  But  it  has  since  been 
held  by  the  Illinois  Supreme  Court 
that  this  rule  does  not  apply  to  cor- 
porations incorporated  to  loan 
money  on  real  estate  securities. 
United  States  Mortgage  Co.  v.  Cross, 
7  Central  L.  J.  226  (1878).  The 
Illinois  policy  against  trusts  applies 
to  the  acts  of  foreign  corporations 
within  the  state.  Bishop  v.  Amer. 
P.  Co.,  157  111.  284.  A  foreign  loan 
association  can  impose  no  greater  re- 
strictions on  the  right  of  a  resident 
member  to  withdraw  than  can  be 
imposed  by  a  domestic  corporation 
of  the  same  nature.  St.  Louis  Loan 
&  Inv.  Co.  v.  Yantes,  173  111.  321. 
To  be  able  to  take  advantage  of  the 
exemption  from  the  usury  laws,  al- 
lowed to  a  domestic  loan  association, 
the   foreign   loan    association   must 


PART  V.]  CORPORATE  ACTS  WITHOUT  THE  STATE.    [§  389. 


"If  the  policy  of  the  state  or  territory  does  not  permit  the 
business  of  the  foreign  corporation  within  its  limits,  or  allow 
the  corporation  to  acquire  or  hold  real  property,  it  must  be  ex- 
pressed in  some  affirmative  way  ;  it  cannot  be  inferred  from  the 
fact  that  its  legislature  has  made  no  provisions  for  the  forma- 
tion of  similar  corporations,  or  allows  corporations  to  be  formed 
only  by  general  law." 1 

§  389.  (3)  The  third  qualification  is  often  stated  thus  :  "  The 
contract  must  be  one  which  the  foreign  corporation 
is  permitted  by  its  charter  to  make.' 
noticed  that  the  word  "  charter "  is  used  here  in  a 
manner  to  imply  that  any  disability  imposed  on  a 
foreign  corporation  by  the  general  laws  of  the  state  creating  it, 
would  be  disregarded  by  the  courts  of  another  state.  And, 
indeed,  this  distinction  is  expressly  taken  in  Hoyt  v.  Shelden,3 
where  it  is  said  :  "  There  is  a  plain  distinction  between  acts  of 
the  foreign  corporation,  which  the  charter  does  not  authorize, 
or  which  it  may  forbid,  and  acts  which  upon  the  face  of  the 
charter  are  authorized,  but  which  the  general  laws  of  the  for- 
eign state  may  prohibit."  From  the  context,  however,  it  is 
apparent  that  the  court  did  not  mean  to  lay  down  any  general 
rule  to  the  effect  that  courts  would  not  recognize  restrictions 


Nor  do  acts 
It    Will    be    beyond 

their  pow- 
ers. 


show  that  it  is  organized  under  a 
statute  identical  with,  or  substan- 
tially like,  the  domestic  statute. 
Rhodes  v.  Mo.  Sav.  Co.,  173  111.  621. 
An  insolvent  foreign  corporation  can- 
not make  a  preferential  assignment 
in  Texas,  where  such  are  held  void, 
although  it  could  have  done  so  ac- 
cording to  the  law  of  its  own  state. 
Fowler  v.  Bell,  90  Tex.  150.  See 
contra,  Vanderpool  r.  Gorman,  140 
N.  Y.  563.  Cf.  Pair  point  Mfg.  Co. 
D.  Watch  Co.,  161  Pa.  St.  17.  An  in- 
solvent foreign  corporation  can  pre- 
fer creditors  by  mortgaging  its  real 
estate  in  Indiana  where  it  is  for- 
bidden to  do  so  by  the  laws  of  its 
own  state.  Nathan  v.  Lee,  152  Itid. 
232.  A  statute  limiting  the  amount 
of  land  which  foreign  corporations 
may  hold  can  be  taken  advantage  of 


only  by  the  state.  Amer.  Mtge.  Co. 
v.  Tennille,  87  Ga.  28.  See,  also, 
cases  in  the  next  note. 

i  Covvell  o.  Spring  Co.,  100  U.  S. 
55,  59;  approved  in  Christian  Union 
v.  Yount,  101  U.  S.  352,  356.  Accord 
Stevens  v.  Pratt,  101  111.  206  ;  Com- 
mer.  Union  Assurance  Co.  v.  Scam- 
mon,  102  111.  46.  And  see  Carroll  v. 
East  St.  Louis,  67  111.  568  ;  People  v. 
Fidelity,  etc.,  Co.,  153  111.  25. 

2  Bard  v.  Poole,  12  N.  Y.  495,  505; 
Hitchcock's  Heirs  v.  United  States 
Bk.,  7  Ala.  386,  435;  Morris  v.  Hall, 
41  Ala.  510.  See,  also,  Pierce  v. 
Crompton,  13  R.  I.  312;  Thompson 
v.  Waters,  25  Mich.  214.  See  Der- 
inger  v.  Deringer,  5  Houston  (Del.), 
416,  ante,  last  note  to  §  384. 

8  3  Bos.  (N.  Y.)  267,  299. 

371 


§  390.]         THE   LAW   OF   PRIVATE   CORPORATIONS.  [CHAP.  VU. 


on  the  powers  of  foreign  corporations  contained  in  the  general 
laws  of  the  state  incorporating  them  ;  but  only  that  persons 
dealing  with  the  corporation  would  not  be  affected  with  notice 
of  such  provisions.  The  court  continue,  as  follows  :  "  Our  citi- 
zens acting  here  in  dealing  with  or  in  relying  upon  the  acts  of 
such  a  corporation,  are  bound  to  notice  and  regard  the  provisions 
of  such  charter,  but  are  not  affected  by  or  bound  to  notice  the 
general  laws  of  the  foreign  state,  although  they  may  restrain 
the  powers  of  such  corporations  under  the  charter."  '  An  ex- 
amination of  the  same  case  on  appeal 2  will  show  that  if  the 
citizen  of  JS'ew  York,  in  this  instance,  had  had  notice  of  the 
foreign  law,  the  New  York  court  would  have  given  full  effect 
to  it,  and  would  have  recognized  the  disabilities  imposed  by  it 
on  the  foreign  corporation.3 

§  390.  Admitting  it  to  be  proper  for  the  courts  of  a  state  to 
protect  its  own  citizens  from  the  hardships  they  might  suffer 
were  they  bound  to  know  the  laws  of  a  foreign  state,4  it  is  sub- 
mitted that  the  distinction  indicated  above  is  neither  conven- 
ient nor  correct  on  principle.  It  is  not  convenient,  for  now- 
adays the  vast  majority  of  corporations  are  incorporated  under 
general  statutes,  and  have  no  "  charters "  properly  speaking ; 
so  the  distinction  is  fast  losing  its  applicability.  And  the  dis- 
tinction seems  incorrect  on  principle ;  it  being  a  curious  comity 
which  will  recognize  in  corporations  powers  which,  under  their 
own  constitutions,  they  do  not  possess.     The  constitution  of  a 


1  lb.  See,  also,  Pairpoint  Mfg.  Co. 
v.  Watch  Co.,  161  Pa.  St.  17.  A  court 
will  not  take  judicial  notice  of  the 
powers  of  a  foreign  corporation. 
Chapman  v.  Colby,  47  Mich.  46.  The 
corporation  must  prove  its  powers. 
Diamond  Match  Co.  v.  Powers,  51 
Mich.  145. 

2  10  N.  Y.  207,  222,  sub  nom.  Hoyt 
v.  Thompson's  Executor.  Compare 
Hoyt  u.  Thompson,  5  N.  Y.  320,  353. 

3 The  New  York  Court  of  Appeals 
seems  not  to  have  adhered  to  the 
above  distinction  in  the  case  of  Ells- 
worth v.  St.  Louis,  etc.,  R.  R.  Co.,  08 
N.  Y.  553.  There  it  was  decided 
that  wlien  a  railroad  company  incor- 
porated by  another  state  enters  into 

372 


a  contract  in  New  York,  which,  by 
its  terms,  is  to  be  performed  in  New 
York,  and  is  legal  under  New  York 
laws,  prohibitions  in  the  charter 
which  would  render  the  contract  il- 
legal in  the  state  incorporating  the 
company,  do  not  render  it  illegal  in 
New  York;  but  operate  only  as  re- 
strictions on  the  power  of  the  cor- 
poration and  its  officers. 

4  See  §  389.  But  compare  Relfe  v. 
Rundle,  103  U.  S.  222,  224;  and 
Bockover  v.  Life  Association,  77  Va. 
85,  which  holds  that  every  one  deal- 
ing with  a  corporation,  even  in  a 
foreign  state,  must  take  notice  of  its 
powers.  See,  also,  Republican,  etc., 
Mines  v.  Brown,  19  U.  S.  App.  203. 


PART  V.]     CORPORATE   ACTS   WITHOUT    THE    STATE.  [§  391. 

corporation  is  composed  of  all  the  laws  affecting  the  corpora- 
tion ;  and  embraces  just  as  much  statutes  affecting  corporations 
generally,  as  the  particular  statute — enabling  act  or  special 
charter — immediately  under  which  the  corporation  was  organ- 
ized.1 

§  391.  The  correct  distinction  seems  rather  as  follows :  If 
the  validity  of  an  act,  forbidden  b}7  the  legislature  of  the  state 
incorporating  the  foreign  corporation  on  whose  behalf  or  in 
regard  to  which  the  act  was  done,  is  to  be  passed  on  by  the 
court  of  another  state,  by  the  true  rule  of  comity  the  court 
should  give  effect  to  the  prohibition  according  to  the  intent  of 
the  legislature  enacting  it.  If  the  prohibition  were  apparently 
intended  to  inhere  in  the  corporation,  and  to  apply  to  all  its 
acts  wherever  done,  the  court  should  give  effect  to  it.2  But  if 
it  was  rather  part  of  the  local  policy  of  the  state  enacting  it, 
of  local  policy  which  there  is  no  reason  for  extending  beyond 
state  limits,  nor  even  any  reason  for  supposing  the  legislature 
would  have  desired  to  see  thus  extended,  then  the  prohibition 
should  not  be  enforced  by  the  courts  of  other  states,  at  least  in 
regard  to  acts  and  matters  outside  of  the  state  enacting  it.3 
The  true  rule  was  stated  by  Justice  Christiancy  in  Thompson 


>  Relfe  v.  Rundle,  103  U.  S.  222. 
Compare  Canada  Southern  R.  R.  Co. 
v.  Gebhard,  109  U.  S.  527,  537. 

The  ordinary  presumptions  in 
favor  of  the  legality  of  actions,  how- 
ever, apply  to  foreign  corporations. 
Thus,  where  a  court  has  no  judicial 
knowledge  of  the  constitution  of  the 
foreign  corporations,  as,  e.  g.,  when 
it  is  chartered  by  a  private  law,  the 
court  will  presume  authority  to  do 
any  reasonable  act,  until  absence  of 
authority  be  shown.  Charleston, 
etc.,  Turnpike  Co.  v.  Willey,  10  Ind. 
34.  See,  also,  Express  Co.  v.  Rail- 
road Co.,  99  U.  S.  191,  199. 

2  See  Rue  v.  Missouri  Pac.  Ry.  Co., 
74  Tex.  474. 

3  See  Ohio  Life  Ins.  Co.  v.  Mer- 
chants1 Ins.  Co.,  11  Humph.  (Tenn.) 
1,  24.     A  statute  forbidding  corpora- 


tions to  make  assignments  in  con- 
templation of  insolvency  (said  pro- 
vision not  being  contained  in  the 
statute  under  which  the  corporation 
in  question  was  organized)  is  part 
of  the  local  policy  of  the  state  (New 
York),  and  will  not  be  enforced  as 
to  an  assignment  of  property  made 
in  another  state  (Ohio),  said  prop- 
erty being  in  Illinois.  Warren  v. 
First  Nat.  Bk.,  149  111.  9;  ace.  Pair- 
point  Mfg.  Co.  v.  Watch  Co.,  161  Pa. 
St.  17.  The  contract  between  a  resi- 
dent shareholder  and  a  foreign  cor- 
poration is  that  embodied  in  the 
charter;  and  his  rights  are  not  af- 
fected by  the  general  laws  of  the 
foreign  state,  incorporating  the  cor- 
poration, affecting  remedies.  Guil- 
ford v.  West.  Un.  Tel.  Co.,  59  Minn. 
332. 

373 


§  392.]         THE   LAW    OF    PRIVATE   CORPORATIONS.  [CHAP.  VII. 


v.  Waters,1  to  the  effect  that  a  court  will  recognize  in  a  foreign 
corporation  "no  powers  or  capacities  which  would  not  be  re- 
cognized and  sustained  by  the  courts  of"  the  state  incorporat- 
ing it,  "had  the  same  question  of  capacity  to  take  these  lands 
come  before  them  for  adjudication." 

This  latter  distinction  finds  illustration  in  decisions  constru- 
ing the  validity  of  devises  of  lands  to  foreign  corporations. 
If,  for  instance,  in  Ohio,  certain  corporations  are  allowed  to 
take  land  by  devise,  a  prohibition  in  the  laws  of  the  state  in- 
corporating the  foreign  corporation  will  not  invalidate  a  devise 
to  it  of  Ohio  land.2  Indeed,  is  there  any  reason  to  suppose 
that  the  courts  of  the  state  incorporating  the  corporation  would 
apply  its  own  statute  forbidding  devises  to  corporations,  to  in- 
validate a  devise  to  the  corporation  of  land  situated  in  a  state 
where  no  such  prohibition  existed  ?  Would  they  not  rather 
apply  the  law  of  the  state  where  the  land  was  situated  ?  as- 
suming such  a  question  to  be  brought  before  them,  which  is 
improbable.3 

§  392.  As  the  courts  of  a  state  will  enforce  contracts  at  the 

suits  of  a  foreign  corporation,  so  they  will  entertain  an  action 

against  it.4     But  the  subject-matter  of  the  suit  must 

Actions 

against         not  be  such  that  the  court  will  decline  to  assume 
portions01"   jurisdiction,  as,  for  instance,  on  account  of  its  in- 
ability to  do  complete  justice  in  the  matter.5 


i  25  Mich.  214,  218. 

2  Amer.  Bible  Soc.  v.  Marshall,  15 
Ohio  St.  537;  White  v.  Howard,  38 
Conn.  342.  Contra,  House  of  Mercy 
v.  Davidson,  90  Tex.  529.  Compare 
§386. 

3  On  the  other  hand,  it  has  been 
held  that  when  a  corporation  is  char- 
tered to  do  business  in  another  state, 
the  liabilities  of  its  shareholders 
should  be  governed  by  the  statutes 
of  the  foreign  state  fixing  the  liability 
of  shareholders.  Pinney  v.  Nelson, 
183  U.  S.  144. 

4  N.  O.  J.  and  G.  N.  R.  Co.  v.  Wal- 
lace, 50  Miss.  244;  North  Missouri  R. 
R.  Co.  v.  Akers,  4   Kans.  453;  City 


Fire  Ins.  Co.  v.  Carrugi,  41  Ga.  660; 
Bushel  v.  Commonwealth  Ins.  Co.,  15 
S.  &  R.  176;  St.  Louis  Perpetual  Ins. 
Co.  v.  Cohen,  9  Mo.  416,  441;  Newby 
v.  Colt's  Patent  Fire  Arms  Co.,  L.  R. 
7  Q.  B.  293;  Libby  v.  Hodgdon,  9  N. 
H.  394;  Equitable  Life  Ass.  Soc.  v. 
Vogel's  Executrix,  76  Ala.  441; 
Selma,  etc.,  R.  R.  Co.  v.  Tyson,  48 
Ga.  351;  Amer.  Casualty  Co.  v.  Lea, 
56  Ark.  539;  Alabama  Gt.  S.  Ry.  Co. 
v.  Fulghum,  87  Ga.  263. 

The  stock  (i.  e.,  shares)  of  a  foreign 
corporation  having  its  office  aud  prin- 
cipal business  within  this  state  (New 
York)  is  not  subject  here  to  attach- 
ment as  property  within  this  state, 


6  Kansas  and  E.  R.  R.  Cons.  Co.  v.  Topeka,  etc.,  R.  R.  Co.,  135  Mass.  34. 

374 


PART  V.]  CORPORATE  ACTS  WITHOUT  THE  STATE.    [§  392. 

In  New  York,  section  1780  of  the  Code  of  Civil  Procedure 
provides  that  a  foreign  corporation  may  be  sued  on  any  cause 
of  action  by  a  resident  of  the  state  or  a  domestic  corporation, 
but  when  the  plaintiff  is  a  non-resident  or  a  foreign  corpora- 
tion, only  in  the  following  cases :  (1)  when  the  action  is  brought 
to  recover  damages  for  the  breach  of  a  contract  made  within 
the  state,  or  relating  to  property  situated  within  the  state  at 
the  time  when  the  contract  was  made  ;  (2)  when  the  action  is 
brought  to  recover  real  property  situated  within  the  state,  or  a 
chattel  replevied  within  the  state ;  (3)  when  the  cause  of  action 
arose  within  the  state,  except  where  the  object  of  the  action  is 
to  affect  the  title  to  real  property  situated  without  the  state. 
Before  the  passage  of  this,  and  other  and  former  statutes  which 
it  supplements  or  is  a  substitute  for,  a  foreign  corporation  could 
not  be  brought  in  invitum  into  a  New  York  court.1  And  the 
present  rule  in  New  York  is  that  in  cases  other  than  those  pro- 
vided for  in  the  above-mentioned  sections  of  the  code,  the  court 


the  owner  being  a  non-resident,  and 
his  certificate  never  having  been 
within  this  state.  Plimpton  v.  Bige- 
low,  93  N.  Y.  592,  reversing  S.  C,  12 
Abb.  N.  C.  (N.  Y.)  202;  Ireland  v. 
Globe  Milling  Co.,  19  R.  I.  180. 
Compare  Schmidlapp  v.  La  Confiance 
Ins.  Co.,  71  Ga.  246.  Contra,  Young 
v.  Iron  Co.,  85  Tenn.  189.  Shares  of 
stock  in  a  foreign  corporation  cannot 
be  attached  by  seizure  of  the  stock 
certificate.  Armour  Brothers  v.  Nat. 
Bank,  113  Mo.  12.  Foreign  corpora- 
tions are  subject  to  garnishment  only 
where  an  original  action  could  be  be- 
gun against  them  in  the  same  courts 
to  recover  the  debt  garuisheed.  Myer 
v.  Liverpool,  etc.,  Ins.  Co.,  40  Md. 
595;  Compare  Haddon  v.  Linville,  86 
Md.  210;  Linville  v.  Haddon,  88  Md. 
594;  Hodgson  v.  Southern  B'ld'g 
Assn.,  91  Md.  439.  See  Biause  v. 
New  England  Fire  Ins.  Co.,  21  Wis. 
509.  A  foreign  corporation  having 
no  property  of  the  debtor  within  the 
state,  nor  owing  money  to  him  pay- 
able within  the  state,  cannot  be  gar- 


uisheed in  the  state.  Wright  v.  Chi- 
cago, etc.,  R.  R.  Co.,  19  Neb.  175; 
Nat.  Bk.  v.  Frutick,  2  Marv.  (Del.) 
35.  A  domestic  corporation  has  its 
exclusive  residence  in  the  jurisdic- 
tion of  origin  and  cannot  be  gar- 
nisheed  in  another  jurisdiction  for 
debts  owing  by  it  to  home  creditors, 
so  as  to  make  the  attachment  effec- 
tual against  such  a  creditor  in  the 
absence  of  jurisdiction  acquired  over 
his  person.  Douglass  v.  Phoenix  Ins. 
Co.,  13'8  N.  Y.  209.  When  a  foreign 
corporation  sues  in  Massachusetts  a 
citizen  of  another  state  on  a  cause  of 
action  arising  in  that  other  state,  the 
Massachusetts  court  may  decline 
jurisdiction  when  the  amount  is 
trifling  and  the  defendant  would  be 
put  to  great  inconvenience,  and  there 
is  no  reason  why  suit  should  not  be 
brought  in  his  state.  Nat.  Tele- 
phone, etc.,  Co.  v.  Du  Bois,  165  Mass. 
117. 

1  See  Gibbs  v.  Queen  Insurance  Co., 
63  N.  Y.  114;  aud  compare  Ervin  v. 
Railway  Co.,  28  Hun  (N.  Y.),  269. 

375 


§  392.]         THE   LAW    OF    PRIVATE   CORPORATIONS.    [cHAP.  VII. 


will  refuse  jurisdiction  if  the  non-residence  of  the  corporation 
is  brought  to  its  attention  at  any  stage  of  the  proceedings.1 

Under  Michigan  statutes,  one  foreign  corporation  may  sue 
another  in  that  state  if  the  cause  of  action  arose  there,  and  both 
corporations  are  doing  business  there.2  In  Massachusetts  a  non- 
resident may  sue  a  foreign  insurance  company,  which  does 
business  in  that  state,  on  a  contract  made  in  another  state, 
where  the  subject-matter  of  the  contract  is  also  situated, 
although  the  only  service  made  is  on  the  insurance  commis- 
sioner, whom  all  foreign  insurance  companies  are  required  to 
appoint  as  their  attorney  for  service  of  process.15 

Courts  will  not,  however,  determine  controversies  relating  to 
the  internal  management  of  a  foreign  corporation,  arising  be- 
tween one  set  of  shareholders  and  persons  claiming  to  be  the 
officers,  as  well  as  shareholders,  of  the  corporation.4  But  the 
legal  relations  between  a  corporation  and  its  shareholders  are 
to  be  determined  by  the  law  of  the  home  state ;  and  accordingly 
a  state  will  recognize  and  apply  a  statute  of  the  home  state 


1  Robinson  v.  Nav.  Co.,  112  N.  Y. 
315.  Compare  as  to  the  rule  in  the 
Federal  courts,  Barrow  St'mship  Co. 
v.  Kane,  170  U.  S.  100.  An  action  on 
a  foreign  judgment  is  not  within  the 
third  clause  of  section  1780  of  the 
New  York  Code.  Anglo-Amer.  Prov. 
Co.  o.  Davis  Prov.  Co.,  169  N.  Y. 
506. 

2  Emerson,  Talcott&  Co.  v.  McCor- 
mick  Havesting  Machine  Co.,  51 
Mich.  5.  For  the  rule  under  the 
South  Carolina  statute,  see  Central 
R.  R.  Co.  v.  Georgia  Co.,  32  S.  C. 
319.  For  the  rule  in  Washington, 
see  Carstons  v.  Leidigh,  etc.,  Lumber 
Co.,  18  Wash.  450.-     . 

3  Johnston  v.  Trade  Ins.  Co.,  132 
Mass.  432.  (The  insurance  company 
had  appointed  the  commissioner  in 
accordance  with  the  statute.)  See, 
also,  Wilson  v.  Fire  Alarm  Co.,  149 
Mass.  24.  And  see  Abell  v.  Penn. 
Mutual  Life  Ins.  Co.,  18  W.  Va.  400; 
Desper  ».  Continental  Water  Meter 

376 


Co.,  137  Mass.  252.  It  is  held,  on  the 
other  hand,  that  a  court  will  not  take 
jurisdiction  of- an  action  for  personal 
injuries  caused  by  a  foreign  corpo- 
ration in  its  own  state,  although  the 
corporation  operates  a  railroad  in  the 
state  where  the  suit  is  brought. 
Central  R.  R.,  etc.,  Co.  v.  Carr,  76  Ala. 
388. 

4  Wilkins  v.  Thorne,  60  Md.  253; 
North  State  Copper,  etc.,  Co.  v.  Field, 
64  Md.  151;  Madden  v.  Electric  Light 
Co.,  181  Pa.  St.  617;  id.,  199  Pa.  St. 
454;  Condon  v.  Mut.  Res.  Ass'n,  89 
Md.  90;  Clark  v.  Mut.  Res.  Ass'n,  14 
D.  C.  App.  Cas.  154;  Barley  v.  Git- 
tings,  15  D.  C.  App.  Cas. 427;  Stock- 
ley  v.  Thomas,  89  Md.  392;  Taylor  v. 
Mut.  Res.  Ass'n,  97  Va.  60.  A  court 
will  sometimes  inquire  into  the  affairs 
of  a  foreign  corporation,  if  the  for- 
eign corporation  is  so  situated  that 
the  court  can  give  full  relief.  State 
ex  rel.  Watkins  v.  Land  &  Timber 
Co.,  Ltd.,  106  La.  621. 


PART  V.]  CORPORATE  ACTS  WITHOUT  THE  STATE.    [§  393. 


giving  a  corporation  a  lien  on  its  shares  for  debts  due  to  it 
from  shareholders.1 

§  393.  It  is  stated,  as  a  general  rule,  that  penal  provisions 
will  not  be  enforced  outside  of  the  jurisdiction  of  the   Penal  pro_ 
state  enacting  them.2    The  Federal  Supreme  Court,   jjjjjf^. 
however,  has  recently  held  that  a  statute  making   forced  out- 
directors  personally  liable  to  creditors  of  the  corpo-   state  enact- 
ration  for  makiug  and  signing  false  reports  ma}^  be   statutory 
enforced  without  a  state.     "  As  the  statute  imposes   hablllty- 
a  burdensome  liability  on  the  officers  for  their  wrongful  act, 
it  may  well  be  considered  penal,  in  the  sense  that  it  should 
be  strictly  construed.     But  as  it  gives  a  civil  remedy  at  the 
suit  of  the  creditor  only,  and  measured  by  the  amount  of  his 
debt,  it  is  as  to  him  clearly  remedial.     To  maintain  such  a  suit 
is  not  to  administer  a  punishment  imposed  upon  an  offender 
against  the  state,  but  simply  to  enforce  a  private  right  secured 
under  its  laws  to  an  individual.     We  can  see  no  just  ground, 
on  principle,  for  holding  such  a  statute  to  be  a  penal  law  in 
the  sense   that   it   cannot  be  enforced  in    a   foreign  state  or 
country."  3 

The  liability  of  shareholders  in  a  foreign  corporation,  arising 
under  the  statutes  of  the  state  in  which  the  corporation  is  in- 
corporated, is  of  a  contractual  nature,  and  will  be  enforced  in 
any  court  of  competent  jurisdiction.     In  the  leading  case  of 


1  Bishop  v.  Globe  Co.,  135  Mass. 
132.  A  court  will  entertain  a  suit  by 
a  resident  against  a  foreign  corpora- 
tion to  compel  it  to  issue  a  new  cer- 
tificate of  stock  to  him,  Guilford  v. 
Western  U.  Tel.  Co.,  59  Minn.  332. 

2  See  Story,  Conflict  of  Laws,  §§  620, 
621;  Wharton's  Conflict  of  Laws, 
§833. 

A  statute  of  Indiana  giving  a  right 
to  recover  a  penalty  for  the  failure  of 
a  telegraph  company  to  transmit  a 
message,  has  no  extra-territorial 
force,  and  therefore  is  not  applica- 
ble to  messages  delivered  to  the 
company  in  anotber  state  to  be  sent 
to  tins  state  (Indiana).  Carnahan  v. 
Western  Un.  Tel.  Co.,  89  Ind.  526. 
But  if  the  message  is  delivered  to 


the  telegraph  company  within  the 
state,  to  be  sent  to  a  point  without, 
the  fact  tbat  the  act  of  negligence 
preventing  the  message  from  reach- 
ing its  destination  occurred  outside 
of  the  state  will  not  defeat  a  recov- 
ery. Western  Un.  Tel.  Co.  v.  Ham- 
ilton, 50  Ind.  181.  The  determining 
circumstance,  according  to  these  two 
cases,  is  whether  the  contract  with 
the  telegraph  company  was  entered 
into  within  the  state. 

3  Huntington  u.  Attrill,  146  U.  S. 
657,  677.  Opinion  of  the  court  per 
Gray,  J.  Accord,  with  respect  to 
personal  statutory  liability  of  direct- 
ors for  creating  debts  in  excess  of 
the  capital  stock.  Farr  v.  Briggs's 
Estate,  72  Vt.  225.     See  §§  764,  765. 

377 


§  393.]  THE   LAW    OF   PRIVATE    CORPORATIONS.  [CHAP.  VII. 

Whitman  v.  Oxford  National  Bank1  upon  the  Kansas  statute, 
Justice  Brewer  said,  giving  the  opinion  of  the  Federal  Supreme 
Court :  "  The  liability  which  by  the  constitution  and  statutes 
is  thus  declared  to  rest  upon  the  stockholder,  though  statutory 
in  its  origin,  is  contractual  in  its  nature.  It  would  not  be 
doubted  that  if  the  stockholders  in  this  corporation  had  formed 
a  partnership,  the  obligations  of  each  partner  to  the  others  and 
to  creditors  would  be  contractual,  and  determined  by  the  gen- 
eral common  law  in  respect  to  partnerships.  If  Kansas  had 
provided  for  partnerships,  with  limited  liability,  and  these  par- 
ties, complying  with  the  provisions  of  the  statute,  had  formed 
such  a  partnership,  it  would  also  be  true  that  their  obligations 
to  one  another  and  to  creditors  would  be  contractual,  although 
only  in  the  statute  was  to  be  found  the  authority  for  the  crea- 
tion of  such  obligations.  And  it  is  none  the  less  so  when  these 
same  stockholders  organized  a  corporation  under  a  law  of  Kan- 


1  176  U.  S.  559.  Accord  Ferguson 
v.  Sherman,  116  Cal.  169;  Aldrich  v. 
Coal  Co.,  24  Oreg.  32;  Bell  v.  Far- 
well,  176  111.  489;  Hancock  Nat. 
Bank  v.  Ellis,  172  Mass.  39;  Broad- 
way Nat.  Bank  v.  Baker,  176  U.  S. 
294;  Western  Nat.  Bank  v.  Law- 
rence, 117  Mich.  669;  Guerney  v. 
Moore,  131  Mo.  650.  Marshall  v. 
Sherman,  148  N.  Y.  9,  and  Crippen 
v.  Leighton,  69  N.  H.  540,  contra, 
arose  prior  to  the  decision  in  the 
Whitman  case  cited  in  the  text.  All 
of  the  above  cases  arose  under  the 
Kansas  statutes.  The  Pennsylvania 
court,  under  the  same  Kansas  stat- 
utes, holds  that  a  creditor  can  sue  a 
shareholder  at  law  in  Pennsylvania 
after  a  receiver  has  been  appointed  in 
Kansas.  Ball  v.  Anderson,  19(5  Pa. 
St.  86,  overruling  Cushing  v.  Perot, 
175  Pa.  St.  66. 

It  is  the  tendency  of  recent  state 
decisions,  upon  grounds  of  comity, 
to  allow  receivers  of  foreign  corpo- 
rations to  maintain  suits  to  enforce 
the  statutory  liability  of  resident 
stockholders.     Childs  u.  Cleaves,  95 

378 


Me.  498;  Tomkins  v.  Blakely,  70  N. 
H.  585;  Howard  v.  Angle,  162  N.  Y. 
179;  Howard  v.  Lombard,  175  Mass. 
570.  Compare  Swing  v.  Bentley  Co., 
45  W.  Va.  283.  But  see  Wyman  v. 
Eaton,  107  Iowa,  214. 

The  liability  of  a  shareholder  in  an 
insolvent  foreign  corporation  for  his 
unpaid  subscription  may  be  enforced 
in  an  action  brought  by  the  receiver 
of  the  foreign  corporation.  Castle- 
man  v.  Templeton,  87  Md.  546;  Stod- 
dard v.  Lum,  159  N.  Y.  265.  Upon 
the  general  question  of  enforcing  in 
other  states  the  statutory  liability 
of  shareholders  in  a  foreign  corpora- 
tion compare  the  following  earlier 
cases:  Rule  v.  Omega,  64  Miun.  326; 
New  Haven  Horse  Nail  Co.  v.  Lin- 
den, 142  Mass.  349;  Flash  v.  Conn, 
109  U.  S.  371;  Aultman's  Appeal,  98 
Pa.  St.  505;  Erickson  v.  Smith,  4 
Allen,  233;  Same  v.  Same,  15  Gray, 
221;  Smith  v.  Mutual  Life  Ins.  Co., 
14  Allen,  336;  Bank  of  North  Amer- 
ica v.  Rindge,  154  Mass.  203;  Fowler 
V.  Samson,  146  111.  472;  Russell  v. 
Pacific  Ry.  Co.,  113  Cal.  258. 


PART  V.]  CORPORATE  ACTS  WITHOUT  THE  STATE.    [§  393. 

sas,  which  prescribed  the  nature  of  the  obligations  which  each 
thereby  assumed  to  the  others  and  to  the  creditors.  While  the 
statute  of  Kansas  permitted  the  forming  of  the  corporation  un- 
der certain  conditions,  the  action  of  these  parties  was  purely 
voluntary.  In  other  words,  they  entered  into  a  contract  au- 
thorized by  statute."  It  is  held  in  Massachusetts  that  a  for- 
eign corporation  may  maintain  in  the  Massachusetts  courts  a 
bill  against  the  officers  of  another  foreign  corporation,  against 
which  it  holds  a  judgment  obtained  in  the  state  where  both 
corporations  were  organized,  for  discovery  of  the  names  of 
its  stockholders  and  the  number  of  shares  held  by  each,  when 
the  officers  of  the  debtor  corporation  reside  in  Massachusetts 
and  its  books  are  kept  there,  the  ultimate  object  of  the  bill 
being  to  enable  the  plaintiff,  by  a  suit  in  its  home  state,  to  en- 
force the  statutory  liability  of  the  stockholders  of  the  debtor 
corporation.1 

In  the  subsequent  case  of  Hancock  National  Bank  v.  Farnum2 
the  Federal  Supreme  Court  held  that  under  the  Constitution  of 
the  United  States  the  court  of  the  state  in  which  the  share- 
holders are  sued,  must  give  the  same  effect  to  a  judgment 
against  the  corporation  rendered  in  the  home  state,  Kansas,  that 
would  have  been  accorded  it  in  Kansas,  and  therefore  that 
such  judgment  is  in  every  court  conclusive  against  shareholders 
upon  those  matters  as  to  which  it  would  have  been  conclusive 
in  Kansas.  Giving  the  opinion  of  the  court,  Justice  Brewer 
said  :  "  What  then  is  the  faith  and  credit  given  by  law  or  usage 
in  the  courts  of  Kansas  to  a  judgment  against  a  corporation  ? 
What  is  the  effect  of  such  a  judgment  as  there  established? 
This  is  a  question  not  answered  by  referring  to  general  princi- 
ples of  law,  by  determining  what  at  common  law  was  the  sig- 
nificance and  effect  of  a  judgment,  but  can  be  answered  only 
by  an  examination  of  the  decisions  of  the  courts  of  Kansas. 
The  law  and  usage  in  Kansas,  prescribed  by  its  legislature  and 
enforced  in  its  courts,  make  such  a  judgment  not  only  conclu- 
sive as  to  the  liability  of  the  corporation,  but  also  an  adjudica- 
tion binding  each  stockholder  therein.     We  do  not  mean  that 


iPost  v.  Toledo,  etc.,  R.  R.  Co., 
144  Mass.  341. 

2176U.  S.  640.  Followed  in  Tomp- 
kins, Rec'r,  v.  Blakey,  70  N.  H.  584; 


Childes  v.  Cleaves,  95  Me.  498;  How- 
ard v.  Lombard,  175  Mass.  570; 
Broadway  Nat.  Bank  v.  Baker,  176 
Mass.  294. 

379 


§  394.]         THE    LAW    OF    PRIVATE   CORPORATIONS.    [CHAP.  VII. 

it  is  conclusive  as  against  any  individual  sued  as  a  stockholder 
that  he  is  one,  or  if  one,  that  he  has  not  already  discharged  by 
payment  to  some  other  creditor  of  a  corporation  the  full  meas- 
ure of  his  liability,  or  that  he  has  not  claims  against  the  corpo- 
ration, or  judgments  against  it,  which  he  may,  in  law  or  equity, 
as  any  debtor,  whether  by  judgment  or  otherwise,  set  off  against 
a  claim  or  judgment,  but  in  other  respects  it  is  an  adjudication 
binding  him.  He  is  so  far  a  part  of  the  corporation  that  he  is 
represented  by  it  in  the  action  against  it.1  .... 

"  Now,  as  the  judgment  rendered  in  the  Kansas  court  is  in 
that  state  not  only  conclusive  against  the  corporation  but  also 
binding  upon  the  stockholder,  it  must,  in  order  to  have  the 
same  force  and  effect  in  other  states  of  the  Union,  be  adjudged 
in  their  courts  to  be  binding  upon  him,  and  the  only  defences 
which  he  can  make  against  it  are  those  which  he  could  make 
in  the  courts  of  Kansas.  The  question  to  be  determined  in  this 
case  was  not  what  credit  and  effect  are  given  in  an  action  against 
a  stockholder  in  the  courts  of  Khode  Island  to  a  judgment  in 
those  courts  against  the  corporation  of  which  he  is  a  stockholder, 
but  what  credit  and  effect  are  given  in  the  courts  of  Kansas,  in 
a  like  action  to  a  similar  judgment  there  rendered.  Thus  and 
thus  only  can  the  full  faith  and  credit  prescribed  by  the  con- 
stitution of  the  United  States  and  the  act  of  Congress  be  se- 
cured.'' 

§  394.  A  court  has  no  jurisdiction  either  to  dissolve  a  foreign 
T   .  3.  .       corporation,2  or  compel  a  distribution  of  its  assets. 

Jurisdiction  ~  >  i  _  ^ 

over  assets  even  though  its  trustees  are  residents;3  or  to  enjoin 
corpora?1  the  directors  of  such  a  corporation  from  paying  a 
tlons'  dividend,  where  no  debt  is  due  the  plaintiff,  and  his 

ground  of  complaint  is  merely  a  supposed  error  on  the  part  of 
the  directors  in  declaring  the  dividend,4  or  to  appoint  a  re- 
ceiver of  a  foreign  corporation.5     But  it  has  been  held  that  a 

1  Citing  Ball  v.  Reese,  58  Kan.  614.    shareholder  in  a  foreign  corporation. 


2  Dodge  v.  Pyrolusite  Manganese 
Co.,  69  Ga.  605. 

a  Redmond  v.  Enfield  Mfg.  Co.,  13 
Abb.  Pr.  N.  S.  (N.  Y.)  332.  See 
Wilkins  v.  Thorne,  60  Md.  253  ;  North 
State  Copper,  etc.,  Co.  v.  Field,  64 
Md.  151.  A  state  court  will  not 
entertain  a  creditor's  bill  against  a 

380 


Young  v.  Farwell,  139  111.  326.     See 
§706. 

4  Howell  v.  Chicago,  etc.,  Ry.  Co., 
51  Barb.  378.  But  see  De  Bemer  v. 
Drew,  57  Barb.  438;  Prouty  v.  Mich. 
So.,  etc.,  R.  R.  Co.,  1  Hun,  658. 

5  Stafford  v.  American  Mills  Co., 
13  R.    I.   310;  Green  v.  Williams,  22 


PART  V.]     CORPORATE   ACTS    WITHOUT    THE   STATE.  [§  395. 

court  (of  chancery)  has  jurisdiction  to  wind  up  the  affairs  of  an 
insolvent  foreign  corporation,  doing  business  in  the  state,  so  far 
as  to  administer  its  assets  within  the  jurisdiction  of  the  court.1 
But  a  statute  which  seeks  to  limit  the  distribution  of  such 
assets  to  resident  creditors  and  to  deny  to  individual  creditors 
resident  in  other  states  the  right  to  share  therein  is  unconsti- 
tutional and  void.2 

§  395.  In  order  that  a  judgment  in  personam  against  a  foreign 
corporation  shall  be  valid,  so  as  to  obtain  recogni-  . 
tion  in  other  states,  it  is  prerequisite  that  the  cor-  foreign  cor- 
poration should  have  appeared  voluntarily,3  or  that  por 
a  valid  service  of  process  should  have  been  made  within  the 
jurisdiction  of  the  court,  upon  an  agent  of  the  corporation 
representing  it  in  the  state.  This  rule  has  been  stated  by  the 
Federal  Supreme  Court,  as  follows  : 4  "  We  are  of  opinion  that 
when  service  is  made  within  the  state  upon  an  agent  of  a  foreign 
corporation,  it  is  essential,  in  order  to  support  the  jurisdiction 
of  the  court  to  render  a  personal  judgment  that  it  should  appear 
somewhere  upon  the  record — either  in  the  application  for  the 
writ,  or  accompanying  its  service,  or  in  the  pleadings  or  the 
findings  of  the  court — that  the  corporation  was  engaged  in 
business  in  the  state.  The  transaction  of  business  by  the  cor- 
poration in  the  state,  general  or  special,  appearing,  a  certifi- 
cate of  service  by  the  proper  officer  on  a  person  who  is  its  agent 
there  would,  in  our  opinion,  be  sufficient  prima  facie  evidence 
that  the  agent  represented  the  company  in  the  business.  It 
would  then  be  open,  when  the  record  is  offered  as  evidence  in 
another  state,  to  show  that  the  agent  stood  in  no  representative 
character  to  the  company,  that  his  duties  were  limited  to  those 


R.  I.  547.     See  Pierce  v.  Crompton, 
ib.  312. 

1  Smith  v.  St.  Louis  Mut.  Life  Ins. 
Co.,  6  Lea  (Tenn.),  564.  See  Hol- 
brook  v.  Ford,  153  111.  633.  Compare 
Paige  v.  Smith,  99  Mass.  395.  Bus- 
well  v.  Order  of  the  Iron  Hall,  161 
Mass.  224. 

2  Blake  v.  McClung,  172  U.  S.  239. 
A  foreign  corporation  not  doing  bus- 
iness in  the  state,  may,  however  be 
denied  the  right  to  share  in  such 
assets,  (idem).    See  People  y.  Granite 


State  Prov.  Ass'n,  161  N.  Y.  492; 
Bank  Com.  v.  Granite  State  Prov. 
Ass'n,  70  N.  H.  557. 

3  See  Attorney -General  v.  Guardian 
Mut.  Life  Ins.  Co.,  77  N.  Y.  272 ; 
Townes  v.  City  Council,  46  S.  C.  15; 
Central  Trust  Co.  v.  McGeorge,  151 
U.  S.  129. 

*  St.  Clair  v.  Cox,  106  U.  S.  350, 
359,  following  the  principles  of  Pen- 
noyer  v.  Neff,  95  U.  S.  714.  See 
Hohorst,  in  re,  150  U.  S.  653. 

381 


§   396.]        THE  LAW   OF   PRIVATE   CORPORATIONS.    [CHAP.  VII. 


of  a  subordinate  employe,  or  to  a  particular  transaction,  or  that 
his  agency  had  ceased  when  the  matter  in  suit  arose." * 

§  396.  It  thus  appears  that,  in  order  to  bind  the  corporation 
by  the  judgment,  the  person  on  whom  service  is  made  must  be 
the  agent  of  the  corporation  representing  it  there  within  the 
state  whose  process  is  served  on  him.  And  the  agents  of  a  cor- 
poration are  not  its  representatives  for  the  purpose  of  receiving 
service  of  process  in  a  state  where  the  corporation  transacts  no 
business.2    When  a  foreign  corporation  has  a  regular  office  for 


1  See,  also,  Freeman  v.  Alderson, 
119  U.  S.  185;  Fitzgerald  Construc- 
tion Co.  u.  Fitzgerald,  137  U.  S.  98; 
Societe  Fonciere  v.  Milliken,  135  U. 
S.  304;  Barrow  St'mship  Co.  v. 
Kane,  170  U.  S.  100;  Conn.  Mut.  L. 
I.  Co.  v.  Spratley,  172  U.  S.  602;  Far- 
rell  v.  Oregon  Gold  Co.,  31  Or.  463; 
Blanc  v.  Paymaster  Mg.  Co.,  95  Cal. 
524;  American  Exp.  Co.  v.  Conant, 
45  Mich.  642;  Lathrop  v.  Union  Pac. 
R'y  Co.,  1  McArthur,  234;  Dallas  v. 
Atlantic,  etc.,  R.  R.  Co.,  2  McArthur, 
146;  Weight  v.  Liverpool,  etc.,  Ins. 
Co.,  30  La.  Ann.,  Part  II.,  1186 ; 
McNichol  v.  United  States,  etc., 
Agency,  74  Mo.  457  ;  Weymouth  v. 
Washington,  etc.,  R.  R.  Co.,  1  Mc- 
Arthur, 19;  Georgia  Southern  R.  R. 
Co.  v.  Bigelow,  68  Ga.  219;  Moore  v. 
Wayne  Circuit  Judge,  55  Mich.  84; 
Tillinghast  v.  Boston  Co.,  39  S.  C. 
484;  Firemen's  Ins.  Co.  v.  Thompson, 
155  111.  204,-  Germ.  Ins.  Co.  v.  First 
Nat.  B'k,  58  Kas.  86.  For  certain 
purposes  of  procedure  a  foreign  cor- 
poration has  a  residence  in  a  county 
where  it  has  an  office  or  agent  for 
transacting  business.  Harding  v. 
Chicago,  etc.,  R.  R.  Co.,  80  Mo.  659. 
But,  even  then  insolvency  proceed- 
ings will  not  discharge  a  debt  owing 
to  a  foreign  corporation.  Bergner  & 
Engel  Br'w'g  Co.  v.  Dreyfus,  172 
Mass.  154;  Hammond  Beef  Co.  v. 
Best,  91  Me.  431. 

An  Illinois  statute  required  foreign 

382 


insurance  companies  doing  business 
in  that  state,  to  appoint  in  writing  a 
resident  attorney  on  whom  process 
could  be  served.  The  insured  took 
out  a  policy  in  Michigan,  died,  and 
an  Illinois  court  appointed  an  ad- 
ministrator, the  policy  of  insurance 
being  the  only  asset.  Held,  the  ad- 
ministrator could  sue  the  Insurance 
Co.  in  Illinois.  "In  view  of  this 
legislation  and  the  policy  embodied 
in  it,  when  this  corporation,  not  or- 
ganized under  the  laws  of  Illinois, 
has,  by  virtue  of  those  laws,  a  place 
of  business  in  Illinois,  and  a  general 
agent  there,  and  a  resident  attorney 
there  for  the  service  of  process,  and 
can  be  compelled  to  pay  its  dehts 
there  by  judicial  process,  and  has 
issued  a  policy  payable  on  death  to 
an  administrator,  the  corporation 
must  be  regarded  as  having  a  domi- 
cile there,  in  the  sense  of  the  rule 
that  the  deht  on  the  policy  is  assets 
at  its  domicile,  so  as  to  uphold  the 
grant  of  letters  of  administration 
there."  New  England  Mut.  Life 
Ins.  Co.  v.  Woodworth,  111  U.  S.  138, 
145.  An  agent  of  a  foreign  corpora- 
tion cannot,  on  his  own  behalf,  begin 
an  action  against  his  corporation  by 
serving  himself.  George  v.  Ginning 
Co.,  46  S.  C.  1. 

2  McQueen  v.  Middleton  Mfg.  Co., 
16  Johns.  (N.  Y.)  5,  7;  Peckham  v. 
North  Parish,  16  Pick.  274,  286; 
Newell  v.  Great  Western  Ry.  Co.,  19 


PART  V.]     CORPORATE   ACTS   WITHOUT  THE   STATE.         [§  397. 


the  transaction  of  business  within  a  state,  service  on  the  head 
officer  of  such  office  will  be  a  valid  service  on  the  corporation 
in  respect  of  causes  of  action  arising  within  the  jurisdiction,1 
but  not  in  respect  of  causes  arising  outside  of  the  jurisdiction 
of  the  court  whose  process  is  served  on  the  resident  agent.2 

§  397.  It  is  customary,  however,  for  state  legislatures  by 
statute  to  designate  the  persons  on  whom  service 
shall  or  may  be  made  in  actions  against  foreign  cor-  regulating 
porations  doing  business  within  the  state.     Service  service- 
in  accordance  with  the  statute  will  be  valid,  for  by  coming 
within  the  state  to  do  business,  a  foreign  corporation  submits 
itself  to  the  state  laws ;  and  it  may  thus  submit  itself  expressly 
by  filing  a  certificate  pursuant  to  the  statute  designating  an 
agent  on  whom  service  may  be  made.3 


Mich.  336;  Latimer  v.  Union  Pac.  Ry. 
Co.,  43  Mo.  105;  Moulin  v.  Ins.  Co., 
24  N.  J.  L.  222;  Camden  Rolling  Mill 
Co.  v.  Swede  Iron  Co.,  32  X.  J.  L.  15; 
State  v.  District  Court,  26  Minn.  233, 
234;  Phillips  v.  Library  Co.,  141  Pa. 
St.  462;  Blanc  v.  Paymaster  Mg.  Co., 
95  Cal.  524;  Crook  u.  Girard  Iron  Co., 
87  Md.  138;  Watkins  Land  Co.  v.  El- 
liott, 62  Kas.  291. 

1Tuchband  v.  Chicago,  etc.,  R.  R. 
Co.,  115  N.  Y.  437;  Newsby  v.  Colt's 
Patent  Fire  Arms  Co.,  L.  R.  7  Q.  B. 
293;  City  Fire  Ins.  Co.  v.  Carrugi,  41 
Ga.  66,  671;  Western  Union  Tel.  Co. 
v.  Pleasants,  46  Ala.  641 ;  Atlantic  and 
G.  R.  R.  Co.  v.  Jacksonville  P.  and  M. 
R.  R.  Co.,  51  Ga.  458;  see  Libbey  v. 
Hodgdon,  9  X.  H.  394.  Compare 
Norton  v.  Bridge  Co.,  51  N.  J.  L.  442. 

2Bawknight  o.  Liverpool,  etc.,  Ins. 
Co.,  55  Ga.  194;  see  National  Con- 
densed Milk  Co.  v.  Bradenburgh,  40 
N.  J.  L.  Ill;  Parke  v.  Commonwealth 
Ins.  Co.,  44  Pa.  St.  422.  A  verified 
answer  that  defendant  is  a  corpora- 
tion created  by  the  laws  of  another 
state,  and  not  by  the  laws  of  the  state 
where  suit  is  brought;  that  the  per- 
son upon  whom  process  was  served 
was   its   agent   only   in   the   county 


where  the  action  was  commenced, 
and  that  the  contract  sued  on  was 
made  out  of  the  state,  and  not  by  the 
agent  served,  and  was  not  connected 
with  the  business  of  his  office,  is 
good  on  demurrer  to  abate  the  action 
for  want  of  jurisdiction  of  the  person 
of  the  defendant.  iEtna  Ins.  Co.  v. 
Black,  80  Ind.  513.  But  when  the 
subject-matter  of  the  suit  is  one  over 
which  the  court  has  jurisdiction,  and 
the  defendant,  a  foreign  corporation, 
appears  and  goes  to  trial  on  the 
merits,  without  objection,  it  cannot 
except  to  the  jurisdiction  of  the 
court  over  it.  North  Missouri  R.  R. 
Co.  v.  Akers,  4  Kan.  453. 

3  See  Reyer  v.  Odd  Fellows'  Ass'n, 
157  Mass.  367;  Lafayette  Ins.  Co.  v. 
French,  18  How.  404;  Gibbs  y.  Queen 
Ins.  Co.,  63  N.  Y.  114;  Warren  Mfg. 
Co.  v.  ^Etna  Ins.  Co.,  2  Paine,  501; 
Benwood  Iron  Works  v.  Hutchinson, 
101  Pa.  St.  359;  Iron  Co.  v.  Construc- 
tion Co.,  61  Mich.  226;  Firemen's  Ins. 
Co.  v.  Thompson,  155  111.  204;  Green 
v.  Life  Ass'n,  105  Iowa,  628.  A 
"  managing  agent"  of  a  foreign  cor- 
poration on  whom  by  statute  process 
may  be  served,  means  some  person  in- 
vested by  the  corporation  with  gen- 

383 


§  398.]         THE   LAW   OF   PRIVATE   CORPORATIONS.  [CHAP.  VII. 

§  398.  In  New  York  it  is  held  that  when  a  foreign  corpora- 
tion has  done  business  in  that  state,  and  suit  is  brought 
docTriuerk  on  a  cause  °f  action  arising  there,  service  on  one  of 
its  directors  temporarily  in  the  state  on  its  own  busi- 
ness is  a  valid  service  on  the  corporation;  and  this,  on  the 
ground  that  "any  service  must  be  deemed  sufficient  which 
renders  it  reasonably  probable  that  the  party  proceeded  against 
will  be  apprised  of  what  is  going  on  against  him,  and  have  an 
opportunity  to  defend."1  The  New  York  court  has  certainly 
gone  very  far  in  upholding  the  validity  of  service  on  a  foreign 
corporation.  Section  1780  of  the  New  York  Code  of  Civil 
Procedure  provides  that  "  an  action  against  a  foreign  corpora- 
tion may  be  maintained  by  a  resident  of  the  state,  or  by  a 
domestic  corporation,  for  any  cause  of  action."  Section  432 
provides  that  personal  service  of  the  summons  upon  a  foreign 
corporation  may  be  made  by  delivering  a  copy  within  the  state 
to  the  president,  secretary,  or  treasurer.  In  the  case  referred 
to,  Pope  v.  Terre  Haute  Car  Manufacturing  Company,-  it  ap- 
peared that  a  foreign  corporation  had  transacted  no  business 
within  the  state,  and  had  neither  property  nor  a  place  of  busi- 
ness there.  The  plaintiffs  were  residents,  and  the  cause  of 
action  arose  on  contract.  The  summons  was  served  on  the  de- 
fendant's president  while  he  was  temporarily  within  the  state 
on  his  way  to  a  seaside  resort,  and  not  in  his  official  capacity 
nor  on  any  business  connected  with  the  corporation.  The  court 
held  the  service  sufficient,  and  that  a  judgment  rendered  in  the 
action  would  be  valid  for  every  purpose  within  the  state,  and 
could  be  enforced  against  any  corporate  property  within  the 
state  at  any  time  :  "  The  object,"  said  the  court,  "  of  all  service 
of  process  for  the  commencement  of  a  suit  or  any  other  legal 
proceeding  is  to  give  notice  to  the  party  proceeded  against,  and 
any  service  which  reasonably  accomplishes  that  end  answers 
the  requirements  of  natural  justice  and  fundamental  law;  and 


eral  powers  involving  the  exercise  of 
judgment  and  discretion.  Taylor  v. 
Granite  Ass'n,  136  N.  Y.  343.  As  to 
who  is  not  a  "local  agent'1  of  a  for- 
eign corporation,  on  whom  process 
may  he  served  according  to  statute, 
see  Mexican  Central  Ey.  v.  Pinkney, 
149  U.  S.  194. 
384 


1  Hiller  v.  Burlington,  etc.,  R.  R. 
Co.,  70  N.  Y.  223.  See,  also,  Gibbs  v. 
Queen  Ins.  Co.,  63  N.  Y.  114;  Lafay- 
ette Ins.  Co.  v.  French,  18  How.  404, 
407.     See  §  392. 

2  87  N.  Y.  137. 


PART  V.]  CORPORATE  ACTS  WITHOUT  THE  STATE.    [§  400. 


what  service  shall  be  deemed  sufficient  for  that  purpose  is  to  be 
determined  by  the  legislative  power  of  the  country  in  which  the 
proceeding  is  instituted,  subject  only  to  the  limitation  that  the 
service  must  be  such  as  may  reasonably  be  expected  to  give  the 
notice  aimed  at."  The  court  said  they  did  not  determine  what 
would  have  been  the  effect  outside  the  state  of  the  judgment 
rendered  upon  such  service,  and  from  the  authorities  heretofore 
cited  and  the  principles  heretofore  stated,  it  is  clear  that  such 
a  service  and  a  judgment  rendered  thereon  would  have  no 
validity  whatsoever  or  be  recognized  in  the  courts  of  any  other 
state.1  A  judgment,  however,  rendered  in  a  suit  in  which  the 
foreign  corporation  is  brought  within  the  jurisdiction  of  the 
court,  must  under  the  Federal  constitution  be  recognized  in  all 
the  states.3 

§  399.  Finally,  although  the  defendant  foreign  corporation  is 
not  brought  within  the  jurisdiction  of  the  court,  a 

.  Proceed- 

valid  judgment  in  re?n  may  be  entered  against  any   mgsinrem. 
property  attached  within  the  state.3     But  no  valid 
personal  judgment  against  the  corporation  could  be  rendered  in 
an  action  commenced  in  this  way.4 

§  400.  In  a  number  of  the  states  exist  statutes  prescribing 
the  terms  upon  which  foreign  corporations  shall  be    statutes 
permitted  to  do  business.     These  terms  ordinarily  are   termson 
that  a  corporation  before  commencing  business  shall   porpora- 
file  a  certificate  in  the  prescribed  public  office,  desig-   tions- 
nating  the  principal  place  of  business  of  the  corporation  within 
the  state  and  a  resident  agent  on  whom  process  may  be  served.5 


1  Goldey  b.  Morning  News,  156  U.  S. 
518;  See  Phillips  B.  Library  Co.,  141 
Pa.  St.  462;  Branson  b.  Trum  Bros. 
Machine  Co.,  16  Phila.  (Pa.)  112. 

2  Lafayette  Ius.  Co.  v.  French,  18 
How.  404. 

3  Bushel  v.  Commonwealth  Ins. 
Co.,  15  S.  &  R.  174;  see  Warren 
Mfg.  Co.  v.  ^Etna  Ins.  Co.,  2  Paine, 
501;  Latimer  v.  Union  Pac.  Ry.  Co., 
43  Mo.  105;  Barnett  v.  Chicago,  etc., 
R.  R.  Co.,  4  Hun,  114. 

*  St.  Clair  b.  Cox,  106  U.  S.  350. 
5  By  soliciting  and   receiving  sub- 
scriptions for  a  newspaper  published 

25 


by  it  in  another  state,  a  foreign  cor- 
poration is  not  doing  business  in 
Alabama  within  the  meaning  of  the 
section  of  the  Alabama  constitution, 
which  prohibits  foreign  corporations 
from  doiug  any  business  in  the  state 
without  having  at  least  one  known 
place  of  business  and  an  authorized 
agent  therein.  Beard  v.  The  Union, 
etc.,  Publishing  Co.,  71  Ala.  60.  A 
mining  company  which  owns  land 
and  leases  it  for  agricultural  pur- 
poses is  not  doing  business  in  the 
state.  Mo.  C.  &  M.  Co.  b.  Ladd,  160 
Mo.    435.     But    making    a    loan   of 

385 


§  400.]         THE   LAW   OF   PRIVATE   CORPORATIONS.  [CHAP.  VII. 


Some  states  have  attempted  to  impose  the  further  condition 
that  no  suit  against  the  corporation  brought  by  a  resident  of 
the  state  shall  be  removed  into  the  Federal  courts.  But  this  is 
unconstitutional.  A  state  may  exclude  foreign  corporations 
entirely  ;  but  if  she  admits  them  to  do  business  within  her  lim- 
its, she  cannot  impose  on  them  conditions  repugnant  to  the 
Federal  constitution.1     So  a  state  statute  which  declares  that 


money  in  the  state  secured  by  note 
and  mortgage  is  "  doing  business " 
there.  Ginn  v.  New  England  Mtge. 
Co.,  92  Ala.  135.  Compare  Dundee 
Mtge.  Co.  v.  Nixon,  95  Ala.  318;  In- 
ternational C.  S.  O.  Co.  v.  Wheelock, 
124  Ala.  3(37;  Railway  Co.  v.  Fire 
Ass'n,  55  Ark.  163  ;  Scruggs  v. 
Scottish  Mtge.  Co.,  54  Ark.  566; 
White  River  Lumber  Co.  v.  Improve- 
ment Ass'n,  55  Ark.  625;  People  v. 
American  Bell  Telephone  Co.,  117 
N.  Y.  241.  See  Trust  Co.  v.  Ger- 
mania  Ins.  Co.,  106  La.  669.  But  see 
Commercial  Bk.  v.  Sherman,  28  Oreg. 
573. 

The  doing  of  a  single  act  of  busi- 
ness within  the  state  does  not  bring 
a  corporation  within  the  operation 
of  the  Colorado  statute.  Cooper 
Mfg.  Co.  v.  Ferguson,  113  U.  S.  727; 
Colorado  Iron  Works  v.  Mining  Co., 
15  Col.  499.  See  Florsheim  v.  Lester, 
60  Ark.  120;  S.  S.  L.  Co.  v.  Neiineyer 
L.  Co.,  63  Ark.  268;  Milan  Milling 
Co.  v.  Gorten,  93  Tenn.  590.  Com- 
pare Hacheny  v.  Leary,  12  Ore.  40; 
D.  &  H.  Canal  Co.  v.  Mablenbook,  63 
N.  J.  L.  281.  Such  a  statute  does  not 
apply  to  a  corporation  which  merely 
sells  in  the  state  through  travelling 
agents.  Toledo  Com.  Co.  v.  Glen 
Co.,  55  O.  St.  217;  Mearshon  v.  Potts- 
ville  Lumber  Co.,  187  Pa.  St.  12; 
Wolff  Dryer  Co.  v.  Bigler  Co.,  192 
Pa.  St.  466;  cf.  Hovey's  Estate,  198 
Pa.  St.  385.  A  foreign  corporation 
which  becomes  a  special  partner  in 
a  limited  partnership  within  the 
state  is  held  to  be  engaged  in  busi- 

386 


ness  there.  People  v.  Roberts,  152 
N.  Y.  59. 

Where  the  complaint  of  a  foreign 
corporation  is  silent  on  the  subject, 
the  court  will  presume  on  demurrer 
that  the  statute  requirements  en- 
abling it  to  do  business  in  the  state 
have  been  complied  with.  Sprague 
v.  Cutler,  etc.,  Co.,  106  Ind.  242; 
Cassaday  v.  American  Ins.  Co.,  72 
Ind.  95;  Nickels  v.  Building  Ass'n, 
93  Va.  380.  In  Texas,  complying 
with  the  law  as  to  filing  a  certificate 
is  a  condition  precedent  to  main- 
taining an  action,  and  that  fact  must 
be  alleged  and  proved.  Taber  v.  In- 
terstate B.  &  L.  Ass'n,   91  Tex.  92. 

A  decree  and  sale  on  foreclosure 
by  a  foreign  corporation  (which  be- 
came the  purchaser  at  the  sale)  is 
not  invalidated  by  the  fact  that  its 
agent  had  not  filed  a  power  of  at- 
torney, as  required  by  statute.  This 
should  have  been  pleaded  in  abate- 
ment in  the  foreclosure  suit.  Elston 
v.  Pigott,  93  Ind.  14. 

1  Lafayette  Ins.  Co.  v.  French,  18 
How.  404.  Commonwealth  v.  Coal 
Co.,  97  Ky.  238.  Compare  Bedford 
v.  Eastern  B.  &  L.  Ass'n,  181  U.  S. 
227.  Amendment  XIV.  to  the  Fed- 
eral constitution,  which  forbids  a 
state  to  deny  to  any  person  the  equal 
protection  of  its  laws,  does  not  ap- 
ply to  conditions  imposed  in  foreign 
corporations  on  entering  the  state; 
though  it  may  apply  to  such  corpo- 
rations after  they  have  performed 
the  conditions  entitling  them  to  come 
in.     People  v.  Fire  Ass'n,  92  N.  Y. 


PART  V.]      CORPORATE   ACTS    WITHOUT    THE   STATE.      [§  400a. 

every  foreign  insurance  company  before  transacting  business  in 
the  state  shall  agree  not  to  remove  any  case  into  the  Federal 
courts,  is  unconstitutional ;  and  an  agreement  filed  in  pursuance 
thereof,  derives  no  support  therefrom  and  is  void.1 

§  AOOa.  By  complying  with  such  statutes  and  doing  business 
in  a  state  other  than  that  of  its  creation,  the  foreign  corpora- 
tion subjects  itself  to  all  of  the  laws  in  force  in  such  state,  and 
will  not  thereafter  be  heard  to  question  them.  Any  statute 
then  in  force  affecting  the  corporation  becomes  a  condition  of 
the  grant  of  the  privilege  to  do  business  in  that  state.2  "  What 
ever  its  limitations  were  upon  the  power  of  contracting,  what- 
ever its  discriminations  were,  they  became  conditions  of  the 
permit  and  were  accepted  with  it."3  For  any  violation  of  the 
statute  law  of  such  state,  the  state  may  revoke  the  license  of 
such  corporation,  and  it  is  immaterial  whether  the  statute  which 
was  violated  was  or  was  not  unconstitutional  as  applied  to 


311 ;  affirmed  Philadelphia  Fire  Ass'u 
v.  New  York,  119  IT.  S.  110.  See 
Phoenix  Ins.  Co.  v.  Welch,  29  Kans. 
672.  In  some  states  foreign  corpora- 
tions are  made  domestic  by  requiring 
them  to  take  out  charters,  not  li- 
censes. See  Debnam  v.  Telephone 
Co.,  126  N.  C.  831;  Layden  v.  Knights 
of  Pythias,  128  N.  C.  546.  Thereaf- 
ter they  cannot  remove  to  the  Fed- 
eral courts.  Allison  v.  Southern 
Railway  Co.,  129  N.  C.  336;  Mathis 
v.  So.  Ry.  Co.,  53  S.  C.  246,  §§  479-481. 

A  state  legislature  may  lay  a  fran- 
chise or  license  tax  on  foreign  cor- 
porations for  the  privilege  of  doing 
business  within  the  state.  Common- 
wealth v.  Standard  Oil  Co.,  101  Pa. 
St.  119;  Scottish-Union,  etc.,  Ins. 
Co.  v.  Herriott,  109  Iowa,  606.  See, 
New  York  State  v.  Roberts,  171  U. 
S.  658,  holding  valid  a  franchise  tax 
on  a  foreign  corporation  although 
foreign  corporations  wholly  engaged 
in  manufacture  in  the  state  were  not 
taxed.  See  Reyman  Bi'g  Co.  v. 
Brister,  179  U.  S.  445. 

It  is  held,  moreover,  that  a  person 


may  waive  a  constitutional  provision 
in  his  favor.  Embury  v.  Conner,  3 
N.  Y.  511;  Sherman  v.  McKeon,  38 
N.  Y.  266;  Vose  v.  Cockcroft,  44  N. 
Y.  415;  Phyfe  v.  Eimer,  45  N.  Y.  103; 
Matter  of  the  Application  of  Cooper, 

93  N".  Y.  507. 

1  Insurance  Co.  v.  Morse,  20  Wall. 
445;  Doyle  v.   Continental  Ins.  Co., 

94  U.  S.  535,  reversing  State  v.  Doyle, 
40  Wis.  175;  Barron  v.  Burnside,  121 
U.  S.  1S6;  Southern  Pac.  Co.  v.  Den- 
ton, 146  U.  S.  202.  Approved  in 
Barrow,  etc.,  Co.  v.  Kane,  170  U.  S. 
100.  Compare  Home  Ins.  Co.  v. 
Davis,  29  Mich.  238;  and  see  Railway 
Co.  v.  Whitton,  13  Wall.  270;  Elston 
v.  Piggott,  93  Ind.  14. 

2  Orient  Ins.  Co.  v.  Daggs,  172 
U.  S.  557;  N.  Y.  L.  I.  Co.  v.  Cravens, 
178  U.  S.  389;  Hancock  Mat.  L.  I. 
Co.  v.  Warren,  181  U.  S.  73;  Fi- 
delity Mut.  L.  I.  Co.  v.  Mettler,  185 
U.  S.  308. 

3  Waters-Pierce  Oil  Co.  v.  Texas, 
177  U.  S.  28,  and  repeatedly  quoted 
in  "later  cases  cited  under  this  sec- 
tion. 

387 


§  401.]  THE   LAW   OF   PRIVATE  CORPORATIONS.   [CHAP.  VII. 

natural  persons.1  So,  whatever  regulations  the  state  may  im- 
pose upon  corporations  of  its  own  creation,  it  may  impose  upon 
foreign  corporations.2  And,  if  a  foreign  corporation  complies 
with  a  statute  which  would  be  unconstitutional  as  to  it,  by 
reason  of  impairing  the  obligations  of  contracts,  it  waives  the 
right  thereafter  to  claim  that  such  statute  is  unconstitutional.3 
These  decisions  rest  ultimately  on  the  rule  that  a  corporation 
is  not  a  citizen  within  the  meaning  of  Article  IV.,  section  1 
of  the  Federal  constitution. 

§  401.     In  regard  to  the  effect  of  non-compliance  with  these 

statutes  the  decisions  of  the  different  states  are  not 
non-com-  harmonious.  In  Colorado,  where  the  statute  pro- 
piiance  with  vides  that  foreign  corporations  shall  file  a  certificate 
utes.  designating  the  principal  place  of  business  where  the 

business  within  the  state  is  to  be  carried  on,4  before 
"  they  are  authorized  or  permitted  to  do  any  business  in  the 
state,"  a  corporation  that  has  not  complied  with  the  statute 
may  still  sue  for  a  trespass.5  In  Indiana  it  is  held  that  a  note 
executed  there  to  a  foreign  insurance  company  is  not  void  be- 
cause the  company  has  not  complied  with  the  statute,  but  that 


1  Waters-Pierce  Oil  Co.  v.  Texas, 
177  U.  S.  28,  approved  in  Chicago, 
R.  I.  &  P.  Ry.  Co.  v.  Zernecke,  183 
U.  S.  582,  holding  that  a  domestic 
corporation  could  not  contest  the 
validity  of  a  statute  in  force  at  the 
time  of  its  incorporation,  as  such 
statute  was  one  of  the  conditions 
upon  which  it  accepted  its  charter. 
See  Insurance  Co.  v.  Craig,  106 
Tenn.  623;  State  v.  Standard  Oil  Co., 
61  Neb.  28. 

2  Dayton  Coal  &  Iron  Co.  v.  Barton, 
183  U.  S.  23,  requiring  the  redemp- 
tion in  cash  of  store  orders  issued  in 
payment  of  wages.  The  same  stat- 
ute was  sustained  as  to  domestic 
corporations  in  Knoxville  Iron  Co. 
0.  narbison,  183  U.  S.  13. 

3  Hale  v.  Lewis,  181  U.  S.  473. 

4  A  certificate  signed  and  acknowl- 
edged by  the  president  and  secretary 
of  a   foreign   corporation   and   filed 

388 


with  the  secretary  of  state  and  in 
the  office  of  the  recorder  of  deeds  for 
the  county  in  which  it  is  proposed 
to  carry  on  business,  stating  that 
"  the  principal  place  where  the  busi- 
ness shall  be  carried  on  in  the  state 
of  Colorado  shall  be  at  Denver,  in 
the  county  of  Arapahoe,  in  said 
state,  and  that  the  general  manager 
of  said  corporation,  residing  at  the 
said  principal  place  of  business,  is 
the  agent  upon  whom  process  may 
be  served  in  all  suits  that  may  be 
commenced  against  said  corpora- 
tion," is  a  sufficient  compliance 
with  the  constitution  and  laws  of 
Colorado.  Goodwin  v.  Colorado 
Mortgage  Co.,  110  U.  S.  1. 

5Utley  v.  Clark-Gardnir  Mfg.  Co., 
4  Col.  369.  Cases  are  collected  in 
Miller  v.  Williams,  27  Colo.  34.  See 
Powder  River  Cattle  Co.  v.  Custer 
Co.,  9  Montana,  145. 


PART  V.]  CORPORATE  ACTS  WITHOUT  THE  STATE.    [§  401. 


the  remedy  on  the  note  is  suspended  until  compliance.1  In  Il- 
linois and  Alabama,  however,  contracts  entered  into  before 
compliance  cannot  be  enforced.2  And  in  Oregon  a  mortgage 
taken  by  a  foreign  corporation  before  compliance  is  void,  at 
least  as  to  all  persons  other  than  the  mortgagor  having  an  inter- 
est or  liens  on  the  premises.3     Construing  this  Oregon  statute 


1  Amer.  Ins.  Co.  v.  Wellman,  69 
Ind.  413;  Security  Sav.  Ass'n.  v.  El- 
bert, 153  Ind.  198;  Lamb  u.  Lamb, 
13  Bankr.  Reg.  17;  Wiestling  v.  War- 
then,  1  Ind.  App.  217.  Compare 
Union  Ins.  Co.  v.  Smart,  60  N.  H. 
458.  Tbe  reasonable  construction  of 
New  York  statute  (sec.  15  of  the 
General  Corporation  Law  of  1892) 
was  that  remedy  was  merely  sus- 
pended until  foreign  corporation 
complied.  Neuchatel  Asphalt  Co. 
B.  Mayor,  155  N.  Y.  373;  Goddard  I). 
Crefeld  Mills,  45  U.  S.  App.  84;  see, 
also,  Dearborn  Foundry  Co.  v.  Au- 
gustine, 5  Wash.  67;  Edison,  etc., 
Co.  v.  Navig'n  Co.,  8  Wash.  370.  Thfc 
above  section  of  the  New  York  stat- 
ute has  recently  been  amended 
(chapter  538  of  the  laws  of  1901)  so 
that  now  the  certificate  must  be 
procured  before  the  contract  is  en- 
tered into. 

The  statute  provided  that  no  for- 
eign corporation  could  "maintain" 
an  action,  if  they  fail  to  comply  with 
the  statute.  Held,  that  compliance 
after  suit  was  brought,  but  before 
motion  to  dismiss  was  made,  was 
sufficient.  Carson  Rand  Co.  v.  Stern, 
129  Mo.  381.  See  Huttig  Co.  v.  Ho- 
tel Co.,  6  Wash.  122;  Mutual  B.  L.  I. 
Co.  y.  Winne,  20  Mont.  20;  M'd  Tube 
Works  v.  W.  E.  Imp.  Co.,  87  M'd  207. 

2  Cincinnati  Mut.  Health  Assur- 
ance Co.  v.  Rosenthal,  55  111.  85;  Su- 
preme Order  Iron  Hall  v.  Grigsby, 
178  111.  57;  Sherwood  v.  Alvis,  83 
Ala.  115;  Farrier  v.  New  England 
Mtge.  Co.,  88  Ala.  275;  Craddock  v. 
American   Mtge.    Co.,   88   Ala.    281; 


Christian  v.  American  Mtge.  Co.,  89 
Ala.  198;  Ware  v.  Hamilton  Brown 
Shoe  Co.,  92  Ala.  145;  Colliere  v. 
Davis  Brothers,  94  Ala.  456.  But  iu 
Alabama  this  defence  cannot  prevail 
when  the  corporation  has  execut- 
ed the  contract.  Diefenbach  v. 
Vaughn,  116  Ala.  150;  Kindred  v. 
New  England,  etc.,  Co.,  ib.  192; 
Electric  Lighting  Co.  v.  Rust,  117 
Ala.  680;  see  Russell  v.  Jones,  107 
Ala.  262.  Moreover,  a  mortgage 
given  in  another  state  to  a  corpora- 
tion of  that  state  is  valid  even 
though  the  mortgagee  has  not  com- 
plied with  the  requirements  to  do 
business  in  the  state  where  the  land 
is  situated.  Elec.  Lighting  Co.  v. 
Rust,  supra. 

3  Bank  of  British  Columbia  v.  Page, 
6  Oreg.  431.  See  In  re  Comstock,  3 
Sawyer,  218;  S.  C,  14  Bankr.  Reg. 
169. 

Where  a  statute  makes  it  "  unlaw- 
fuL"  for  any  foreign  corporation  to 
do  business  or  acquire  property  be- 
fore compliance,  its  contracts  are 
void  and  cannot  be  recovered  on; 
it  cannot  collect  insurance  premiums. 
Insurance  Co.  v.  Kennedy,  96  Tenn. 
711 ;  Lumber  Co.  v.  Thomas,  92  Tenn. 
587.  A  curative  statute  was  after- 
ward passed  making  valid  contracts 
where  there  was  a  subsequent  com- 
pliance. See  Butler  v.  U.  S.,  etc., 
Ass'n,  97  Tenn.  679. 

When  foreign  insurance  compa- 
nies are  forbidden  to  do  business 
within  a  state  (Iowa)  unless  they 
have  a  certain  amount  of  capital, 
such  a  company,  which  does  not  ful- 

389 


§  402.]         THE    LAW   OF   PRIVATE   CORPORATIONS.   [CHAP.  VII. 


Judge  Deady,  of  the  Federal  Circuit  Court,  has  rendered  the 
most  extreme  decision  of  all  on  this  subject.  He  held  that  land 
foreclosed  under  a  mortgage  made  to  a  foreign  corporation,  and 
bought  in  by  it,  might  be  recovered  back  by  the  mortgagor, 
on  the  ground  that  the  corporation  had  not  complied  with  the 
statute.1  Undoubtedly  foreign  corporations  must  comply  with 
the  statutes  of  the  states  in  which  they  do  business.2  But  un- 
less the  statute  explicitly  declares  that  contracts  entered  into 
before  compliance  shall  be  void,3  it  would  seem  the  better 
legal  policy  to  find  the  result  in  the  liability  of  agents  to  in- 
dictment,4 or  in  the  liability  of  the  foreign  corporation  to  be 
ousted  from  its  privilege  of  doing  business  within  the  state.5 
§  402.  A  foreign  corporation  may  not  itself  take  advantage 
of  its  own  non-compliance  with  one  of  these  statutes ; 
suit  may  be  brought  against  it  notwithstanding.6 
When  a  foreign  corporation  has  complied  with  the 
prescribed  conditions,  it  acquires  most  of  the  ordinary  privileges 
of  domestic  corporations,  and,  for  instance,  may  plead  the  statute 
of  limitations  like  a  domestic  corporation  or  resident  citizen.7 
It  does  not  follow,  however,  that  a  foreign  corporation  will  be 


Statute  of 
limita- 
tions. 


fill  this  condition,  cannot  recover 
premiums  for  insurance  on  property 
situated  in  Iowa,  although  the  insur- 
ance contract  was  made  in  the  state 
incorporating  the  corporation.  Sea- 
mans  v.  Zimmerman,  91  Iowa,  363. 

1  Semple  v.  Bank  of  British  Colum- 
bia, 5  Sawyer,  88.  It  is  impossible 
to  agree  with  a  decision  sustaining 
this  dishonest  defence.  The  Wis- 
consin court,  more  in  conformity  to 
the  view  that  debtors  should  pay 
their  just  debts,  holds  that  a  foreign 
insurance  corporation  which  has  not 
complied  with  the  statute  prescrib- 
ing conditions  on  which  it  may  do 
business  in  the  state,  may  still  take 
mortgage  security  fur  a  debt  due 
there  and  enforce  it  in  the  courts  of 
the  state.  Charter  Oak  Life  Ins.  Co. 
13.  Sawyer,  44  Wis.  387;  see,  also, 
Rogers  v.  Simmons,  155  Mass.  259. 

2  See  Hartford  Fire  Ins.  Co.  v.  Ray- 
mond, 70  Mich.  485. 

390 


3  A  contract  made  by  a  foreign 
corporation  before  it  has  complied 
with  the  statute  will  not  be  held 
void  unless  the  statute  expressly  so 
declares;  and  if  the  statute  impose  a 
penalty,  that  will  be  held  exclusive 
of  other  results.  Toledo  Tie  Co.  ». 
Thomas,  33  W.  Va.  566;  cf.  Gar- 
rett Ford  Co.  v.  Vermont  Mfg.  Co., 
20  R.  I.  187. 

4  See  People  v.  Formose,  131  N.  Y. 
478. 

5  See  State  v.  W.  U.  M.  Life  Ins. 
Co.,  47  O.  St.  167. 

6  Hagerman  v.  Empire  State  Co.,  97 
Pa.  St.  534;  Foster  v.  Lumber  Co.,  5 
S.  Dakota,  57;  see  Sparks  v.  Acci- 
dent Assn.,  100  Iowa,  458. 

7  Huss  v.  Central  R.  R.,  etc.,  Co., 
66  Ala.  472;  Turcott  v.  R.  R.  Co.,  101 
Tenn.  102.  Compare  Barr  v.  King, 
96  Pa.  St.  485. 


PART  V.]  INCORPORATION  BY  TWO  OR  MORE  STATES.        [§  404. 

entitled  to  plead  the  statute  of  limitations  merely  because  it 
has  continuously  through  its  agents  done  business  in  the  state.1 


STATUS  OF  A  BODY  OF  MEN  INCORPORATED  BY  THE 
LEGISLATION  OF  TWO  OR  MORE  STATES. 


One  or  two  corporations  ?  §§  403-408. 


Jurisdiction  of  courts  of  either  state. 
Meetings,  §  409. 


§  403.  Perplexing  questions  have  arisen  and  seem  likely  to 
arise  in  regard  to  corporations  incorporated  or  con- 
solidated by  the  concurrent  legislation  of  more  than  corpora- 
one  state;  and,  it  is  submitted,  these  questions  can  tlons- 
be  properly  solved  only  by  applying  the  analysis  of  the  idea  of 
a  corporation  given  above  in  Chapter  III.  The  two  entirely 
different  notions  conveyed  by  the  term  corporation  must  be 
borne  in  mind ;  the  one,  a  body  of  men ;  the  other,  a  legal  in- 
stitution or  group  of  laws  relating  to  the  corporate  enterprise 
in  their  manifestation  in  legal  relations.  Perhaps  the  funda- 
mental question  in  regard  to  incorporation  by  the  concurrent 
legislation  of  two  states,  is  whether,  and  in  what  respects,  there 
results  one  or  two  corporations.  It  is  plain,  using  the  terra 
corporation  to  denote  a  body  of  men,  that  there  is  but  one  cor- 
poration ;  for  evidently  there  is  but  one  body  of  shareholders 
who  meet  and  vote ;  and  this  body  is  the  same  whether  acting 
in  the  one  state  or  the  other. 

§  404.  But  is  there  one  or  are  there  two  legal  institutions  ? 
*.  <?.,  one  or  two  groups  of  laws  which  have  manifested  them- 
selves in  legal  relations.  A  law  has  no  force  beyond  the  limits 
of  the  state  enacting  it.  A  legal  right  is  the  power  which  a 
person  has  through  the  aid  of  a  law  to  compel  another  to  do  or 
forbear ;  and,  as  before  pointed  out,  a  legal  right  with  its  cor- 
responding liability  constitutes  a  legal  relation,  which  is  the 


1  Hubbard  v.  United  States  Mort- 
gage Co.,  14  111.  A  pp.  40;  Mallory  v. 
Tioga  R.  R.  Co.,  3  Abb.  Dec.  (X.  Y. ) 
139.  But  in  Montana,  where  a  for- 
eign corporation  has  owned  property 
and  openly  maintained  a  place  of 
business,  with  a  managing  agent,  in 
the  state,  a  personal  judgment  can 
be   rendered   against  it,  and   it  can 


plead  the  statute  of  limitations, 
though  it  has  failed  to  comply  with 
the  Montana  statute,  by  filing  its 
charter;  such  failure  merely  reliev- 
ing any  party  suing  the  corporation 
from  proving  its  incorporation,  ex- 
cept by  reputation.  (The  statute  is 
express  herein.)  King  v.  National 
M.  T.  E.  Co.,  4  Montana,  1. 

391 


§  405.]         THE    LAW    OF    PRIVATE   CORPORATIONS.   [CHAP.  VII. 

manifestation  of  a  rule  of  law  in  operation.1  It  is  consequently 
evident  that  the  identical  legal  relation  cannot  subsist  in  two 
states,  except  in  so  far  as  it  is  the  manifestation  of  a  law  ope- 
rating in  both  ;  i.  e.,  the  manifestation  of  a  law  of  Congress  or 
a  provision  in  the  Federal  constitution.  In  so  far  as  a  person 
has  a  right  which  is  the  manifestation  of  a  constitutional  pro- 
vision, or  of  a  law  of  Congress  competently  enacted,  the  identity 
of  the  right  is  not  affected  by  the  fact  of  its  possessor  being  in 
New  York  or  New  Jersey.2 

§  405.  To  illustrate,  suppose  New  York  and  New  Jersey  to 
incorporate  a  railroad  corporation  by  precisely  similar  legisla- 
tion ;  each  state  enacting  among  other  provisions  that  the 
shareholders  shall  be  individually  liable  for  debts  due  the  em- 
ployes of  the  company.  Suppose  A.  to  be  an  employe,  and  B. 
a  shareholder.  In  New  Jersey  A.'s  right  against  B.  depends 
on  the  New  Jersey  enactment  backed  by  the  physical  power 
of  the  New  Jersey  government ;  and  in  New  York  A.'s  right 
against  B.  depends  on  the  New  York  enactment.  A.'s  right 
in  New  York  is  the  manifestation  of  a  law  different  from  the 
law  which  manifests  itself  in  A.'s  right  in  New  Jersey  ;  and 
would  be  enforced  by  a  different  set  of  courts,  whose  decrees 
in  their  turn  would  be  enforced  by  different  physical  backings. 
However,  a  right  of  A.  against  B.  having  once  vested  in  respect 
of  a  debt  due  from  the  corporation,  neither  state  can  pass  a  law 
depriving  A.  of  his  right;  for  such  an  enactment  would  be 
void  under  the  Federal  constitution,  as  impairing  the  obligation 
of  a  contract.  This  further  guaranty  of  A.'s  right,  that  he 
shall  not  be  deprived  of  it,  is  not  the  manifestation  of  a  state 
law  ;  but  of  a  rule  of  law  contained  in  the  Federal  constitution, 
and  thus  operating  in  both  states  ;  and  would  in  the  last  resort 
be  enforced  in  either  state  by  the  same  power.  Consequently, 
this  further  right  of  A.  is  identical  in  both  states. 

Accordingly,  it  may  be  said,  that  the  legal  relations  subsist- 


1  Chap.  III. 

2  Accordingly,  a  corporation  cre- 
ated by  act  of  Congress  and  doing 
business  in  Pennsylvania  is  not  a 
"foreign  corporation"  under  the 
Pennsylvania  statutes  which  provide 
for  the  taxation  of  foreign  corpo- 
rations.     Commonwealth   v.   Texas,  i  exists  in  Pennsylvania, 

392 


etc.,  R.  R.  Co.,  98  Pa.  St.  90.  See 
Eby  v.  Northern  Pac.  R.  R.  Co.,  13 
Phila.  144,  which  holds  that  a  cor- 
poration created  by  act  of  Congress 
may  be  sued  anywhere  in  Pennsyl- 
vania where  proper  service  of  process 
can    be    made,    as   the    corporation 


PART  V.]  INCORPORATION  BY  TWO  OR  MORE  STATES.        [§  406. 

ing  in  respect  of  any  corporate  enterprise,  which  extends 
throughout  two  or  more  states,  in  so  far  as  in  each  state  they 
are  manifestations  of  different  groups  of  laws,  are  different 
groups  of  legal  relations,  and  constitute  not  identical,  though 
perhaps  precisely  similar  legal  institutions.  Thus  there  may 
be  said  to  be  two  corporations.1 

§  406.  Justice  Breese  said,  giving  the  opinion  of  the  Supreme 
Court  of  Illinois  in  Quincy  Bridge  Company?;.  Adams  County,2 
"  But,  it  is  said  by  the  appellants,  this  corporation,  although 
it  derived  some  of  its  powers,  and  in  part  its  corporate  exist- 
ence, from  this  state,  derived  an  equal  part  from  the  sovereign 
state  of  Missouri,  and  therefore  they  are  not  a  corporation 
created  under  the  laws  of  either  state.  To  this  it  is  answered, 
and  we  think  satisfactorily,  that  the  legislatures  of  this  state 
and  of  Missouri  cannot  act  jointly,  nor  can  any  legislation  of 
the  last  named  state  have  the  least  effect  in  creating  a  corpora- 
tion in  this  state.  Hence,  the  corporate  existence  of  appellants 
considered  as  a  corporation  of  this  state  must  spring  from  the 
legislation  of  this  state,  which,  by  its  own  vigor,  performs  the 
act.  The  states  of  Illinois  and  Missouri  have  no  power  to  unite 
in  passing  any  legislative  act.  It  is  impossible  in  the  very 
nature  of  their  organization  that  they  can  do  so.  They  cannot 
so  fuse  themselves  into  a  single  sovereignty,  and  as  such  create 
a  body  politic  which  shall  be  a  corporation  of  the  two  states, 
without  being  a  corporation  of  each  state  or  of  either  state. 
As  argued  by  appellee,  the  only  possible  status  of  a  company 
acting  under  charters  from  two  states  is  that  it  is  an  association 
incorporated  in  and  by  each  of  the  states,  and  when  acting  as  a 
corporation  in  either  of  the  states,  it  acts  under  the  authority  of 
the  charter  of  the  state  in  which  it  is  then  acting,  and  that 


1  The  same  body  of  persons  can, 
by  accepting  charters  from  two 
states,  become  "  constituted  into 
two  distinct  corporate  entities  in  the 
two  states,  acting  in  each  according 
to  the  powers  locally  bestowed,  as 
distinctly  as  though  they  had  noth- 
ing in  common,  either  as  to  name, 
capital,  or  membership."  Clark  v. 
Barnard,  108  U.  S.  436.  See,  also, 
Kahl   v.   Memphis,  etc.,    R.    R.    Co. 


95  Ala.  337.  Yet  the  Supreme  Court 
has  said  in  a  later  case  that  when  a 
corporation  is  chartered  under  the 
same  name  by  several  states,  it  has 
but  one  set  of  shareholders,  and  each 
shareholder  is  interested  in  all  its 
property.  Graham  v.  Boston,  etc., 
R.  R.  Co.,  118  U.  S.  162. 
2  88  111.  615,  619. 


393 


§  400.]         THE    LAW    OF    PRIVATE   CORPORATIONS.   [CHAP.  VII. 

only  ;  the  legislation  of  the  other  state  having  no  operation  be- 
yond its  territorial  limits."  * 

Speaking  with  reference  to  the  consolidation  of  corporations 
organized  under  the  laws  of  different  states,  Judge  Cooley  said 
in  a  Michigan  case  : — 

"  It  is  familiar  law  that  each  corporation  has  its  existence 
and  domicile,  so  far  as  the  term  can  be  applied  to  the  artificial 
person,  within  the  territory  of  the  sovereignty  creating  it ;  it 
comes  into  existence  there  by  an  exercise  of  the  sovereign  will ; 
and  though  it  may  be  allowed  to  exercise  corporate  functions 
within  another  sovereignty,  it  is  impossible  to  conceive  of  one 
joint  act,  performed  simultaneously  by  two  sovereign  states, 
which  shall  bring  a  single  corporation  into  being,  except  it  be 
by  compact  or  treaty.  There  may  be  separate  consents  given 
for  the  consolidation  of  corporations,  separately  created ;  but 
when  the  two  unite  they  severally  bring  to  the  new  entity  the 
powers  and  privileges  already  possessed,  and  the  consolidated 
company  simply  exercises  in  each  jurisdiction  the  powers  the 
corporation  there  chartered  has  possessed,2  and  succeeds  there 
to  its  privileges.  It  may  well  happen,  as  indeed  it  often  has, 
that  the  consolidated  company  will  be  a  corporation  possessing 
in  one  state  very  different  rights,  powers,  privileges,  and  im- 
munities to  those  possessed  in  another,  and  subject  to  very  dif- 
ferent liabilities.  And  after  the  consolidation  each  state  legis- 
lates in  respect  to  the  road  within  its  own  limits,  and  which 
was  constructed  under  its  grant  of  corporate  power,  the  same 
as  it  did  before.  And  it  cannot  follow  the  new  organization 
with  its  legislation  into  another  state.  It  has  been  said  that 
the  consolidated  company  exists  in  each  state  under  the  laws 
of  that  state  alone ;  and  this  is  the  effect  of  the  decision  in  Del- 
aware Railroad  Tax,  18  Wall.  206,  and  in  many  other  cases. 


1  See,  also,  States.  Northern  Cen- 
tral Ry.  Co.,  18  Md.  193,  213;  Farnum 
v.  Blackstone  Canal  Co.,  1  Sumner,  47; 
Port  Royal  R.  R.  Co.  v.  Hammond, 
58  Ga.  523;  County  of  Allegheny  v. 
Cleveland,  etc.,  I!.  R.  Co.,  51  Pa.  St. 
228;  Missouri  Pac.  Ry.  v.  Meek,  32 
U.  S.  App.  691.  In  Covington  Bd'g 
Co.  v.  Mayer,  31  Ohio  St.  317,  325,  it 
was  said  that  a  corporation  created 

394 


hy  two  states,  receiving  similar 
charters  from  both,  "  is  a  single  cor- 
poration clothed  with  the  powers  of 
two  corporations.  It.  acts  under  two 
(diarters,  which,  in  all  respects,  are 
identical,  except  as  to  the  source 
from  which  they  emanate."  Cf. 
Keokuk  Bridge  Co.  v.  People,  161 
111.  132. 
2  How  about  interstate  comity? 


PART  V.]  INCORPORATION  BY  TWO  OR  MORE  STATES.  [§  407. 

It  also  follows  necessarily  from  the  doctrine  maintained  by  the 
Federal  Supreme  Court  in  respect  to  the  citizenship  of  corpora- 
tions. That  doctrine  is  that  a  corporation  is  deemed  to  be  a 
citizen  of  the  state  which  has  created  it,  and  an  organization  of 
members  who  are  citizens  of  that  state.  When,  therefore,  two 
corporations  created  in  different  states  consolidate,  though  for 
most  purposes,  they  are  not  therefore  to  be  separately  regarded, 
yet  in  each  state  the  consolidated  company  is  deemed  to  stand 
in  the  place  of  the  corporation  to  which  it  there  succeeded,  and 
of  its  members,  and  consequently  to  be  a  citizen  of  that  state 
for  many  purposes,  while  in  the  other  state  it  would  stand  in 
the  place  of  the  other  corporations  in  respect  to  citizenship 
there."  J 

§407.  Still,  perhaps,  the  question  whether  there  is  one  or 
two  corporations  may  be  regarded  as  mainly  one  of  definition. 
Thus,  if  we  define  a  corporation,  meaning  a  legal  institution, 
as  the  sum  of  the  legal  relations  subsisting  in  respect  of  a 
given  corporate  enterprise,  it  may  be  said  that  this  sum  in- 
cludes all  the  legal  relations,  whether  they  be  the  manifesta- 
tions of  the  laws  of  New  York  or  of  New  Jersey.  But  the  sum 
of  all  these  legal  relations  cannot  subsist  in  either  state ;  part 
of  them-  subsisting  in  one  and  part  in  the  other ;  though  the 
two  parts  may  be  so  precisely  similar  that  for  most  purposes 
they  can  be  regarded  as  identical.  And  thus,  though  there 
may  be  said  to  be  but  one  corporation,  it  does  not  subsist  in 
its  sum  total  in  either  state.2  On  the  other  hand,  the  group  of 
legal  relations  subsisting  in  either  state  may  there,  if  the  courts 
so  choose,  be  regarded  as  the  corporation,  without  reference  to 
the  group  of  legal  relations  which  subsist  in  respect  of  the  same 
corporate  enterprise  in  the  other  state.     And  viewing  the  mat- 


1  Chicago  and  N.  W.  Ry.  Co.  v. 
Auditor-General,  53  Mich.  79,  92. 
Opinion  of  the  court  per  Cooley,  C. 
J.,  citing  many  cases. 

The  contracts  of  such  a  corpora- 
tion will  be  construed  "  as  if  made 
by  the  corporation  of  each  state  in 
which  the  subject-matter  lies;  ut  res 
magis  valeat  quam  pereat."     Racine, 


etc.,  R.  R.  Co.  v.  Farmers'  Loan,  etc., 
Co.,  49  111.  331,  352. 

2  In  Newport  and  Cincinnati  Bridge 
Co.  t>.  Wooley,  78  Ky.  523,  it  was 
held  two  states  could  not  by  partial 
legislation  create  a  corporation  which 
should  have  a  complete  legal  exist- 
ence in  either.  A  corporation  can- 
not have  two  domiciles.  But  see 
§409. 

395 


§  408.]         THE    LAW    OF    PRIVATE   CORPORATIONS.    [CHAP.  VTI. 


ter  in  this  way,  there  may  be  said  to  be  two  groups  of  legal 
relations  ;  i.  e.,  two  legal  institutions,  or  corporations.1 

§  -iOS.  The  preceding  remarks  seem  to  accord  with  the  de- 
cisions of  the  Federal  Supreme  Court.2  For  instance,  in  Ohio 
and  Mississippi  Railroad  Co.  v.  Wheeler,3  it  was  held  that  there 
could  not  be  a  corporation  endowed  with  corporate  capacities 
by  the  co-operating  legislation  of  two  states,  so  as  to  be  one 
and  the  same  legal  being  in  both ;  for  a  corporation  has  no  legal 
existence  in  a  state  except  by  the  laws  of  that  state.  No  state 
can  confer  corporate  existence  in  another.  In  accordance  with 
this,  a  court  in  either  state  would  limit  the  range  of  its  legal 
vision  to  the  group  of  legal  relations  subsisting  there.  To  be 
sure,  in  Railroad  Co.  v.  Harris,4  Justice  Swayne  said,  giving 
the  opinion  of  the  court :  "  We  see  no  reason  why  several  states 
cannot  by  competent  legislation  unite  in  creating  the  same  cor- 
poration, or  in  combining  several  pre-existing  corporations  into 
one."5  It  does  not  necessarily  follow,  however,  that  the  whole 
of  such  a  corporation  would  exist  in  any  one  state.  But  view- 
ing the  corporation  in  this  light,  a  court  would  extend  its  vision 
to  the  legal  relations  subsisting  in  all  the  states  through  which 
the  corporate  enterprise  might  extend.  The  point  which  the 
court  in  Railroad  Company  v.  Harris  actually  decided,  was  that 
a  railroad  corporation  chartered  by  several  states  and  by  Con- 
gress as  well,  was  amenable  to  the  courts  of  the  District  of 
Columbia  for  personal  injuries  received  on  its  road  in  Virginia. 
In  a  later  case  the  Supreme  Court  held  that  although  one  cor- 


1  See  Clark  v.  Barnard,  108  U.  S. 
436,  and  compare  Heuenw.  Baltimore, 
etc.,  H.  R.  Co.,  17  W.  Va.  881. 

"  It  is  true  that  the  Erie  Railway 
Company  is  a  foreign  corporation,  yet 
at  the  same  time  it  is  domestic  to  the 
full  extent  of  the  powers  and  fran- 
chises of  New  Jersey.  A  corporation 
may  have  a  twofold  organization, 
and  be,  so  far  as  its  relations  to  our 
state  is  concerned,  both  foreign  and 
domestic.  It  may  have  a  corporate 
entity  in  each  state,  yet  in  its  gen- 
eral character  be  of  a  bifold  organiza- 
tion."    McGregor,  qui  tarn,   v.  Erie 

396 


Ry.  Co.,  35  N.  J.  L.  115,  118.  Opin- 
ion of  court  per  Bedle,  J.  Cf.  Bern- 
hardt v.  Brown,  119  N.  C.  506. 

2  See  Nashua  R.  R.  v.  Lowell  R.  R., 
136  U.  S.  357. 

3  1  Black,  286. 

4  12  Wall.  65,  82;  perhaps  modify- 
ing the  language  of  the  court  in  Ohio 
and  Miss.  R.  R.  Co.  v.  Wheeler.  But 
see  the  latest  expression  of  the 
Federal  Supreme  Court,  in  note  to 
§405. 

5  Ace.  Bishop  v.  Brainard,  28  Conn. 
289. 


PART  V.]    INCORPORATION  BY  TWO  OR  MORE  STATES.       [§  409. 


tion  of 
courts  of 
either 
state. 
Meetings. 


poration  be  consolidated  with  another  incorporated  by  a  differ- 
ent state,  still  in  its  own  state  it  exists  under  the  laws  thereof.1 
§  409.  Corporations  owing  part  of  their  corporate  existence 
to  a  state,  and  exercising  their  franchises  within  its  Jurisdic- 
limits,  may  be  there  restrained  from  expending  their 
funds  for  other  than  corporate  purposes  anywhere.2 
But  a  state  court  of  chancery  has  no  jurisdiction  to 
compel  a  domestic  corporation  to  go  into  another  state,  from 
which  it  may  also  have  received  a  charter,  and  there  specifically 
execute  a  contract,  by  opening  ditches  on  the  complainant's 
land,  and  keeping  them  open  to  a  certain  depth  ;  and  on  its 
failure  thus  to  perform,  to  enforce  the  decree  by  attachment 
and  sequestration  of  its  property  in  the  former  state.3  A  cor- 
poration created  by  charters  from  two  states  may  competently 
hold  shareholders'  meetings  in  either  ; 4  and  a  meeting  held  in 
one  of  the  states  is  valid  with  respect  to  all  the  property  of  the 
corporation  wherever  situated.  Such  a  corporation  has  a  domi- 
cile in  each  state.5 


i  Muller  v.  Dows,  94  U.  S.  444; 
Ace.  Railway  Co.  v.  Whitton,  13 
Wall.  270.  Compare  Kahl  v.  Mem- 
phis, etc.,  R.  R.  Co.  95  Ala.  337.  A 
corporation  formed  by  the  consolida- 
tion of  foreign  and  domestic  corpora- 
tions held  a  domestic  corporation. 
St.  Paul  &  ST.  R'y  Co.,  in  re,  36  Minn. 
85;  compare  Railroad  v.  Barnhill,  91 
Tenn.  395.     See  §§  411,  412. 

A  charter  granted  by  two  states  to 
a  corporation  is  not  only  a  compact 
with  it,  but  also  a  contract  between 
the  two  states;  and  the  same  con- 
struction must  be  put  on  it  by  both. 
Cleveland  and  Pittsburgh  R.  R.  Co.  v. 
Speer,  56  Pa.  St.  325;  Brocket  v. 
Ohio,  etc.,  R.  R.  Co.,  14  Pa.  St.  241, 
244.  But  Art.  1,  sec.  10,  of  the  Fed- 
eral constitution  forbids  compacts 
between  states;  hence  quaere? 

2 State  v.  Northern  Central  R'y 
Co.,  18  Md.  193,  213.  See  Wilmer 
p.  Atlanta,  etc.,  R'y  Co.,  2  Woods, 
409;  Fisk  v.  Chicago,  etc.,  R.  R.  Co., 
53  Barb.  513.     A  Connecticut  court 


has  jurisdiction  to  foreclose  a  mort- 
gage made  by  a  consolidated  corpo- 
ration created  by  New  York  and 
Connecticut,  although  part  of  the 
mortgaged  property  lies  in  New 
York.  Mead  v.  New  York,  H.  and  N. 
R.  R.  Co.,  45  Conn.  199. 

3  Port  Royal  R.  R.  Co.  v.  Ham- 
mond, 58  Ga.  523.  See  Eaton,  etc., 
R.  R.  Co.  v.  Hunt,  20  Ind.  457;  Hart 
v.  Boston,  H.  and  E.  R.  R.  Co.,  40 
Conn.  524. 

4  Covington  Bridge  Co.  v.  Mayer, 
31  Ohio  St.  319;  Graham  v.  Boston, 
etc.,  R.  Co.,  14  Fed.  Rep.  753. 

5  Graham  v.  Boston,  etc.,  R.  R.  Co., 
118  U.  S.  162;  Guinault  v.  Louisville, 
etc.,  R.  R.  Co.,  41  La.  Ann.  571; 
Ohio  &  M.  R'y  Co.  v.  People,  123 
111.  467;  Ga.  &  Ala.  R'y  v.  Stolle- 
merck,  122  Ala.  539.  But  authority 
from  a  state  to  a  foreign  railroad 
corporation  to  extend  its  road  into 
such  state,  does  not  make  the  cor- 
poration a  corporation  of  that  state, 
unless  the  language   of   the   statute 

397 


§  411.]        THE   LAW   OF   PRIVATE  CORPORATIONS.    [CHAP.  VII. 

3.  CITIZENSHIP  OF  CORPORATIONS   WITH   RESPECT  TO 
THE  JURISDICTION  OF  THE  FEDERAL  COURTS. 


Earlier  rule,  §  410. 
Overruled,  §§  411,  412. 


Averments  in  pleading,  §  413. 


§  410.  The  questions  just  discussed  regarding  the  status  of  a 
corporation  incorporated  by  two  states  have,  in  large 
Earlier  measure,  arisen  with  respect  to  that  jurisdiction  of 
the  Federal  courts  which  depends  on  the  citizenship 
of  the  parties  to  a  suit.1  The  earliest  case  in  the  Supreme  Court 
on  this  jurisdiction,  when  a  corporation  is  a  party,  is  Bank  of 
United  States  v.  Deveaux,3  which  held  that,  though  a  corpora- 
tion aggregate  composed  of  citizens  of  one  state  might  sue  a 
citizen  of  another  state  in  a  Federal  Circuit  Court,  yet  such  a 
corporation  could  not  in  its  corporate  capacity  be  a  citizen  of 
the  state  incorporating  it  so  as  to  be  competent  to  sue  in  a  Fed- 
eral Circuit  Court  without  regard  to  the  citizenship  of  its  mem- 
bers.3 

§  411.  This  case  was  overruled  in  Louisville,  Cincinnati,  etc., 
li.  R.  Co.  v.  Letson,4  where  the  court  said  that  a  cor- 
Overmied.  p0ration  created  by  a  state  to  perform  its  functions 
under  the  authority  of  that  state,  and  only  suable  there,  though 
it  may  have  members  out  of  the  state,  seemed  to  them  a  per- 
son, though  an  artificial  one,  inhabiting  and  belonging  to  that 


implies  the  creation  of  a  corpora- 
tion. Pennsylvania  R.  R.  Co.  v.  St. 
Louis,  etc.,  R.  R.  Co.,  118  U.  S. 
290;  Goodlett  v.  Louisville,  etc.,  R. 
R.,  122  U.  S.  391;  Louisville,  N.  A. 
&  C.  R'y  Co.  v.  Louisville  Trust  Co., 
174  U.  S.  552.  This  is  a  question  of 
legislative  intent;  i.  e.,  did  the  state 
mean  the  foreign  corporation  to  be- 
come a  domestic  corporation?  An- 
gier  v.  East  Tennessee,  etc.,  R.  R.,  74 
Ga.  633.  Franchises  granted  by  a 
state  to  a  foreign  corporation  will  not 
make  it  a  domestic  corporation, 
where  it  does  not  accept  the  fran- 
chises or  act  under  them.  Philadel- 
phia, W.  &  B.  R.  R.  Co.  v.  Kent 
398 


County  R.  R.  Co.,  5  Houst.  (Del. )  127. 

1  A  corporation  may  be  entitled  on 
other  grounds  to  sue  in  a  Federal 
court.  See  Fed.  Cons.,  Art.  III.  §  2. 
Compare  Miners'  Bank  e.  Iowa,  12 
How.  1.  A  national  bank  can,  by 
reason  of  its  character  as  such,  sue  in 
a  Federal  court.  Bank  of  Omaha  v. 
Douglas  County,  3  Dill.  298. 

2  5  Cranch,  61. 

3  Accord, Commercial,  etc.,  Bankr. 
Slocomb,  14  Pet.  60;  Irvine  v.  Lowry, 
14  Pet.  293. 

4  2  How.  497.  This  was  the  first 
case  in  the  Supreme  Court  reports 
where  a  railroad  corporation  was  a 
party. 


PART  V.]  CITIZENSHIP   OF   A   CORPORATION. 


[§  412. 


state,  and  therefore  entitled,  for  the  purpose  of  suing  and  being 
sued,  to  be  deemed  a  citizen  thereof.  It  was  accordingly  held, 
that  a  citizen  of  one  state  could  sue  a  corporation  created  by 
another  in  the  Federal  Circuit  Court  for  the  latter  state,  al- 
though some  of  the  members  were  not  citizens  of  the  state 
where  the  suit  was  brought,  and  the  state  itself  was  a  member 
of  the  corporation. 

The  last  case  was  followed,  after  some  years,  by  Railway  Co. 
v.  Whitton,1  where  the  court  again  held  that  although  a  corpo- 
ration, being  an  artificial  body  created  by  legislation,  was  not  a 
citizen  within  the  meaning  of  several  provisions  of  the  consti- 
tution, still  where  rights  of  action  were  to  be  enforced,  it  would 
be  regarded  as  a  citizen  of  the  state  where  it  was  created, 
within  the  meaning  of  the  clause  extending  the  judicial  power 
of  the  United  States  to  controversies  between  citizens  of  differ- 
ent states. 

§  412.  Railway  Co.  v.  "Whitton  was  affirmed  in  Muller  v. 
Dows,2  though  the  reasoning  of  the  court  was  somewhat  modi- 
fied in  the  latter  case ;  where  it  was  said  that  a  corporation 
could  not  itself  be  a  citizen  of  a  state  in  the  sense  in  which  the 
word  "  citizen  "  is  used  in  the  Federal  constitution.  But  they 
held  that  a  suit  might  be  brought  in  a  Federal  court  by  or 
against  a  corporation,  and  that  in  such  a  case  the  suit  would  be 
regarded  as  if  brought  by  or  against  the  shareholders,  all  of 
whom  for  jurisdictional  purposes  would  be  conclusively  pre- 
sumed to  be  citizens  of  the  state  incorporating  the  corporation.3 


i  13  Wall.  270. 

*  94  IT.  S.  444. 

8  See  St.  Louis,  etc.,  Ry.  v.  James, 
161  U.  S.  545;  Barrow  Steamship  Co. 
v.  Kane,  170  U.  S.  100;  Steamship 
Co.  v.  Tugman,  106  U.  S.  118;  Maltz 
v.  Amer.  Exp.  Co.,  1  Flip.  611.  Un- 
der §  11,  of  the  judiciary  act  of  1789, 
a  corporation  cannot  be  made  a  party 
defendant  to  a  civil  suit  in  a  Federal 
Circuit  or  District  Court  by  original 
process,  in  any  other  district  than  a 
district  of  the  state  by  which  it  was 
created.  Myers  v.  Dorr,  13  Blatchf. 
22.  A  corporation  by  doing  business 
in  a  state  as  permitted  by  the  laws 


thereof,  having  a  resident  agent,  etc., 
does  not  become  a  citizen  of  that 
state  for  the  purposes  of  Federal 
jurisdiction.  Insurance  Co.  v.  Fran- 
cis, 11  Wall.  210;  Martin  v.  R.  R.,  151 
U.  S.  673.  See  Brownell  v.  Troy,  etc., 
R.  R.  Co.,  18  Blatohf.  243;  Callahan 
o.  Louisville,  etc.,  R.  Co.,  11  Fed. 
Rep.  536;  Guinn  v.  Iowa  Cent.  Ry. 
Co.,  14  Fed.  Rep.  323.  But  see  B.  & 
O.  R.  R.  Co.  v.  Wightman's  Adm'r, 
29  Gratt.  (Va.)  431;  Same  v.  NoeU's 
Adm'r,  32  Gratt.  394;  Stout  v.  Sioux 
City,  etc.,  R.  R.  Co.,  3  McCrary,  1; 
N.  Y.  &  Erie  R.  R.  Co.  v.  Shepard,  5 
McLean,  455.  For  instance,  a  railroad 

399 


§  412.]         THE  LAW   OF   PRIVATE   CORPORATIONS.    [CHAP.  VII. 

The  plaintiff  in  Muller  v.  Dows  was  a  resident  of  Missouri,  and 
sued  the  corporation  in  the  United  States  Circuit  Court  for 
Iowa.  The  corporation  was  incorporated  by  both  Missouri  and 
Iowa;  and  it  was  held  that  as  to  suits  brought  in  Iowa  the  Mis- 
souri corporation  could  not  be  regarded,  and  the  Circuit  Court 
for  Iowa  had  jurisdiction  of  the  suit.1  On  similar  principles, 
applied  under  reversed  circumstances,  it  was  held  in  Ohio  *fe 
Miss.  K.  It.  Co.  v.  Wheeler,2  that  a  corporation  created  by  Ohio 
and  Indiana  could  not  sue  a  citizen  of  Indiana  in  a  United 
States  Circuit  Court  for  the  district  of  Indiana. 

The  Federal  Supreme  Court  has  recently  enunciated  the  fol- 
lowing proposition  :  a  railroad  corporation  ma}r,  when  author- 
ized by  its  own  state,  accept  authority  from  another  state  to 
extend  its  road  into  such  state,  and  subject  itself  to  rules,  etc., 
prescribed  by  the  second  state.  This  is  not  within  the  prohi- 
bition of  the  Federal  constitution  against  compacts  between 
states.  Such  corporations  may  be  treated  by  each  of  the  states 
as  domestic  corporations. 

The  presumption  that  a  corporation  is  composed  of  citizens 
of  the  state  creating  it,  accompanies  it  when  it  does  business  in 
another  state,  and  it  may  sue  or  be  sued  in  the  Federal  courts 
in  such  other  state  as  a  citizen  of  the  state  of  its  original  crea- 


corporation  created  by  Maryland 
does  not  become  a  citizen  of  Virginia 
by  taking  a  lease  of  a  Virginia  rail- 
road, and  can  still  remove  to  the 
Federal  court  a  suit  brought  against 
it  by  a  citizen  of  Virginia.  R.  R.  Co. 
v.  Koontz,  104  U.  S.  5.  A  domestic 
corporation  created  by  a  state  divided 
into  more  than  one  Federal  district, 
is  for  purposes  of  determining  Fed- 
eral jurisdiction,  a  citizen  of  that 
district  where  it  has  its  headquarters, 
etc.  Galveston,  etc.,  Ry.  Co.  v.  Gon- 
zales, 151  U.  S.  496. 

Where  by  the  local  law  a  foreign 
corporation  is  amenable  to  suit  in 
the  courts  of  the  state,  service  being 
made  upon  an  agent  within  the  state, 
the  Federal  courts  may  be  regarded 
as  courts  of  the  state,  and  may  take 
jurisdiction  on  a  service  that  would 

400 


be  good  in  a  state  court.  Ex  parte 
Schollenberger,  96  U.  S.  369;  Eaton 
v.  St.  Louis,  etc.,  Mfg.  Co.,  2  McCrary 
362.  Even  if  the  state  statutes  do 
not  authorize  suits  by  persons  not 
resident  of  that  state,  a  Federal 
court  may  take  jurisdiction  of  an  ac- 
tion begun  by  a  citizen  of  another 
state  by  service  upon  an  agent  of  a 
foreign  corporation  designated  by  it 
pursuant  to  a  state  statute.  Barrow 
Steamship  Co.  v.  Kane,  170  U.  S.  100. 

1  See  §  408.  Also,  Marshall  v.  Bal- 
timore, etc.,  R.  R.  Co.,  16  How.  314. 

2  1  Black.  286,  §  408;  accord,  Mem- 
phis, etc.,  R.  R.  Co.  v.  Alabama,  107 
U.  S.  581;  County  of  Allegheny  v. 
Cleveland,  etc.,  R.  R.  Co.,  51  Pa.  St. 
228.  Compare  R.  R.  Co.  v.  Harris, 
12  Wall.  65. 


PART  V.]  CITIZENSHIP   OF   A    CORPORATION. 


[§  413. 


tion.  But  though  such  corporation  be  endowed  in  the  second 
state  with  all  the  privileges  of  a  domestic  corporation,  it  shall 
not  be  deemed  to  be  composed  of  citizens  of  such  second  state 
so  as  to  confer  jurisdiction  in  the  Federal  courts  at  the  suit  of 
a  citizen  of  the  state  of  its  original  creation.1 

§  413.  In  order  to  give  jurisdiction  to  the  Federal  court,  it 
should  appear  by  the  pleadings  that  the  corporation  Averments 
was  incorporated  by  a  state  other  than  that  of  which  impleading, 
the  other  party  is  a  citizen.2  An  averment  that  a  drawbridge 
company  were  citizens  of  Indiana  is  sufficient  to  give  jurisdic- 
tion to  a  Federal  Circuit  Court,  the  company  having  been  in- 
corporated by  a  public  statute,  of  which  the  court  is  bound 
judicially  to  take  notice.3  Likewise,  that  the  defendant  "  is  a 
foreign  corporation  formed  under  and  created  by  the  laws  of 
the  state  of  New  York,"  is  a  sufficient  averment  of  citizenship.4 
But  in  a  suit  brought  against  a  corporation  by  a  state,  an  aver- 
ment that  the  defendant  is  "  a  body  politic  in  the  law  of  and 
doing  business  in"  another  state  is  insufficient  to  give  jurisdic- 
tion to  the  Federal  Supreme  Court.5  An  averment  that  the 
defendant  is  a  "  corporation  created  by  an  act  of  the  legislature 
of  New  York,  located  in  Aberdeen,  Mississippi,  and  doing  busi- 
ness under  the  laws  of  the  state,"  is  no  averment  that  the  de- 
fendant is  a  citizen  of  Mississippi!' 


1  St.  Louis,  etc.,  Ry.  v.  James, 
161  U.  S.  545. 

2  Mansfield  C.  &  L.  M.  Ry.  Co.  v. 
Swan,  111  U.  S.  379;  Muller  v.  Dows, 
94  U.  S.  444.  See  Marshall  r.  Balti- 
more, etc.,  R.  R.  Co.,  16  How.  314. 
Compare  N.  Y.  &  Erie  R.  R.  Co.  v. 
Shepard,  5  McLean,  455.  A  corpora- 
tion created  by  a  territorial  legisla- 
ture is,  after  the  territory  becomes 
a  state,  a  citizen  of  that  state  within 
the  clause  defining  the  jurisdiction 
of  the  Federal  courts.  Kansas  Pa- 
cific R.  R.  Co.  v.  Atchison,  T.  and  S. 
F.  R.  R.  Co.,  112  U.  S.  414. 

Corporations  created  by  Congress 
can  remove  cases  to  the  Federal 
courts  on  the  ground  that  the  suits 
against  them  are  suits  "arising  un- 
der the  laws  of  the  United    States." 

26 


Pacific  R.  R.  Removal  Cases,  115  U. 
S.  2. 

3  Covington  Drawbridge  Co.  v. 
Shepherd,  20  How.  229.  But  see 
Lafayette  Ins.  Co.  v.  French,  18  How. 
404. 

4  Express  Co.  v.  Kountze  Brothers, 
8  "Wall.  342. 

5  Pennsylvania  v.  Quicksilver  Co., 
10  Wall.  553. 

6  Insurance  Co.  v.  Francis,  11 
Wall.  210.  N.  Y.  and  Erie  R.  R.  Co. 
v.  Shepard,  5  McLean,  455,  seems 
at  variance  with  this  case.  See 
§412. 

Under  the  act  of  March  3,  1875,  to 
entitle  a  party  to  remove  a  suit,  his 
citizenship  relied  on  must  have 
existed  when  the  suit  was  begun  and 
also  when   the  petition  for   removal 

401 


§  415.]        THE    LAW    OF    PRIVATE   CORPORATIONS.    [CHAP.  VII. 


4.  SUCCESSION. 


Succession;  consolidation;  dissolu- 
tion, §  414. 

Succession,  wherein  differing  from 
consolidation,  §  415. 

Property  passes  subject  to  restric- 
tions, §  416. 


Successor  assumes  position  of  former 

corporation,  §  417. 
Special   exemptions   may  not   pass, 

§418. 


§  414.  There  are  certain  transactions  or  proceedings  by  which 
the  legal  relations  subsisting  in  respect  of  a  corporate 
sion ;  con-     enterprise  are  affected  radically  or  even  as  a  whole ; 
dissohi-0n;     the  first,  a  sort  of  succession,  where  the  rights,  fran- 
tion.  chises,  and  property  of  a  corporation  are  acquired  by 

an  individual  or  by  another  corporation ;  *  the  second,  a  con- 
solidation, where  two  or  more  corporations  are  united;  the 
third,  a  dissolution,  where  a  final  liquidation  of  the  legal  rela- 
tions subsisting  in  respect  of  a  corporate  enterprise  takes  place. 
The  three  proceedings  have  much  in  common,  indeed  run  into 
each  other.  A  consolidation  rarely  occurs  without  a  succession 
as  well  as  a  dissolution.  Succession,  the  simplest  of  these  pro- 
ceedings, may  be  considered  first.2 

§  415.  What  is  here  called  a  succession  takes  place  when  the 
Succession,  property  and  franchises  of  a  corporation  are  bought, 
for  instance  on  the  foreclosure  of  a  mortgage.3  A 
succession  differs  from  a  consolidation  in  this  respect, 
among  others,  that  the  purchaser  acquiring  the  prop- 
erty and  franchises  of  the  corporation,  does  not  become  re- 
sponsible for  its  liabilities  already  accrued  ;4  while,  on  the  other 


wherein 
differing 
from  con- 
solidation 


was  filed.  Houston  and  T.  C.  R'y 
Co.  v.  Shirley,  111  U.  S.  358. 

Under  the  Federal  acts  of  1887  and 
1888  a  corporation  incorporated  in 
one  state  only  cannot  be  compelled 
to  answer  in  a  Circuit  Court  of  the 
United  States  held  in  another  state  in 
which  it  has  a  usual  place  of  business, 
to  a  civil  suit  at  law  or  in  equity 
brought  by  a  citizen  of  a  different 
state.  Shaw  v.  Quincy  M'g  Co.,  145 
U.  S.  444. 

1  For  the  rights  of  creditors  when 
the  property  of  an  insolvent  corpo- 

402 


ration  is  transferred,  say  to  another 
corporation  composed  of  the  same 
shareholders,  see  §§  657,  667,  708. 

2  For  the  power  of  a  corporation  to 
transfer  its  franchises,  see  §§  131, 
132,  304. 

3  For  the  right  of  a  corporation  to 
mortgage  its  franchises,  see  §  304. 

A  power  in  the  corporation  to  mort- 
gage or  transfer  its  franchises  is  as- 
sumed for  the  purposes  of  the  present 
discussion. 

4  Hoard  v.  Chesapeake  &  O.  Ry., 
123  U.  S.  222;  Wright  v.  Milwaukee, 


PART  V.] 


SUCCESSION. 


[§  415. 


hand,  it  is  usually  held  that  the  consolidated  corporation 
assumes  all  the  liabilities  of  the  corporations  of  which  it  is 
composed.1  Thus,  when  the  property  and  franchises  of  a  rail- 
road company  are  sold  out  under  the  foreclosure  of  a  mortgage, 
the  purchasers  are  not  liable  on  a  judgment  against  the  corpo- 
ration,2 although  they  organize  and  form  a  corporation  under 
the  name  used  by  the  old  company.3  And  a  company  which 
purchases  the  railroad  of  another  corporation,  sold  for  the  pay- 
ment of  its  debts,  is  not  responsible  for  the  damages  which,  at 
the  time  of  the  sale,  had  already  accrued  to  adjoining  lands 
through  failure  of  the  former  company  to  maintain  proper  drain- 
age.4 So  when  a  railroad  company  competently  purchases  at  a 
foreclosure  sale  the  franchises  and  property  of  another  corn- 
pan}7,  it  will  be  affected  only  by  such  contracts  of  the  other  as 
constitute  a  lien  upon  or  otherwise  bind  the  property  and 
franchises  thus  acquired.  The  purchasing  company  will  not  be 
bound,  for  instance,  by  a  contract  of  the  former  company  not  to 
extend  the  railroad  in  a  certain  direction.5 


etc.,  Ry.  Co.,  25  Wis.  46;  Peunison 
v.  R.  R.  Co.,  93  Wis.  344,  and  cases  in 
next  notes.  Compare  Pfeifer  v.  She- 
boygan, etc.,  R.  R.  Co.,  18  Wis.  155; 
McLellan  u.  Detroit  File  Works,  56 
Micb.  579;  Campbell  ».  Farmers,  etc., 
Bk.,  49  Neb.  143;  Reed  Bros.  v.  Nat. 
Bk.,  46  Neb.  168;  see  Archambeau  v. 
N.  Y.,  etc.,  R'y  Co.,  169  Mass.  272; 
Sherwood  v.  A.  &  D.  R.  Co.,  94  Va. 
291.  But  by  special  provision  a  suc- 
cessor may  be  liable.  New  Bedford 
R.  R.  Co.  o.  Old  Colony  R.  R.  Co., 
120  Mass.  397.  Thus,  a  corporation 
organized  under  and  pursuant  to  an 
agreement  sanctioned  by  competent 
legislation,  is  bound  by  its  provisions, 
and  by  all  the  liabilities  it  imposes  in 
favor  of  third  persons.  Welsh  v. 
First  Div.  St.  Paul,  etc.,  R.  R.  Co.,  25 
Minn.  314.  See,  also,  St.  Louis,  A.  & 
T.  R.  R.  Co.  ».  Miller,  43  111.  199.  If 
the  succeeding  corporation  assumes 
them,  it  will  be  bound.  Island  City 
Sav.  Bk.  v.  Sachtleben,  67  Tex.  420. 
Cf.  Fernschild   v.   Brewing  Co.,   154 


N.  Y.  667.  Otherwise,  to  render  the 
new  corporation  liable,  it  must 
affirmatively  appear  that  it  is  but  a 
continuation  of  the  old.  Austin  v. 
Tecumseh  Bk.,  49  Neb.  412.  Of. 
Reed  Bros.  v.  Nat.  Bk.,  46  Neb.  168. 
See  §  416,  note. 

1  Sappington  v.  L.  R.  M.  R.  &  T.  R. 
R.  Co.,  37  Ark.  23.     See  §§  425-427. 

2  Pennsylvania  Transportation 
Co.'s  Appeal,  101  Pa.  St.  576;  Vilas 
o.  Milwaukee,  etc.,  R.  R.  Co.,  17  Wis. 
497;  Smith  v.  Chicago  &  N.  W.  Ry. 
Co.,  18  Wis.  17;  Hatcher  ».  Toledo, 
etc.,  R.  R.  Co.,  62  111.  477;  Gil  man  u. 
Sheboygan,  etc.,  R.  R.  Co.,  37  Wis. 
317;  Cook  v.  Detroit,  etc.,  Ry.  Co., 
43  Mich.  349.  See  Lake  Erie  &  N. 
Ry.  Co.  v.  Griffin,  92  Ind.  487. 

8  Memphis  Water  Co.  v.  Magens, 
15  Lea  (Tenn.),  37. 

4  Hammond  v.  Port  Royal,  etc.,  R. 
R.  Co.,  15  S.  C.  10;  Same  v.  Same,  16 
S.  C.  567.  See  Neff  v.  Wolf  River 
Boom  Co.,  50  Wis.  585. 

6  City  of  Menasha  v.    Milwaukee, 

403 


§  416.]         THE   LAW    OF   PRIVATE   CORPORATIONS.   [CHAP.  VII. 

On  the  other  hand,  a  railroad  company  whose  road  has  been 
sold  out  under  foreclosure,  is  not  liable  for  injuries  received  on 
the  road  after  it  had  passed  from  the  control  of  the  company.1 

§  416.  Since  the  purchaser  can  acquire  no  further  or  more 
unrestricted  franchises  than  were  possessed  by  the 
passeTsub-  original  corporation,  in  availing  himself  of  its  fran- 
strictions"  chises  he  will  be  bound  by  all  the  restrictions  to 
which  they  were  subject  in  its  hands.  Thus,  when 
in  pursuance  of  a  statute  the  railroad  of  one  company  is  pur- 
chased by  another,  unless  there  is  some  express  provision  of  law 
to  the  contrary,  the  road  passes  to  the  purchaser  subject  to  the 
restrictions,  as  to  the  rates  chargeable  for  transportation,  which 
attached  to  it  in  the  hands  of  the  vendor.2  And  the  corpora- 
tion competently  purchasing  the  property,  privileges,  rights, 
and  franchises  of  another  railroad  company  thereby  assumes 
the  continuing  obligations  and  responsibilities  imposed  by  the 
constitution  of  the  other.3  Reversely,  when  a  railroad  company 
takes  a  lease  of  another  road,  it  will  be  subject  in  regard  to  the 
taking  of  tolls  thereon  only  to  the  restrictions  contained  in  the 
charter  of  its  lessor,  and  not  to  those  contained  in  its  own.4 


etc.,  R.  R.  Co.,  52  Wis.  414.  See 
Tawas,  etc.,  R.  R.  Co.  v.  Circuit 
Judge,  44  Mich.  479;  Morgan  County 
v.  Thomas,  76  111.  120.  But  see 
Rome,  etc.,  R.  R.  Co.  v.  Ontario,  etc., 
R.  R.  Co.,  16  Hun  (N.  Y.),  445;  and 
compare  Chicago  and  A.  R.  R.  Co.  v. 
Chicago,  etc.,  Coal  Co.,  79  111.  121. 

1  Western   R.   R.   Co.   v.   Davis,   66 
Ala.  578. 

2  Campbell  v.  Marietta,  etc.,  R.  R. 
Co.,  23  Ohio  St.  168. 

8  Daniels  v.  St.  Louis,  etc.,  R.  R. 
Co.,  62  Mo.  43.  See  Montgomery, 
etc.,  R.  R.  Co.  ».  Boring,  51  Ga.  582; 
Sherwood  v.  A.  &  D.  R.  Co.,  94  Va. 
291.  And  in  case  of  a  lease  of  a  rail- 
road, the  performance  of  the  obliga- 
tion to  maintain  and  operate  the 
road  may  be  specifically  decreed  at 
the  suit  of  the  lessor.  Southern  R. 
Co.  v.  Franklin,  etc.,  R.  Co.,  96  Va. 
404 


693.  When  a  state  bank  pays  a  con- 
tinuing bonus  to  the  state  for  its 
privileges  and  franchises  the  state 
cannot  exact  the  bonus  after  the  bank 
has  reorganized  under  the  national 
banking  act.  State  v.  National  Bank, 
33  Md.  75.  But  the  reorganized  bank 
is  liable  for  the  liabilities  of  the  state 
bank.  Metropolitan  Nat.  Bk.  v. 
Claggett,  141  U.  S.  520;  Coffey  v. 
Nat.  Bk.,  46  Mo.  140.  When  a  state 
hank  is  transformed  into  a  national 
bank,  it  is  but  a  continuance  of  the 
same  body  under  a  changed  jurisdic- 
tion, and  the  national  bank  can  en- 
force contracts  made  with  the  state 
bank.  City  Nat.  Bk.  v.  Phelps,  97 
N.  Y.  44;  Michigan  Insurance  Bk.  v. 
Eldred,  143  U.  S.  293.  See  §415, 
note. 

4  Pennsylvania  R.  R.  Co.  v.  Sly,  65 
Pa.  St.  205.     See  §  170. 


PART  V.] 


SUCCESSION. 


[§  418. 


§  417.  It  is  in  accordance  with  these  principles  that  when  a 
corporation  or  an  individual,  be  he  an  ordinary  pur-   „ 

1  .  i  Successor 

chaser  or  one  who  receives  the  property  in  the  car-  assumes 
rying  out  of  some  trust,  comes  into  the  possession  of  former^or- 
the  property  and  franchises  of  a  corporation,  like  a  P°ratlon- 
railroad  company,  exercises  the  franchises  and  uses  the  prop- 
erty, he  thereby  assumes  towards  outsiders  a  position  and  re- 
sponsibility similar  to  those  of  the  former  company.  Thus, 
trustees  under  a  railroad  mortgage,  who  have  bought  in  the 
road  on  foreclosure,  and  are  operating  it  for  the  benefit  of  the 
bondholders,  will  be  regarded,  as  towards  the  public,  as  owners 
in  possession  and  will  be  liable  as  common  carriers  for  all  goods 
transported  over  the  road  during  their  management.1  Likewise 
a  receiver  operating  a  road,  sustains  towards  the  public  the  re- 
lation of  common  carrier,  and  will  be  amenable  to  the  common 
law  courts  in  actions  for  negligence.2 

§418.  A  person  purchasing  the  property  of  a  corporation 
does  not  necessarily  acquire  the  special  privileges  of 
exemptions,3  and  franchises  possessed  by  the  corpora-   emepCtionsX" 
tion  with  respect  to  its  property.4     Especially  the   ™^110t 
franchise  of  being  a  corporation  may  not  pass ; 5  and 


1  Rogers  v.  Wheeler,  43  1ST.  Y.  598; 
Pearson  v.  Wheeler,  55  N.  H.  41; 
Sprague  v.  Smith,  29  Vt.  421.  See 
Farrell  v.  Union  T.  Co.,  77  Mo.  475. 
Compare  Beeson  v.  Lang,  85  Pa.  St. 
197;  Stratton  v.  Europ'n,  etc.,  Ry., 
74  Me.  422. 

2  Newell  v.  Smith,  49  Vt.  255. 
Compare  Hopkins  v.  Taylor,  87  111. 
436;  Little  v.  Dusenberry,  46  N.  J. 
L.  614;  Klein  v.  Jewett,  26  N.  J.  Eq. 
474;  S.  C,  27  N.  J.  Eq.  550;  Blumen- 
thal  v.  Brainerd,  38  Vt,  402;  Sloan 
v.  Central  Iowa  Ry.  Co.,  62  Iowa, 
728;  Wall  v.  Piatt,  169  Mass.  398; 
Burke  v.  Ellis,  105  Tenn.  702.  Seems 
contra,  Cardot  v.  Barney,  63  N.  Y. 
281.  A  claim  for  personal  injuries 
sustained  while  the  road  is  in  the 
hands  of  a  receiver  is  against  the 
funds  of  the  receivership;    and  the 


receiver  is  not  personally  liable  after 
he  has  turned  over  such  funds  to  the 
purchasers  and  received  his  dis- 
charge. Ryan  v.  Hays,  62  Tex.  42; 
Archambeau  v.  Piatt,  173  Mass.  335. 
And  it  seems  that  the  corporation 
itself  will  not  be  liable  for  injuries 
received  on  its  road,  after  the  road 
had  passed  under  the  control  of  a 
receiver  duly  appointed,  and  taking 
active  charge.  Bell  ».  Indianapolis, 
etc.,  R.  R.  Co.,  53  Ind.  57;  State  v. 
Wabash  Ry.  Co.,  115  Ind.  466;  Texas 
&  Pac.  Ry.  Co.  v.  Huffman,  83  Tex. 
286;  Lock  v.  Turnpike  Co.,  100  Tenn. 
163.  But  see  Indianapolis,  etc.,  R. 
R.  Co.  v.  Ray,  51  Ind.  269.     See  §  170. 

3  See  §§  487-491. 

4  Special  privileges  conferred  on  a 
railroad  corporation  by  special 
charter,  e.  g.,  the  right  to  demand 


6  See  §§  131,  132. 


405 


§  419.]         THE    LAW    OF   PRIVATE   CORPORATIONS.   [CHAP.  VII. 

thus,  where  certain  persons  purchased  at  a  sheriff's  sale  all  the 
rights,  privileges,  franchises,  and  property  of  a  railroad  corpo- 
ration, and  then  operated  the  road  themselves,  they  were  held 
jointly  liable  on  an  obligation  issued  by  them  in  the  name  of 
the  corporation.1 

5.  CONSOLIDATION. 


No  implied    power  to   consolidate, 

§419. 
Authority  to  consolidate,  §420. 
Effect  of  consolidation,  §421. 
Meaning  of  phrases,  §422. 


Essential  questions,  §423. 
Capacities  of  consolidated   corpora- 
tion, §424. 
Its  liabilities,  §§425-427. 


§  419.  It  is  almost  self-evident  that  a  corporation  has  no  im- 
plied power  to  consolidate  with  another.3     Special 
w)wer?oied   authority  from  the  legislature  is  necessary.3    Reasons 

consoli-  for  this  are  twofold.  In  the  first  place,  since  a  con- 
date.  ... 

solidation  ordinarily  brings  a  new  corporation  into 

existence,4  the  authority  of  the  legislature  is  as  necessary  for 
the  incorporation  of  a  company  out  of  pre-existing  corporations 
as  it  is  under  other  circumstances.  And  in  the  second  place, 
the  rights  of  dissenting  shareholders  would  be  impaired  ;  for 
the  implied  agreement  made  by  every  one  subscribing  for  shares 
that  the  corporate  affairs  shall  be  subject  to  the  will  of  the 
majority  and  of  the  corporate  management,  does  not  extend 
beyond  the  doing  of  acts  contemplated  in  the  original  consti- 
tution.5 


special  rates  of  fare,  are  not  so  in- 
herent in  the  road  as  to  pass  to  any 
corporation  or  person  authorized  to 
work  it.  Pittsb.,  Cin.,  etc.,  Ry.  Co. 
v.  Moore,  33  Ohio  St.  384.  But  com- 
pare Detroit  v.  Mutual  Gas  Co.,  43 
Mich.  594. 

1  Chaffe  v.  Ludeling,  27  La.  Ann. 
607;  compare  Beesen  v.  Lang,  85  Pa. 
St.  197. 

2  An  unauthorized  consolidation 
does  not  create  a  corporation  de facto. 
Amer.  L.  &  T.  Co.  v.  Minn.,  etc., 
R.  R.  Co.,  157  111.  641. 

8  Pearce  v.  Madison,  etc.,  R.  R.,  21 

406 


How.  442;  Clearwater  v.  Meredith,  1 
Wall.  25;  Cole  v.  Millerton  Iron  Co., 
133  1ST.  Y.  164.  Power  to  connect  or 
unite  with  another  road  refers 
merely  to  physical  connection  of  the 
tracks;  it  does  not  authorize  pur- 
chase, lease,  or  consolidation.  Louis- 
ville, etc.,  R.  R.  v.  Kentucky,  161 
U.  S.  677.  As  to  "Trusts"  and 
monopolies,  see  §§  309a-309c. 

«  §421. 

5  Clearwater  v.  Meredith,  1  Wall. 
25,  40.  See  §  536  for  the  right  of  a 
shareholder  to  prevent  a  consolida- 
tion. 


PART  V.] 


CONSOLIDATION. 


[§  421. 


§  420.  The  authority  to  consolidate  may  exist  in  the  original 
constitution  of  the  corporation  ; x  or  it  may  be  given  Authoriw 
by  a  subsequent  statute  passed  before  consolidation  ; 2  to  consoii-' 
or  an  unauthorized  consolidation  may  be  ratified  by 
statute  after  it  has  taken  place.3  And  power  given  to  a  cor- 
poration to  consolidate  with  any  other  is  sufficient  to  another 
corporation,  if  it  choose,  to  unite  with  the  former,  although  the 
latter  is  not  named  in  the  statute.4  Corporations  incorporated 
by  different  states  may  be  united  by  consolidation.5 

§  421.  When  two  or  more  corporations  are  consolidated,  the 
legal  relations  thereby  occasioned  depend  primarily   Effect  f 
on  the  intention  of  the  legislature  as  expressed  in  the   consoiida- 
statute  authorizing  the  consolidation.6     Generally  the 
effect  is  to  dissolve  all  the  corporations  consolidating,  and  to 
create  a  new  corporation  out  of  their  elements.7     But  consolida- 
tion does  not  necessarily  work  a  dissolution  of  all  the  consolidat- 
ing corporations;  and  one  may  become  merged  in  the  other, 
the  latter  continuing  its  corporate  existence.8 


1  Nugent  v.  Supervisors,  19  Wall. 
241. 

2  See  Black  v.  Delaware  and  Rar. 
Canal  Co.,  24  N.  J.  Eq.  455.  A  state 
may  authorize  two  or  more  existing 
corporations  to  organize  themselves 
into  a  new  corporation  just  as  much 
as  it  may  authorize  individuals  to  in- 
corporate themselves.  State  Treas- 
urer v.  Auditor-General,  46  Mich. 
224,  233. 

8  Bishop  v.  Brainerd,  28  Conn.  289  ; 
Mead  v.  New  York,  Housatonic,  etc., 
R.  R.  Co.,  45  Coun.  199.  See  Mc- 
Auley  v.  Columbus,  etc.,  Ry.  Co.,  83 
111.  348. 

4  Matter  of  Prospect  Park,  etc.,  R. 
R.  Co.,  67  N.  Y.  371.  See  New 
York  and  N.  E.  R.  R.  Co.  v.  New 
York,  etc.,  R.  R.  Co.,  52  Conn.  274  ; 
contra,  Morrill  v.  Smith  Co.,  89  Tex. 
529,  552. 

5  See  Muller  v.  Do ws,  §  408,  and  gen- 
erally for  status  of  such  corporation, 
see  §§  403  et  seq. ;  also  Racine,  etc., 


R.  R.   Co.   v.   Farmers'   L'n  &  Trust 
Co.,  49  111.  331. 

6  Central  R.  R.,  etc.,  Co.  v.  Georgia, 
92  U.  S.  665;  Railroad  Co.  v.  Georgia, 
98  U.  S.  359  ;  Keokuk,  etc.,  R.  R.  Co. 
v.  Missouri,  152  U.  S.  301  ;  Adams  v. 
R.  R.  Co.,  77  Miss.  194  ;  State  ex  rel. 
Houck  v.  Lesuer,  145  Mo.  322. 

7  Railroad  Co.  v.  Georgia,  98  U.  S. 
359;  Clearwater  ».  Meredith,  1  Wall. 
25  ;  McMahon  v.  Morrison,  16  Ind. 
172  ;  State  v.  Bailey,  ib.  46  ;  Shields 
v.  Ohio,  95  U.  S.  319  ;  Ridgway  Town- 
ship v.  Griswold,  1  McCrary,  151  ; 
Cheraw,  etc.,  R.  R.  Co.  v.  Commis- 
sioners, 88  N.  C.  519  ;  Fee  v.  New 
Orleans  Gas  Light  Co.,  35  La.  Ann. 
413  ;  Kansas,  O.,  etc.,  Ry.  Co.  v. 
Smith,  40  Kan.  192  ;  Board  of  Ad- 
ministrators v.  Gas  Light  Co.,  40  La. 
Ann.  382  ;  Adams  v.  R.  R.  Co.,  77 
Miss.  194. 

8  Philadelphia,  etc.,  R.  R.  Co.  v. 
Maryland,  10  How.  376  ;  Central  R. 
R.,  etc.,  Co.  v.  Georgia,  92  U.  S.  665  ; 

407 


§   423.]         THE    LAW    OF    PRIVATE   CORPORATIONS.   [CHAP.  Vll. 


§  422.  The  phrases  used  in  the  preceding  paragraph  require 
analysis.  When  it  is  said,  that  whether  or  not  a  dis- 
parages8 °f  solution  of  both  corporations  and  a  creation  of  a  new 
one  are  occasioned,  depend  on  the  intention  of  the 
legislature,  the  word  "  corporation  "  is  obviously  used  as  mean- 
ing legal  institution,  or  the  sum  of  the  legal  relations  subsisting 
in  respect  of  the  corporate  enterprise.1  Evidently  questions 
arising  on  consolidation  are  questions  as  to  what  already  sub- 
sisting legal  relations  continue,  and  what  new  legal  relations  are 
occasioned  through  the  consolidation.  Hence,  by  saving  that  a 
new  corporation  is  created,  is  meant  that  the  legal  relations  are 
substantially  changed  as  a  body  ;  and  that  future  legal  relations 
will  depend  on  a  different  corporate  constitution.  And  by  say- 
ing that  corporation  B.  is  merged  into  corporation  A.,  is  meant 
that  the  constitution  of  A.,  as  an  organic  group  of  laws,  remains 
unchanged ;  though  it  may  be  modified  by  bringing  into  it 
certain  legal  rules  from  the  constitution  of  B. 

§  423.  In  accurate  and  minute  discussions,  however,  of  special 
questions  arising  on  consolidation,  usually  but  small 
assistance  will  be  derived  from  considering  whether 
or  not  a  new  corporation  is  created.  The  essential 
matter  will  be  to  determine  from  the  statutes  authorizing  the 
consolidation  how  far  the  already  subsisting  legal  relations  are 
modified  ;  and  how  far  are  altered  the  legal  rules  under  which 
legal  relations  in  respect  of  the  corporate  enterprise  will  come 
into  existence  upon  the  doing  of  further  acts. 


Essential 
questions. 


Tompkins  v.  Augusta  So.  R.  R.  Co., 
101  Ga.  436  ;  Pingree  v.  Mich.  Ceu. 
R.  R.  Co.,  118  Mich.  314  ;  Chicago, 
etc.,  Ry.  Co.  v.  Ashling,  160  111.  373. 
See  this  last  case  for  what  was  held 
to  be  a  consolidation.  "When  the 
rights,  franchises,  and  effects  of  two 
or  more  corporations  are  by  legal  au- 
thority and  agreement  of  the  parties 
combined  and  united  into  one  whole 
and  committed  to  a  single  corpora- 
tion, the  shareholders  of  which  are 
composed  of  those  (so  far  as  they 
choose  to  become  such)  of  the  com- 
panies thus  agreeing,  this  is  in  law 
and    according  to   common    under- 1 

408 


standing  a  consolidation  of  such 
companies,  whether  such  single  cor- 
poration, called  the  consolidated 
company,  be  a  new  one  then  created, 
or  one  of  the  original  companies  con- 
tinuing in  existence  with  only  larger 
rights  and  capacities  and  property." 
Meyer  v.  Johnston,  64  Ala.  603,  656  ; 
opinion  of  court,  per  Manning,  J. 
Because  the  consolidated  company 
has  a  new  name  does  not  make  it  a 
new  corporation.  lb.  In  this  case  it 
was  held  that  no  new  corporation  was 
created.  See,  also,  Capital  Traction 
Co.  v.  Offutt,  17  D.  C.  App.  Cas.  292. 
i  See  Chap.  III. 


PART  V.] 


CONSOLIDATION. 


[§  425. 


of  the  con- 
solidated 
corpora- 
tion. 


§  424.  All  the  rights  and  franchises  of  the  consolidated  cor- 
poration are  subject  to  the  provisions  of  the  statute  Capacities 
authorizing  the  proceeding.1  Usually,  however,  all 
the  franchises  of  the  consolidating  companies  vest  in 
the  new  corporation ;  as  well  as  all  the  rights  which 
before  consolidation  had  accrued  or  vested  in  the  former  corpo- 
rations under  the  exercise  of  their  franchises.2  Thus,  author- 
ity to  mortgage  the  franchises  may  pass  to  the  consolidated 
company  ;3  and  likewise  the  power  of  eminent  domain.4 

§  425.  On  the  other  hand,  the  consolidated  corporation  not 
only  assumes  duties  and  obligations  similar  to  those 
of  the  former  corporations,  but  as  a  general  rule  will   Unities 
be  held  liable  on  the  very  identical  liabilities  and 


i  Shields  v.  Ohio,  95  U.  S.  319; 
affirming  S.  C,  26  O.  St.  86.  When 
the  state  constitution  imposes  liabil- 
ity upon  the  stockholders  for  corpo- 
rate debts,  the  stockholders  of  the 
consolidated  company  are  so  liable, 
although  such  liability  did  not  exist 
as  to  any  of  the  constituent  com- 
panies before  consolidation.  Minne- 
apolis &  St.  L.  R'y  Co.  v.  Gardiner, 
177  IT.  S.  332. 

2  Payne  v.  Lake  Erie,  etc.,  R.  R. 
Co.,  31  Ind.  283;  Miller  v.  Lancaster, 
5  Coldw.  (Tenn.)  514;  Cooper  v.  Cor- 
bin,  105  111.  224.  Thus,  the  new  cor- 
poration may  lawfully  use  a  patent 
which  the  prior  companies  had  been 
licensed  to  use.  Lighter  v.  Boston 
and  Albany  R.  R.  Co.,  1  Lowell, 
338;  Ridgway  Township  v.  Griswold, 
1  McCrary,  151.  So  when  the  officers 
of  a  corporation  are  exempt  from 
jury  duty,  and  the  corporation  con- 
solidates, the  consolidated  corpora- 
tion receiving  all  the  immunities 
of  the  former  corporations,  its  officers 
will  be  exempt  from  jury  duty;  and 
that  they  should  be  so  is  a  valuable 
franchise  of  the  corporation.  Zim- 
mer  v.  State,  30  Ark.  677.  See,  also, 
Fisher  v.  N.  Y.  C.   and  H.  R.  R.  R. 


Co.,  46  N.  Y.  644.  It  is  to  be  pre- 
sumed, when  two  or  more  railroad 
companies  are  authorized  to  consoli- 
date, that  the  franchises  and  priv- 
ileges of  each  continue  to  exist  with 
respect  to  the  several  roads  so  con- 
solidated. Authority  to  consolidate 
"  upon  such  terms  as  may  be  deemed 
just  and  proper"  includes  the  power 
to  transfer  to  the  consolidated  com- 
pany the  franchises  and  privileges 
connected  with  the  road;  if,  indeed, 
the  law  itself  did  not  have  that  ef- 
fect. Green  County  v.  Conness,  109 
U.  S.  104,  citing  Tomlinsonu.  Branch, 
15  Wall.  460;  see  §  491. 

As  to  whether  special  exemptions, 
as,  e.  g.,  from  taxation,  pass  to  the 
consolidated  corporation,  see  §§  487- 
491.  As  to  the  right  of  the  consoli- 
dated corporation  to  municipal  bonds 
voted  in  aid  of  one  of  the  former 
companies,  see  §  323.  As  to  consoli- 
dation releasing  subscribers,  see 
§  536. 

3  Mead  v.  N.  Y.,  Housatonic,  etc., 
R.  R.  Co.,  45  Conn.  199. 

4  South  Carolina  R.  R.  Co.  v. 
Blake,  9  Rich.  L.  (S.  C.)  228,  233; 
Trester  v.  Missouri  P.  R.  Co.,  33 
Neb.  171. 

409 


§  426.]         THE    LAW    OF    PRIVATE   CORPORATIONS.  [CHAP.  VII. 

obligations  incurred  by  either  of  the  former  companies.1  Ac- 
cordingly, the  new  corporation  may  be  held  liable  for  the 
torts  of  the  consolidating  companies  committed  before  con- 
solidation.2 

§  42G.  Evidently  the  consolidated  company,  by  the  statutes 
allowing  or  ratifying  the  consolidation,  may  be  made  to  assume 
all  the  liabilities  of  the  former  companies  to  their  creditors,3 
or  the  terms  of  the  consolidation  and  the  statutes  authorizing 
it  may  expressly  or  by  implication  prevent  such  liability  from 
arising.4  In  the  absence  of  provision,  however,  by  which  the 
consolidated  corporation  is  made  to  assume  or  is  kept  free  from 
such  liabilities,  it  has  been  held  that  where  two  or  more  rail- 
road corporations  are  consolidated,  the  consolidated  company, 
so  far  as  the  creditors  of  one  of  the  original  companies  are 
concerned,  is  a  successor  of  that  particular  company  only  in 
respect  of  the  property  formerly  belonging  to  it ;  and  in  re- 
spect of  the  properties  of  the  other  companies,  the  consolidated 
company  is  a  new  and  independent  compaii}',  on  which  such 
creditors  have  no  claim  upon  their  original  contracts,  but  only 
by  virtue  of  its  assumption  of  the  obligations  of  the  old  com- 
panies.5 


1  Board  of  Administrators  v.  Gas 
Light  Co.,  40  La.  Ann.  382.  See 
Berry  o.  K.  C,  etc.,  R.  R.  Co.,  52 
Kan.  774;  Carutliers  v.  Kas.  City 
R.  R.  Co.,  59  Kas.  629;  Greene  v. 
Woodland  Ave.  St.  R.  Co.,  62  Oh.  St. 
67;  Lincoln  St.  Ry.  Co.  v.  Lincoln, 
61  Neb.  109. 

2  Chicago,  R.  I.  and  Pac.  R.  R.  Co. 
v.  Moffatt,  75  111.  524;  Coggin  v.  Cen- 
tral R.  R.  Co.,  62  Ga.  685;  Texas 
and  P.  R.  R.  Co.  v.  Murphy,  46  Tex. 
356;  Louisville,  N.  A.,  etc.,  Ry.  Co. 
v.  Boney,  117  Ind.  501.  See  Colum- 
bus, Chicago,  etc.,  Ry.  Co.  v.  Skid- 
more,  C)9  111.  566;  Indianola  R.  R.  Co. 
v.  Fryer,  50  Tex.  609;  compare  Hous- 
ton, etc.,  R.  R.  Co.  v.  Shirley,  54  Tex. 
125;  St.  Louis  and  S.  F.  R.  R.  v. 
Marker,  41  Ark.  542. 

8  See    Western   Un.    R.    R.    Co.    v. 
Smith,  75  111.  49G;  Warren  v.  Mobile, 
410 


etc.,  R.  R.  Co.,  49  Ala.  582;  John 
Hancock  Ins.  Co.  v.  Railroad  Co., 
149  Mass.  214;  e.  g.,  the  consolidated 
company  may  have  to  carry  out  a 
contract  to  exchange  stock  for  bonds 
made  by  one  of  the  consolidating 
companies,  and  so  may  have  to  de- 
liver its  own  stock.  Day  v.  Wor- 
cester, etc.,  R.  R.  Co.,  151  Mass.  302. 

4  Shaw  v.  Norfolk  county  R.  R. 
Co.,  8  Allen  (Mass.),  407;  Whipple  v. 
Union  Pac.  Ry.  Co.,  28  Kan.  474. 

5  Prouty  v.  Lake  Shore,  etc.,  R.  R. 
Co.,  52  N.  Y.  363.  Similarly,  in  re- 
gard to  the  officers  of  the  consoli- 
dated company,  in  so  far  as  the  trust 
devolves  upon  them  of  managing  the 
property  of  the  old  company,  they 
are  the  successors  of  its  officers  and 
bound  by  proceedings  against  them. 
Prouty  v.  Lake  Shore,  etc.,  R.  R.  Co., 
supra. 


PAKT  V.] 


CONSOLIDATION. 


[§  427. 


§  427.  The  rationale  of  these  different  cases,  and  especially 
of  Prouty  v.  Lake  Shore,  etc.,  R.  R.  Co.,  will  be  more  apparent 
if  the  matter  be  considered  from  the  point  of  view  of  the  rights 
of  the  former  corporations'  creditors  as  against  the  consolidated 
company  and  the  property  which  it  has  acquired  through  con- 
solidation, rather  than  from  the  point  of  view  of  that  corpora- 
tion's liability  to  them.  A  creditor  cannot  prevent  a  corpora- 
tion which  owes  him  money  from  consolidating  with  another ; 
but,  on  the  other  hand,  his  rights  respecting  the  property  of 
his  debtor — which  constitutes  a  fund  for  the  payment  of  its 
debts — cannot  be  affected  by  its  consolidation  with  another 
corporation.1  He  can  follow  this  fund  into  the  hands  of  the 
consolidated  corporation ;  and  his  rights  in  regard  to  the  prop- 
erty of  his  debtor  are  certainly  prior  to  the  rights  of  the  cred- 
itors of  the  other  consolidating  companies.  The  idea  of  con- 
solidation seems  to  imply  responsibility  on  the  part  of  the 
consolidated  corporation  for  the  debts  of  the  former  companies  : 
the  rights  of  the  creditors  of  each  consolidating  company  are 
unaffected  by  the  consolidation :  the  outcome  is,  that  the  con- 
solidated corporation  is  personally  liable  for  all  the  debts  of  the 
former  companies ;  but  the  equitable  lien  which  each  group  of 
creditors  has  on  the  property  of  their  debtor  corporation  pre- 
serves its  validity  and  priority  as  against  the  creditors  of  the 
other  corporations.2 


Although  the  (Michigan  law)  sub- 
jects consolidated  companies  to  the 
obligations  of  their  constituents,  yet 
the  consolidation  creates  a  new  and 
distinct  corporation,  and  a  declara- 
tion against  it  for  a  cause  of  action 
arising  hefore  consolidation  should 
show  against  what  company  it  arose, 
and  aver  such  facts  as  will  subject 
the  new  company  to  be  sued  on  it. 
Marquette,  H.  and  O.  R.  R.  Co.  v. 
Langtou,  32  Mich.  251. 

1See  Shackleford  v.  Miss.  Central 
R.  R.  Co.,  52  Miss.  159.  Compare 
Indianola  R.  R.  Co.  v.  Fryer,  56  Tex. 
609;  Houston,  etc.,  R.  R.  Co.  v.  Shir- 
ley, 54  Tex.  125;  Whipple  v.  Union 
Pacific  Ry.  Co.,  28  Kan.  474;  Hamlin 
v.  Jerrard,  72  Me.  62. 


2  See  Shackleford  v.  Miss.  Central 
R.  R.  Co.,  52  Miss.  159.  See  further 
as  to  the  rights  of  creditors  on  con- 
solidation, §§665,  666.  A  consoli- 
dated company  is  affected  with  no- 
tice of  an  unrecorded  mortgage  on 
the  property  of  the  corporations  from 
which  it  is  formed;  and  such  mort- 
gage will  be  good  as  against  judg- 
ment creditors  of  the  consolidated 
company  who  buy  the  mortgaged 
premises  on  execution.  Mississippi 
Valley  Co.  v.  Chicago,  etc.,  R.  R.  Co., 
58  Miss.  846;  cf.  Cordova  Coal  Co.  v. 
Long,  91  Ala.  538.  A  shareholder, 
by  provisions  of  the  consolidating 
agreement,  to  which  he  was  a  party, 
may  be  precluded  from  collecting 
from  the    consolidated   company  a 

411 


§  430.]  THE  LAW    OF    PRIVATE    CORPORATIONS.  [CHAP.  VII. 


6.   DISSOLUTION. 


Definition,  §  428. 
Causes,  §§  429,  430. 
Power  to  dissolve.    Decree  of  dissolu- 
tion, when  necessary,  §§  431,  432. 


Surrender  of  franchises,  §§  433,  434. 
Effect  of  a  dissolution,  §§  435-437. 


Definition. 


Causes. 


§  428.  The  dissolution  of  a  corporation  is  that  condition  of 
law  and  fact  which  ends  the  capacity  of  the  body 
corporate  to  act  as  such,  and  necessitates  a  final  liqui- 
dation and  extinguishment  of  all  the  legal  relations  subsisting 
in  respect  of  the  corporate  enterprise.  The  causes  and  general 
effect J  of  a  dissolution  may  be  considered  in  order. 

§  429.  It  is  obvious  that  many  common  law  rules  regarding 
the  causes  of  the  dissolution  of  the  older  sorts  of  cor- 
porations, municipal,  eleemosynary,  and  ecclesiastical, 
have  no  application  to  stock  corporations  at  the  present  day. 
Thus,  the  rule  that  a  dissolution  is  caused  by  a  death  of  all  the 
members  cannot  apply  to  a  stock  corporation  ;  in  which,  if  the 
shareholders  die,  their  shares  pass  to  other  persons,  either  by 
bequest  or  under  statutes  of  distributions.-  Likewise  are  inap- 
plicable cases  like  that  in  Rolle's  Abridgment,  in  which  a  cor- 
poration was  said  to  be  dissolved  by  the  loss  of  an  integral  part ; 
as  when  in  a  corporation  composed  of  brothers  and  sisters,  all 
the  latter  die.3 

§  430.  A  stock  corporation  is  dissolved  by  (1)  forfeiture  of 
its  franchises ;  (2)  repeal  of  its  charter  or  enabling  act,4  when 


debt  owing  by  one  of  the  constituent 
companies.  Utica  National  Brewing 
Co.,  Matter  of,  154  N.  Y.  268. 

1  The  particular  relations,  arising 
on  dissolution  between  the  corpora- 
tion and  the  different  classes  of  per- 
sons interested,  and  among  the  mem- 
bers of  each  class,  are  noticed  in 
subsequent  chapters.  See  §§  610, 
611,  664,  750,  751,  786. 

2  Mathis  v.  Morgan,  72  Ga.  517; 
Boston  Glass  Mfg.  v.  Lnngdon,  24 
Pick.  49,  52;  Russell  v.  McLellan,  14 
Pick.  63,  69;  Belton,  in  re,  47  La. 
Ann.  1614.  Compare  Newton  Mfg. 
Co.  v.  White,  42  Ga.  148;  McGinty  v. 

412 


Athol  Reservoir  Co.,  155  Mass.  183. 
Though  (semble)  one  person  cannot 
organize  a  corporation,  a  corpora- 
tion is  not  dissolved  by  the  fact  that 
one  person  has  purchased  all  the 
stock.  Louisville  Bkg.  Co.  v.  Eisen- 
mann,  94  Ky.  83;  Parker  v.  Hotel 
Co.,  96  Tenn.  252. 

3  1  Rolle,  Abr.  514.  Likely  it 
would  have  been  otherwise  in  this 
case,  had  the  brothers  possessed  the 
capacity  of  electing  further  sisters. 
See  Rose  v.  Turnpike  Co.,  3  Watts 
(Pa.),  46. 

4  The  repeal  of  the  general  enab- 
ling act,  however,  will  not  work  a 


PART  V.] 


DISSOLUTION. 


[§  431. 


the  power  to  repeal  is  reserved  to  the  state ;  (3)  surrender  of  its 
franchises  to  the  state;  (4)  compliance  with  whatever  statute 
may  exist  authorizing  a  voluntary  dissolution  ;  and  (5)  expira- 
tion of  the  time  limited  by  the  charter,  or  by  the  enabling  act 
and  articles  of  association  for  the  continuance  of  the  corpora- 
tion.1 The  first  two  of  these  causes  of  dissolution  are  con- 
sidered in  the  chapter  on  the  relations  between  the  corporation 
and  the  state.2  Some  states,  for  instance  New  York3  and 
Massachusetts,  have  enacted  statutes  authorizing  the  voluntary 
dissolution  of  corporations;  and  when  such  a  statute  is  complied 
with  a  judgment  of  dissolution  may  be  obtained.4 

§  431.  In  an  ordinary  business  corporation,  where  the  rights 
of  the  public  do  not  intervene,  it  is  within  the  power 
of  the  bod}'  corporate,  by  a  vote  of  the  majority  of   dissolve, 
shareholders,  to  discontinue  the  corporate  business.5    dissolution 
But,  as  will  appear  by  reference  to  the  cases  and  in-   when  nec" 
stances  hereafter  cited,  such  action  in  itself   would 
not  ordinarily  effect  a  dissolution  so  as,  for  instance,  to  pre- 
vent the  corporation  from  being  sued.     A  decree  of  dissolu- 


dissolution  of  existing  corporations, 
unless  such  an  intention  be  clearly 
indicated  in  the  repealing  act.  See 
§504. 

1  Knights  of  Pythias  v.  Weller, 
93  Va.  605.  See  Asherville  Division 
v.  Aston,  92  N.  C.  578;  Marysville 
Invest.  Co.  v.  Munson,  44  Kan.  491; 
State  v.  Mitchell,  104  Tenn.  336. 
Where  a  statute  provided  that  cor- 
porations formed  under  it  should 
have  succession  for  a  period  of 
twenty  years,  when  no  period  was 
limited  in  their  charters,  and  a  cor- 
poration was  formed  with  "  perpet- 
ual succession,"  it  was  held  only  to 
mean  unbroken  continuity,  and  that 
the  corporation  ceased  in  twenty 
years.  Scanlan  v.  Crawshaw,  5  Mo. 
App.  337.  But  in  its  natural  signifi- 
cation, when  not  limited  by  the  con- 
text, "  perpetual  succession"  denotes 
indefinite  duration,  and  the  corpora- 
tion has  the  right  to  exist  forever. 
Fairchild  v.  Masonic  Hall  Ass'n,  71 


Mo.  526.  Overruled  (semble)  States. 
Payne,  129  Mo.  468,  where,  in  view  of 
other  parts  of  the  statute,  a  grant  of 
"  perpetual  succession  "  was  held  not 
to  extend  the  statutory  limit  of  ex- 
istence. State  ex  rel.  v.  Leseur,  141 
Mo.  29.  A  corporation  is  dissolved 
upon  the  expiration  of  its  charter; 
after  that,  it  is  not  a  de  facto  cor- 
poration, it  cannot  convey  its  prop- 
erty, and  its  deeds  thereafter  exe- 
cuted may  be  questioned  collateral- 
ly.    Bradley  v.  Reppell,  133  Mo.  545. 

2  §§  457  et  seq.,  and  §§  496  et  seq. 
See  also  §  664,  for  the  rights  of  cred- 
itors. 

3  N.  Y.  Code  of  Civil  Procedure, 
§§  2419  et  seq.  See  Matter  of  Pyro- 
lusite  Manganese   Co.,  29  Hun,  429. 

4  For  a  construction  of  the  New 
York  statute,  see  Herring  v.  N.  Y., 
etc.,  R.  R.  Co.,  105  N.  Y.  340. 

5  Treadwell  v.  Salisbury  Mfg.  Co., 
7  Gray,  393,  404.     See  §§  610,  611. 

413 


§  432.]         THE   LAW    OF    PRIVATE   CORPORATIONS.  [CHAP.  VII. 


tion  from  a  court  of  competent  jurisdiction  is  necessary  in  such 
cases.1 

§  432.  If  a  corporation  is  dissolved  by  the  repeal  of  its  charter 
pursuant  to  an  unconditional  power  of  repeal  reserved  to  the 
state,  or  if  its  term  of  existence  has  expired,  no  judicial  decree 
is  necessary  to  effect  a  dissolution.2  And  when  the  corpora- 
tion is  to  cease  upon  the  happening  of  some  contingency,  it  is 
held  that  thereupon  a  dissolution  takes  place  without  any  de- 
cree.3 But  to  effect  this  the  intention  of  the  statute  must  be 
very  clear ;  for,  although  a  certain  event  may  expressly  be 
made  a  ground  of  forfeiture,  the  forfeiture  must  be  judicially 
declared.4  And,  indeed,  the  better  opinion  would  seem  to  be 
that,  for  most  purposes,  the  happening  of  the  contingency 
upon  which  the  corporation  is  to  cease  should  also  be  judicially 
declared.5 

Subject  to  the  exceptions  already  stated,  the  general  rule  is 
that  the  decree  of  a  court  of  competent  jurisdiction  is  necessary 
to  effect  the  dissolution  of  a  corporation.6  Accordingly,  a  fail- 
ure to  elect  corporate  officers,7  or  a  discontinuance  of  busi- 


1  As  to  the  doubtful  authority  of  a 
court  of  equity  to  dissolve  a  corpora- 
tion, see  Hitch  v.  Hawley,  132  N.  Y. 
212;  Huut  v.  Le  Grand  Skating  Co., 
143  111.  118;  Wheeler  v.  Pullman  Iron 
Co.,  ib.  197;  Supreme  Sitting,  etc., 
v.  Boker,  134  Ind.  293;  Law  v.  Rich, 
47  W.  Va.  631. 

2  See  §503.  Sturgess  v.  Vander- 
bilt,  73  N.  Y.  384;  People  v.  Walker, 
17  N.  Y.  502;  Bank  of  Galliopolis  v. 
Trimble,  6  B.  Mon.  ( Ky. )  599,  601 ; 
Terry  v.  Merchants',  etc.,  Bank,  6(3 
Ga.  117;  Bank  of  Miss.  v.  Wrenn,  3 
Sm.  &  M.  (Miss.)  791;  see  Lagrange, 
etc.,  R.  R.  Co.  v.  Rainey,  7  Coldw. 
(Tenn.)  420.  The  dissolution  of  a 
corporation  by  the  expiration  of  its 
charter  is  no  ground  for  the  appoint- 
ment of  a  receiver.  Anderson  v. 
Buckley,  126  Ala.  623. 

8 In  re  Brooklyn,  Winfield,  etc., 
R.  R.  Co.,  75  N.  Y.  335;  Brooklyn 
Steam  Transit  Co.  v.  Brooklyn,  78 
N.  Y.  524. 

414 


4  Lagrange,  etc.,  R.  R.  Co.  v. 
Rainey,  7  Coldw.  (Tenn.)  420.  See 
§153. 

5  §  458,  also  §  153. 

6Kincaid  v.  Dwinelle,  59  N.  Y. 
548;  Moore  v.  Schoppert,  22  W.  Va. 
282;  but  see  Van  Pelt  v.  Home 
B'ld'g  Ass'n,  87  Ga.  370.     See  §  458. 

7  Rose  v.  Turnpike  Co.,  3  Watts 
(Pa.),  40;  Lehigh  Bridge  Co.  v. 
Lehigh  Coal  Co.,  4  Rawle  (Pa.),  8, 
23;  Commonwealth  v.  Cullen,  13 
Pa.  St.  133;  Blako  v.  Hiukle,  10 
Yerg.  (Tenn.)  218;  Nashville  Bank 
v.  Petway,  3  Humph.  (Tenn.)  522; 
Boston  Glass  Manufactory  v.  Lang- 
don,  24  Pick.  49;  Russell  0.  McLellan, 
14  Pick.  63;  Knowlton  v.  Ackley,  8 
Cush.  93;  Cahill  v.  Kalamazoo  Mut. 
Ins.  Co.,  2  Dougl.  (Mich.)  124,  140; 
Philips  b.  Wickham,  1  Paige  (N.  Y.), 
590;  Slee  v.  Bloom,  5  Johns.  Ch. 
(N.  Y.)  366,  377;  S.  C,  19  Johns. 
456;  People  u.  Twaddell,  18  Hun, 
427;    Evarts   v.    Killingworth    M'f'g 


PART  V.] 


DISSOLUTION. 


[§  432. 


ness  by  the  corporation,1  does  not  effect  its  dissolution  ;  nor 
does  its  insolvency.2  Neither  does  a  dissolution  result  where 
the  corporation  is  insolvent,  and  has  ceased  to  do  business  as 
well  ;3  even  when  it  has  assigned  all  its  property  for  the  benefit 
of  its  creditors,4  or  a  receiver  has  been  appointed.5  It  has  even 
been  held  that  the  fact  that  a  corporation  is  insolvent  will  not 
authorize  it  to  apply  to  a  court  of  equity  for  a  receiver  to  wind 
up  its  affairs,  in  order  to  prevent  one  creditor  from  acquiring 
by  suit  a  preference  over  others ;  the  court  saying,  that  a  re- 
ceiver might  be  appointed  at  the  instance  of  a  creditor,  but 
not  at  the  instance  of  an  insolvent  debtor.6 


Co.,  20  Conn.  447;  Harris  v.  Miss. 
Valley,  etc.,  R.  R.  Co.,  51  Miss.  602; 
Smith  v.  Smith,  3  Dessaur  (S.  C. ), 
557;  Parker  v.  Hotel  Co.,  96  Tenn.  252. 

1  Kansas  City  Hotel  Co.  v.  Saner,  65 
Mo.  279,  288;  Nimmons  v.  Tappan,  2 
Sweeny  (X.  Y. ),  652;  Mickles  v. 
Rochester  City  Bk.,  11  Paige  (N.  Y.), 
118;  Moseby  o.  Burrow,  52  Tex.  396; 
State  v.  Barron,  58  N.  H.  370;  Weig- 
and  o.  All.  Sup.  Co.,  44  W.  Va.  133; 
Law  o.  Rich,  47  W.  Va.  634;  Richards 
v.  Minn.  Sav.  B'k,  75  Minn.  196;  Com- 
pare Matter  of  Jackson  Marine  Ins. 
Co.,  4  Sand.  Ch.  (N.  Y.)  559;  Conro 
v.  Gray,  4  How.  Pr.  (N.  Y. )  166;  Troy 
&  Rutland  R.  R.  Co.  v.  Kerr,  17  Barb. 
581;  Sleeper  v.  Norris,  59  Kas.  555; 
Salem  Nat.  B'k  v.  Prescott,  60  Kas. 
490.  A  railroad  company  is  not  dis- 
solved by  a  sale  of  its  road.  State  v. 
Rives,  5  Ired.  L.  (N.  C.)  297. 

2  Moseby  v.  Burrow,  52  Tex.  396; 
Shenandoah  Valley  R.  R.  Co.  v. 
Griffith,  76  Va.  913;  cases  in  the  fol- 
lowing notes. 

8  Valley  Bank  v.  Sewing  Society,  28 
Kan.  423;  Electric  Lighting  Co.  v. 
Leiter,  19  Dist.  Col.  575;  see  Davis  v. 
Memphis,  etc.,  R.  R.  Co.,  87  Ala.  633. 
A  national  bank  in  voluntary  liquida- 
tion under  §  5220  of  the  U.  S.  Rev. 
Stat,  is  not  thereby  dissolved  as  a  cor- 
poration, but  may  sue  and  be  sued  by 
name  for  the  purpose  of  settling  dis- 


puted claims  against  its  assets,  even 
though  the  plaintiff  may  have  filed  a 
creditor's  bill  to  enforce  the  individ- 
ual liability  of  shareholders.  Na- 
tional B'k  v.  Insurance  Co.,  104  U.  S. 
54. 

4  Boston  Glass  Manufactory  v. 
Langdon,  24  Pick.  49;  Town  v.  Bank 
of  River  Raisin,  2  Dougl.  (Mich. )  530; 
De  Camp  v.  Alward,  52  Ind.  468; 
State  v.  Bank  of  Maryland,  6  G.  &  J. 
205. 

6Kincaid  o.  Dwiuelle,  59  N.  Y.  548; 
Lea  o.  America,  etc.,  Canal  Co.,  3  Abb. 
Pr.  N.  S.  (N.  Y.)  1,  11;  City  Ins.  Co. 
u.  Commercial  Bank,  68  111.  348; 
Bank  of  Bethel  v.  Pahquioque  Bank, 
14  Wall.  383;  Green  v.  Walkill  Nat. 
Bank,  7  Hun,  63;  Moseby  v.  Burrow, 
52  Tex.  396;  State  v.  Railroad  Com- 
missioners, 41  N.  J.  L.  235;  Heath  v. 
Missouri,  etc.,  Ry.  Co.,  83  Mo.  617; 
State  v.  Butler,  86  Tenn.  614;  Jones 
v.  Bank  of  Leadville,  10  Col.  464. 
Compare  Bell  v.  Indianapolis,  etc.,  R. 
R.  Co.,  53  Ind.  57;  Indianapolis,  etc., 
R.  R.  Co.  v.  Ray,  51  Ind.  269;  Hol- 
lingshead  v.  Woodward,  107  U.  S.  96; 
Hutchison  v.  Crutcher,  98  Tenn.  421. 

There  is  nothing  in  the  statutes  re- 
lating to  national  banks  that  takes 
them  out  of  the  operation  of  this 
general  rule.  National  Bank  v.  De- 
posit Co.,  161  U.  S.  1. 

6  Hugh  v.  McRae,  Chase's  Dec.  466. 

415 


§  434.]  THE   LAW   OF   PRIVATE   CORPORATIONS.  [CHAP.  VII. 


Surrender 
of  fran- 
chises. 


§  433.  It  is  said  very  generally  in  older  cases,  that  a  corpo- 
ration cannot  validly  surrender  its  franchises  unless 
the  state  accepts  them.  "  Charters  are  in  many  re- 
spects compacts  between  the  government  and  the 
corporators.  As  the  former  cannot  deprive  the  latter  of  their 
franchises  in  violation  of  the  compact,  so  the  latter  cannot  put 
an  end  to  the  compact  without  the  consent  of  the  former.  It 
is  equally  obligatory  on  both  parties.  The  surrender  of  a 
charter  can  only  be  made  by  some  formal  act  of  the  corporation,1 
and  will  be  of  no  avail  until  accepted  by  the  government. 
There  must  be  the  same  agreement  to  dissolve  that  there  was 
to  form  the  compact.  It  is  the  acceptance  which  gives  efficacy 
to  the  surrender.  The  dissolution  of  a  corporation,  it  is  said, 
extinguishes  all  its  debts.  The  power  of  dissolving  itself  by 
its  own  act  would  be  a  dangerous  power,  and  one  which  cannot 
be  supposed  to  exist." 3  It  is  also  said  that  "  the  modes  in 
which  a  surrender  is  to  be  made,  and  as  to  what  facts  consti- 
tute a  surrender,  have  been  a  fruitful  subject  of  discussion  in 
the  courts  of  this  country.  In  England,  the  surrender  is  by 
deed  to  the  king,  by  whom  corporations  are  usually  created  by 
charter.  In  this  country,  corporations  are  created  by  an  act 
of  the  legislature,  and  it  would  seem  to  follow,  in  the  absence 
of  any  statute  prescribing  the  mode  in  which  a  surrender  is  to 
be  made,  that  to  become  available,  it  must  be  accepted  by  the 
authority  which  created  the  corporation."3 

§  434.  The  present  applicability  of  the  preceding  citations  to 
stock  corporations  is  somewhat  doubtful.  Formerly,  corpora- 
tions usually  received  special  charters ;  but  now  stock  corpora- 
tions at  least  are  almost  universally  organized  under  general 
enabling  acts.     A  mode  of  dissolution  is  ordinarily  provided ; 


See  Kimball  v.  Goodbum,  32  Mich. 
10;  New  York  Marbled  Iron  Works 
v.  Smith,  4  Duer  (N.  Y. ),  362. 

1  Not  the  officers,  but  only  the 
shareholders  of  a  corporation  can 
surrender  its  franchise.  Jones  v. 
Bank  of  Leadville,  10  Col.  464. 

2  Boston  Glass  M'f'y  v.  Langdon, 
24  Pick.  49,  53.  Accord,  Town  v. 
Bank  of  River  Raisin,  2  Dougl. 
(Mich.)  530,  538;    Lagrange,  etc.,  R. 

416 


R.  Co.  v.  Rainey,  7  Coldw.  (Tenn.) 
420,  438;  Revere  v.  Boston  Copper 
Co.,  15  Pick.  351;  Mechanics'  Bank  v. 
Heard,  37  Ga.  401;  Wilson  ».  Propri- 
etors, etc.,  9  R.  I.  590;  Norris  v. 
Mayor  of  Smithville,  1  Swan.  (Tenn.) 
164;  2  Kent's  Com.,  311.  Cf.  Attor- 
ney-Gen. v.  R.  R.  Co.,  93  Wis.  604. 

3  Town  v.  Bank  of  River  Raisin,  2 
Dougl.  (Mich.)  530,  538. 


PART  V.] 


DISSOLUTION. 


[§  435. 


and  if  no  such  provision  exists,  the  most  experienced  legal  ad- 
viser might  be  puzzled  to  advise  how  an  acceptance  of  the  sur- 
render of  franchises  could  be  brought  about,  unless  by  lobbying 
a  special  bill  through  the  legislature.  Besides,  the  idea  of  the 
necessity  of  the  acceptance  of  a  surrender  of  franchises  on  the 
part  of  the  authority  granting  them,  seems  intimately  connected 
with  the  old  doctrine — now  certainly  a  thing  of  the  past — that 
on  the  dissolution  of  a  corporation  all  its  debts  were  extin- 
guished. There  seems  to  be  no  valid  reason  why  an  ordinary 
stock  corporation,  charged  with  the  performance  of  no  public 
duty,  should  not  be  allowed  to  close  up  its  business  at  any  time, 
and  dissolve.1 

§  435.  The  consequences  of  a  dissolution  are  both  substan- 
tial and  formal.  The  substantial  consequences  are  Effect  of  a 
that  the  business  is  wound  up,  and  all  the  legal  dlssolutlon- 
relations  subsisting  in  respect  of  the  corporate  funds  are 
liquidated.  The  formal  consequences  are  that  the  corpora- 
tion can  no  longer  act  as  such  either  before  the  courts  or  in 
business  transactions.2  Accordingly,  the  liquidation  of  its 
affairs  will  ordinarily  have  to  be  conducted  by  a  receiver  or 
other  officer  appointed  for  that  purpose.  After  its  dissolution 
the  corporation  can  institute  no  suit,  nor  be  made  a  party 
defendant;3  and  all  suits  already  brought  by  or  against  it  are 
abated.4    And  judgment  cannot  be  entered  against  it.3 


1  Holmes,  etc.,  M'f  gCo.  v.  Holmes, 
etc.,  Metal  Co.,  127  N.  Y.  252;  Elyea 
v.  Lehigh  S.  M.  Co.,  169  K  Y.  29.  If 
the  rights  of  the  public  intervene, 
the  state  would  seem  at  least  to  have 
the  right  to  compel  the  corporation 
to  continue  its  business;  however 
impracticable  the  actual  assertion  of 
any  such  right  might  be.  See  §§  454, 
455,  and  State  v.  Western,  etc.,  R.  R. 
Co.,  95  N.  C.  602. 

2  Saltmarsh  v.  Planters',  etc.,  Bank, 
17  Ala.  761.  See  Schleider  v.  Diel- 
man,  44  La.  Ann.  462;  Weatherley  v. 


Capital  City  Water  Co.,  115  Ala.  156. 
See  §  504. 

3  Saltmarsh  v.  Planters',  etc.,  Bank, 
17  Ala.  761;  City  Ins.  Co.  v.  Com- 
mercial Bank,  68  111.  348;  Bank  of 
La.  v.  Wilson,  19  La.  Ann.  1;  Mus- 
catine Turn  Verein  v.  Funck,  18  Iowa, 
469;  Miami  Exporting  Co.  v.  Gano, 
13  Ohio,  269.  See  Cooper  v.  Oriental 
Savings  Association,  100  Pa.  St.  402; 
contra,  Schmitt  &  Bro.  Co.  v.  Ma- 
honey,  60  Neb.  20. 

4  National  Bank  v.  Colby,  21  Wall. 
609;  Terry  v.  Merchants',  etc.,  Bank, 


5Dobson  v.  Simonton,  86  N.  C.  492. 
See  cases  in  last  note.  Where  the 
answer  shows  that  the  plaintiff  was  a 
corporation  at  the  date  of  the  contract 

27 


sued  on,  the  fact  of  its  subsequent 
dissolution  will  not  avail  to  reverse  a 
judgment  in  its  favor.  Kansas  City 
Hotel  Co.  v.  Sauer,  65  Mo.  279. 

417 


§  437.]         THE   LAW   OF   PRIVATE   CORPORATIONS.  [CHAP.  VII. 


§  436.  It  is  the  legislative  policy  of  some  states  to  prolong 
the  existence  of  the  corporation  after  the  expiration  of  its 
charter,  for  the  purposes  of  winding  up  its  affairs,  though  not 
for  the  purpose  of  continuing  its  business.1  Under  such  cir- 
cumstances, whether  any  given  legal  proceeding  should  be 
instituted  in  the  corporate  name,  or  in  the  name  of  a  receiver 
or  of  trustees  appointed  to  wind  up  the  corporate  affairs,  de- 
pends on  the  statutory  provisions.2 

§  437.  In  regard  to  the  substantial  effects  of  a  dissolution, 
clearly  the  common  law  rule  that  upon  the  dissolution  of  a 
corporation,  its  real  estate  reverts  to  the  grantor,  its  personal 
property  to  the  sovereign,  and  all  debts  due  from  and  to  it 
become  extinguished,3  has  no  longer  any  application  to  stock 
corporations.     And  that  it  has  no  application  is  the  combined 


66  Ga.  177;  Greely  v.  Smith,  3  Story, 
657;  Merrill  v.  Suffolk  Bank,  31  Me. 
57;  Ingraham  v.  Terry,  11  Humph. 
(Tenn. )  572;  Mumma  u.  Potomac 
Co.,  8  Pet.  281;  Farmers',  etc.,  Bank 
v.  Little,  8  W.  &  S.  (Pa.)  207;  Bank 
of  Miss.  v.  Wrenn,  3  Sm.  &  M. 
(Miss.)  791;  May  v.  State  Bank,  2 
Rob.  (Va.)  56;  Thornton  v.  Mar- 
ginal Freight  R'y  Co.,  123  Mass.  32; 
McCulloch  v.  Norwood,  58  N.  Y.  566; 
Taylor  v.  Gray,  59  N.  J.  Eq.  621 ;  Ins. 
Com.  v.  U.  S.  Fire  Ins.  Co.,  22  K.  I. 
377;  compare  Shayne  v.  Evening  Post 
Pub.  Co.,  168  N.  Y.  70;  Piatt  v. 
Archer,  9  Blatchf.  559;  Fiskr.  Union 
Pac.  R.  R.  Co.,  10  Blatchf.  518;  Wil- 
cox v.  Continental  Life  Ins.  Co.,  56 
Conn.  468;  Life  Ass'n  v.  Goode,  71 
Tex.  90;  Shore  Line  R.  R.  Co.  v. 
Maine  Cen.  Ry.  Co.,  92  Me.  476; 
Morgan  v.  N.  Y.  Nat.  Bldg.  Assn.,  73 
Conn.  151.  Contra,  Lindell  v.  Ben- 
ton, 6  Mo.  361.  So  it  is  also  held  in 
Missouri  that  consolidation — which 
causes  dissolution — does  not  abate  a 
pending  suit.  Evans  v.  Interstate  R'y 
Co.,  106  Mo.  594. 

1  See  Life  Ass'n  of  America  u.  Fas- 
sett,  102  111.  315;  St.  Louis,  etc.,  Coal, 
etc.,   Co.  v.   Sandoval   Coal  Co.,  Ill 

418 


111.32;  Folger  v.  Chase,  18  Pick.  63; 
Herron  v.  Vance,  17  Ind.  595 ;  Tusca- 
loosa Scientific,  etc.,  Ass'n  v.  Green, 
48  Ala.  346;  Nelson  v.  Hubbard,  96 
Ala.  238;  Stiles  v.  Laurel  Fork,  etc., 
Co.,  47  W.  Va.  838.  As  to  extra- 
territorial recognition  of  such  a  stat- 
ute, see  Rodger§.«.  Ins.  Co.,  148  N.  Y. 
34. 

2  See  Mariners'  Bank  c.  Sewall,  50 
Me.  220;  Blake  v.  Portsmouth,  etc., 
R.  R.  Co.,  39  N.  H.  435;  Tuscaloosa, 
etc.,  Ass'n  v.  Green,  48  Ala.  346;  Re 
Independent  Ins.  Co.,  1  Holmes,  103; 
Von  Glahn  v.  De  Rosset,  81  N.  C. 
467;  Muscatine  Turn  Verein  v. 
Funck,  18  Iowa,  469;  Pomeroy's  Les- 
see v.  State  Bank,  1  Wall.  23;  Lo- 
throp  v.  Stedman,  13  Blatchf.  134, 
143;  Owen  v.  Smith,  31  Barb.  641; 
Heath  v.  Barmore,  50  N.  Y.  302; 
Wright  v.  Nostrand,  94  N.  Y.  31; 
State  e.  Bk.  of  Washington,  18  Ark. 
554;  Cooper  v.  Oriental  Sav.  Asso., 
100  Pa.  St.  402;  Gray  v.  Lewis,  94 
N.  C.  392. 

3  See  Ang.  and  Ames  on  Corp., 
§779;  Life  Ass'n  of  American.  Fas- 
sett,  102  111.  315;  Mott  v.  Danville 
Seminary,  129  111.  403;  Danville  Sem- 
inary v.  Mott,  136  111.  289.  See  Seixas 


PART  V.] 


DISSOLUTION. 


[§  437. 


result  of  statutes  and  equitable  principles.1  On  the  dissolu- 
tion of  a  stock  corporation  its  assets  become  a  trust  fund  for 
the  discharge  of  its  liabilities,  including  those  not  yet  ma- 
tured,2 and  the  surplus  belongs  to  the  shareholders.3  Equity 
will  alwa}rs  furnish  a  means  by  which  debts  due  a  corporation 
can  be  collected  after  its  dissolution,  for  the  benefit  of  parties 
interested,  creditors  or  shareholders,4  and  in  equity  the  gen- 
eral assignee  of  a  defunct  corporation  can  collect  its  claims.5 


v.  New  Orleans,  51  La.  Ann.  1.  But 
this  rule  was  applied  in  Commercial 
Bauk  v.  Lockwood,  2  Harr.  (Del. )  8. 
1See  Owen  v.  Smith,  31  Barb.  641; 
Heath  v.  Barmore,  50  N.  Y.  302;  Mc- 
Coy v.  Farmer,  65  Mo.  244. 

2  People  v.  Nat'l  Trust  Co.,  82  N.  Y. 
283.  The  dissolution  of  a  corpora- 
tion does  not  terminate  a  lease  to  it. 
lb.  Compare  People  v.  Flint,  64  Cal. 
49. 

3  Heman  v.  Britton,  88  Mo.  549. 
See  St.  Louis,  etc.,  Coal,  etc.,  Co.  v. 
Sandoval  Coal,  etc.,  Co.,  116  111.  170; 
AVheeler  v.  Pullman  Iron  Co.,  143 
111.  197;  Burrall  v.  Bushwick  R.  R. 
Co.,  75  N.  Y.  211;  and  see  §§  750, 


751.  When  a  mutual  insurance  com- 
pany, which  has  no  shareholders,  is 
dissolved,  the  assets  remaining  after 
the  discharge  of  its  liabilities,  vest 
in  the  state.  Titcomb  v.  Insurance 
Co.,  79  Me.  315. 

4  See  Hightower  v.  Thornton,  8 
Ga.  486;  Currant.  State  of  Arkansas, 
15  How.  304,  311;  Von  Glahn  v.  De 
Rosset,  81  N.  C.  467. 

5 Lenox  v.  Roberts,  2  Wheat.  373; 
Lum  y.  Robertson,  6  Wall.  277.  See 
Bacon  u.  Cohea,  12  Sm.  &  M.  (Miss.) 
516.  Compare  Fox  v.  Horah,  1  Ired. 
£q.  (N.  C.)  358;  Asheville  Division  v. 
Aston,  92  N.  C.  578.     See,  also,  §504. 

419 


THE   LAW   OF   PRIVATE   CORPORATIONS.    [CHAP.  VIII. 


CHAPTER  VIII. 

RELATIONS  BETWEEN  THE  STATE  AND  THE  CORPORA- 
TION,1 INCLUDING  RELATIONS  BETWEEN  THE  STATE 
AND  (a)  SHAREHOLDERS,  (b)  OFFICERS,  AND  (c)  CRED- 
ITORS OF  THE  CORPORATION. 


Dual  nature  of  the  constitution  of  a 

corporation,  §  438. 
Austin's  analysis  of  a  law,  §  439. 
Holland's    and    Kent's    definitions, 

§  440. 
The  term  "command"  misleading, 

§441. 
Definition  of  a   "  legal  right,"   §  442. 
Definition  of  a"  legal  relation,"  §443. 
The  manifestation  of  rules  of  law  in 

legal  relations,  §  444. 
Legal  effect  of  an  act,  §  445. 
The  constitution  of  a  corporation,  in 

what  respect  a  law,  §  446. 
Notion  of  a  contract.     Two  classes  of 

acts,  §  447. 
How  the  constitution  of  a  corpora- 
tion embodies  a  contract,  §  448. 
Acceptance  necessary  on  the  part  of 

the  corporators,  §  449. 
Contract  between  the  state  and  the 

corporation,  §  450. 
Enabling  acts  and  special  charters, 

§451. 
Two  kinds  of  relations  between  the 

state  and  the  corporation,  §  452. 
A  charter  a  contract:  outline  of  the 

doctrine,  §  453. 
Consideration  moving  to  the  state. 

Its  rights.      Mandamus,  §  454. 


Railroads,  §  455. 

Through  acceptance  of  the  charter  on 

the   part   of  the   corporators    the 

state  acquires  the  right  to  enforce 

the    fulfillment  of  the   corporate 

duties.        Absolute      sovereignty, 

§456. 
Right  of  the  state  to  restrain  an  abuse 

of  corporate  powers.     Forfeiture, 

§457. 
Judicial  decree  necessary,  §  458. 
Grounds  of  forfeiture,  §  459. 
Grounds  of  forfeiture  not  to  be  taken 

advantage  of  collaterally.     Waiver, 

§460. 
Rights    of   the   corporation  against 

the  state  arising  from  the  contract, 

§461. 
How  enforceable,  §  462. 
Limitations  on  the  rights  acquired 

by  the    corporation    against    the 

state  through  contract,  §  463. 
Restrictions  in  state  constitutions  on 

state  legislatures,  §  464. 
Other     restrictions     on     legislative 

powers,  §§  465,  466. 
Corporations    created  by   Congress, 

§467. 
Jurisdiction  of  the  Federal  courts, 

§468. 


1  Relations,  that  is  to  say,  between  i  rate  enterprise,  and  representing  all 
the  state  and  the  organic  body  of  I  persons  in  any  way  interested  in  it. 
shareholders  controlling  the  corpo- 1 

420 


CHAP.  VIII.] 


CORPORATION    AND    STATE. 


[§  438. 


Relations  between  the  state  and  the 
corporation  other  than  legal  rela- 
tions occasioned  by  contract,  §§ 
469-4696. 

Eminent  domain.  Restrictions,  § 
470. 

"  Due  process  of  law,1'  §§  471,  472. 

Just  compensation,  §  473. 

Police  power,  §  474. 

Police  power.  Commerce  clause,  §§ 
474a-474d. 

Police  power.  Its  limits.  Property 
in  which  the  public  have  interest, 
§§  475,  476. 

Elevator  cases.  Railroad  charges,  §§ 
476a,  4766. 

The  taxing  power,  §  477. 

Double  taxation,  §  477  a. 

Power  of  Congress,  §  478. 

Power  of  states.  Restrictions,  §§ 
479,  480. 

Restrictions  on  the  power  of  the 
states  to  tax  arising  from  the  exi- 
gencies of  the  Federal  government, 
§481. 

Federal  agencies,  §  482. 

State  taxation  of  national  banks,  §§ 
483,  484. 

Restrictions  on  state  taxation  arising 
from  the  power  of  Congress  to 
regulate  commerce,  §  485. 

Telegraph  companies,  §  486. 


Chartered  exemptions  from  taxation, 
§§  487,  488. 

Never  arise  by  implication,  §  489. 

Immunity  from  taxation  not  trans- 
ferable, §  490. 

Effect  of  consolidation,  §  491. 

Taxation,  due  process  of  law,  §§  492, 
492a. 

Jurisdiction  of  equity  to  restrain  the 
collection  of  a  tax,  §  4926. 

Distinction  between  "rights''  and 
"  remedies,"  §§  493-495. 

The  power  reserved  to  alter  and 
repeal,  §  496. 

No  vested  right  in  a  rule  of  law, 
§497. 

Effect  of  the  reservation  of  the  right 
to  alter  and  repeal  on  the  contract 
between  the  corporators,  §  498. 

Limits  of  the  reserved  power,  §  499. 

Illustration.  Relations  between 
shareholders  and  creditors,  §§  500, 
501. 

Further  limits  on  the  reserve  power, 
§  502. 

Whena  judicial  proceeding  prerequi- 
site to  the  repeal,  §  503. 

Effect  of  a  repeal,  §  504. 

Relations  between  the  state  and  the 
individuals  interested  in  the  corpo- 
rate enterprise,  §§  505-507. 


§  438.  The  constitution  of  a  corporation  is  of  a  dual  nature: 
it  is  law  in  that  it   consists   of   rules    for   conduct 

,   ,  , ...      ,  .  ,..,...  .    Dual  nature 

set  by  a  political  superior  to  political  inferiors,  and  of  the  con- 
it  embodies  a   contract  the  obligation  of  which  is  a  corpora? 
the    self-same    constitution   regarded    as  law.     The  tlon- 
contract  embodied  in  the  constitution  always  subsists  among 
the  corporators  as  parties  thereto,  and  it  may  subsist  between 
the  corporation  and  the  state,  for  the  state  is  sometimes  a 
party  to  it.1     On  account  of  the  dual  nature  of  the  constitu- 


1  "  A  charter  is  a  law,  but  it  is  also 
something  more  than  law,  in  that  it 
contains  stipulations  which  are  terms 
of  compact  between  the  state  as  the 


one  party,  and  the  corporators  as  the 
other,  which  neither  party  is  at 
liberty  to  disregard  or  repudiate,  and 
which  are  as  mucb  removed  from  the 

421 


§  439.]        THE   LAW    OF    PRIVATE   CORPORATIONS.   [CHAP.  VIII. 

tion  of  a  corporation  it  will  be  necessary,  in  order  to  analyze 
the  relations  between  the  state  and  the  corporation,  to  deter- 
mine in  what  respect  this  constitution,  besides  being  law,  is  to 
be  regarded  as  a  contract.  To  this  determination  accurate 
notions  of  law  and  contract  are  prerequisite. 

§  439.  "  Every  law,"  says  Austin '  "  or  rule  is  a  command. 
....  Or  rather  laws  or  rules  properlv  so  called  are 

Austin's  i        i         4/ 

analysis  of  a  species  of  commands."  Analyzing  the  nature  of 
a  command,  he  proceeds :  "  If  you  express  or  inti- 
mate a  wish  that  I  shall  do  or  forbear  to  do  some  act,  and  if 
you  will  visit  me  with  some  evil  in  case  I  comply  not  with 
your  wish,  the  expression  or  intimation  of  your  wish  is  a  com- 
mand. .  .  .  The  ideas  then  comprehended  by  the  term  com- 
mand are  the  following:  1.  A  wish  or  desire  conceived  by  a 
rational  being  that  another  rational  being  shall  do  or  forbear ; 
2.  An  evil  to  proceed  from  the  former  and  to  be  incurred  by 
the  latter,  in  case  the  latter  comply  not  with  the  wish  ;  3.  An 
expression  or  intimation  of  the  wish  by  words  or  other  signs." 
Then,  continues  Austin,  when  a  command  "  obliges  generally 
to  acts  or  forbearances  of  a  class,  a  command  is  a  law  or  rule. 
....  A  law  properly  so  called  is  therefore  a  command  which 
obliges  a  person  or  persons,  and  as  distinguished  from  a  par- 
ticular or  occasional  command,  obliges  generally  to  acts  or  for- 
bearances of  a  class.  .  .  .  Laws  and  other  commands  are  said 
to  proceed  from  superiors,  and  to  bind  or  oblige  inferiors,  .... 
the  term  superiority  here  signifies  might." 

In  another  part  of  the  same  work,  Austin,  analyzing  the  na- 
ture of  sovereignty,  says:  "Every  positive  law,  or  every  law 
simply  and  strictly  so  called,  is  set  by  a  sovereign  person  or  a 
sovereign  body  of  persons,  to  the  member  or  members  of  the 
independent  political  society  wherein  that  person  or  body  is 
sovereign  or  supreme.  .  .  .  The  superiority  which  is  styled  sov- 
ereignty, and  the  independent  political  society  which  sover- 
eignty implies,  is  distinguished  from  other  superiority,  and  from 
other  society  by  the  following  marks  or  characters :  1.  The 
bulk  of  the  given  society  are  in  the  habit  of  obedience  or  sub- 


modifying  and  controlling  power  of 
legislation  as  would  be  the  contracts 
of  private  parties."   Flint,  etc.,  Plank 

422 


Road  Co.  v.  Woodhull,  25  Mich.  99, 
101,  per  Cooley,  J. 

1  Province  of  Jurisprudence.     Lec- 
i  ture  I. 


CHAP.  VIII.]  CORPORATION    AND    STATE.  [§  441. 

mission  to  a  determinate  or  common  superior,  let  that  common 
superior  be  a  certain  individual  person,  or  a  certain  body  or 
aggregate  of  individual  persons.  2.  That  certain  individual  or 
the  certain  body  of  individuals  is  not  in  the  habit  of  obedience 
to  a  determinate  human  superior." 1 

§  440.  So  far  Austin.     An  acute  writer,  Professor  Holland, 
gives  the  following  definition  of  law  :  "  A  law  in  the   Holland>s 
proper  sense  of  the  term  is  a  general  rule  of  human   and  Kent's 

r      l  .  to  i  definitions. 

action  taking  cognizance  onlv  of  external  acts,  en- 
forced  by  a  determinate  authority,  which  authority  is  human, 
and  among  human  authorities  is  that  which  is  paramount  in  a 
political  societ}7-.  More  briefly,  a  general  rule  of  external  hu- 
man action  enforced  by  a  sovereign  political  authority." 2  And, 
finally,  the  definition  given  by  Kent  is  this :  "  Municipal  law 
is  a  rule  of  civil  conduct  prescribed  by  the  supreme  power  of 
the  state."3 

In  one  respect,  perhaps,  these  various  definitions  may  be 
found  fault  with.  It  may  be  said  that  they  are  not  univer- 
sally and  historically  correct,  *.  e.,  that  they  correspond  only 
to  the  conception  of  law,  current  among  those  nations  of  the 
Aryan  race  who  have  developed  their  institutions  under  the 
influence  of  the  Roman  law.4  But  this  objection  amounts  to 
little,  as  any  definition  of  law  not  so  vague  as  to  be  useless 
would  be  obnoxious  to  it;  and  for  the  present  purpose  the 
objection  has  no  force,  as  we  are  only  concerned  with  law  as 
conceived  to-day  in  America  and  England. 

§  441.  Austin's  definition  of  a  law,  however,  as  a  "  command 
which  obliges  a  person,  or  persons,  to  acts  or  for- 
bearances of  a  class,"  while,  perhaps,  unexception-    u^Jf™1 
able  when  limited  in  its  application  to  Roman  and   mand'' 
modern    European  and    American    notions  of  law, 
and  when  understood  as  Austin  meant  it,  is,  nevertheless,  in 
respect  of    laws  which    manifest   themselves   in    civil    rights, 
somewhat  misleading.     Holland,  as  we  have  seen,  calls  a  law 
"  a  general  rule  of  external  human  action  enforced  by  a  sover- 
eign political  authority,"  a  definition  which  resembles  Kent's 


1  Province  of  Jurisprudence,  Lec- 
ture VI. 

2  System  of  Jurisprudence,  2d  ed. 
p.  34. 


3  1  Com.,  507. 

4  See  Maine's  Early  History  of  In- 
stitutions, chaps.  12  and  13. 

423 


§  442.]       THE    LAW    OF    PRIVATE   CORPORATION'S.   [CHAP.  VIII. 

definition  of  municipal  law  as  "  a  rule  of  civil  conduct  pre- 
scribed by  the  supreme  power  of  a  state."  '  If  we  look  closely 
into  Austin's  use  of  the  term  "  command,"  it  will  appear  that 
he  means  by  it  very  much  what  Holland  and  Kent  mean  by 
the  term  "  rule."  But  the  term  "  command,"  except  as  applied 
to  criminal  law,  is  misleading  in  this  respect,  that  a  law  which 
manifests  itself  in  civil  rights  and  liabilities  is  not  an  absolute 
or  unconditional  command  to  do  or  refrain ;  but  its  effect  is 
merely  to  enable  some  one  with  the  aid  of  the  state  to  compel 
some  one  else  to  do  or  refrain.  Within  the  field  of  criminal 
law  it  is  eminentl}T  proper  to  call  a  law  a  command ;  for  a 
criminal  law — "  thou  shalt  not  kill " — is  a  command  pure  and 
simple,  sanctioned  or  enforced  by  its  giver  of  his  own  motion, 
and  not  at  the  request  of  some  individual.  But  a  civil  law 
creates  rights  just  as  much  as  it  imposes  obligations,2  and  con- 
sequently to  regard  such  a  law  as  a  command  is  seeing  but  one 
side  of  it. 

§  442.  As  Austin  says,  "  Every  legal  right  is  the  creature  of 
Definitions  a  Positive  law ;  and  it  answers  to  a  relative  duty  im- 
of  a  'Megai  posed  by  that  positive  law,  and  incumbent  on  a  per- 
son or  persons,  other  than  the  person  or  persons  in 
whom  the  right  resides.  To  every  legal  right  there  are,  there- 
fore, three  several  parties ;  namely,  a  party  bearing  the  right, 
a  party  burdened  with  the  relative  duty,  and  a  sovereign  gov- 
ernment setting  the  law  through  which  the  right  and  the  duty 
are  respectively  conferred  and  imposed."3  "  We  may  define  a 
legal  right,"  says  Holland  very  clearly,  "  as  a  capacity  residing 
in  one  man  of  controlling  with  the  assent  and  assistance  of  the 
state  the  actions  of  others.     That  which  gives  validity  to  a  legal 


1  Holland  says  a  law  is  a  rule  en- 
forced by  the  sovereign,  while  Kent 
says,  it  is  prescribed  by  the  sovereign. 
Holland's  phrase  seems  preferable, 
as  laws  may  not  always,  with  pro- 
priety, be  said  to  be  prescribed  by 
the  sovereign,  unless  the  word  "pre- 
scribed "  is  used  in  the  sense  of 
recognized  ;  which  is  improper. 
Rules  of  the  common  law,  grown  up 
as  they  have  from  custom,  have 
been   recognized,   but  in  no  proper 

424 


sense  prescribed  by  the  state.  The 
state  recognizes  them,  sanctions 
them,  i.  e.,  enforces  them;  as  it  also 
enforces  rules  which  by  legislation 
it  properly  speaking  prescribes. 

2  Or,  as  I  prefer  to  say,  a  civil  law 
manifests  itself  in  rights  and  liabil- 
ities, i.  e.,  in  legal  relations.  See 
§  24. 

3  Province  of  Jurisprudence.  Lec- 
ture VI. 


CHAP.  VIII.]  CORPORATION    AND    STATE. 


[§  444. 


right  is  in  every  case  the  force  which  is  lent  it  by  the  state. 
Anything  else  may  be  the  occasion,  but  it  is  not  the  cause  of  its 
obligatory  character."1  And  Austin  says  again:  "A  party 
has  a  right  when  another,  or  others,  are  bound  or  obliged  by 
the  law  to  do  or  forbear  towards  or  in  regard  to  him." 2 

§  443.  A  right  then,  with  its  corresponding  duty  or  liabil- 
ity, constitutes   a  legal   relation,  which,  as  it  was  at-    ^  _  . 

J '  °  '  '  Definition 

tempted  to  show  before,3  rather  than  a  "  creature  "   of  a  "  legal 
may  properly  be  called  a  concrete  instance  or  mani- 
festation of  law,  subsisting  between  persons  as  to  whom  corre- 
lated conditions  of  fact  may  be  asserted. 

§  444.  How  do  rules  of  law  manifest  themselves  in  legal  rela- 
tions? Let  us  illustrate.  The  following,  roughly 
speaking,  are  rules  of  law  :  "  to  constitute  a  binding 
agreement  there  must  be  a  consideration  ;  "  "a  con- 
tract for  the  sale  of  chattels  at  a  price  exceeding  fifty 
dollars  must  be  in  writing."  The  two  rules  may  be  combined 
into  the  following  proposition  :  a  written  agreement  to  sell,  for 
which  there  is  a  consideration,  as  for  instance  an  agreement  to 
buy,  the  state  will  enforce  at  the  request  of  either  party.4  This 
compound  rule  of  law  manifests  itself  in  legal  relations  between 
A.  and  B.  as  soon  as  the  following  correlated  conditions  of  fact 
may  be  asserted  of  them  :  that  A.  has  agreed  with  B.  to  sell 
certain  chattels  to  B.  for  a  specified  price  (over  $50) ;  that  B. 
has  agreed  with  A.  to  buy  those  chattels  of  A.  at  that  price : 
and  that  this  mutual  agreement  has  been  put  in  writing.  "With 
reference  to  its  operation  on  A.  and  B.  this  rule  may  now  be 


The  mani- 
festation of 
rules  of  law 
in  legal  re- 
lations. 


1  Jurisprudence,  second  ed.  p.  62. 

2  "Pervading  Notions  Analyzed." 
Another  writer,  viewing  a  right  more 
exclusively  from  the  standpoint  of 
the  possessor  of  it,  says  :  "A  legal 
right  is  nothing  but  a  permission  to 
exercise  certain  natural  powers,  and 
upon  certain  conditions  to  obtain 
protection,  restitution,  or  compen- 
sation by  the  aid  of  the  public  force. 
Just  so  far  as  the  aid  of  the  public 
force  is  given  a  man,  he  has  a  legal 
right,  and  this  right  is  the  same 
whether  his  claim  is  founded  in 
righteousness  or  iniquity."    Holmes, 


"  The  Common  Law,"  p.  214.  It  is, 
perhaps,  hard  to  see  how  a  right  in 
personam  can  be  a  "  permission  to 
exercise  certain  natural  powers." 
The  author  seems  rather  to  have  in 
view  rights  in  rem. 

3  See  §  24,  note. 

4  For  simplicity's  sake  all  refer- 
ence as  to  how  the  state  "will  enforce 
the  agreement,  as  by  awarding  dam- 
ages or  specific  performance,  is 
omitted;  as  is  also  omitted  reference 
to  conditions  precedent,  which  either 
party  may  have  to  perform  before 
he  can  compel  the  other  to  peiform. 

425 


§  446.]      THE   LAW   OF   PRIVATE   CORPORATIONS.   [CHAP.  VI11. 

expressed  thus :  A.  having  agreed  to  sell  to  B.,  and  B.  having 
agreed  to  buy  of  A.  certain  goods  for  a  certain  price,  and  this 
agreement  having  been  put  in  writing,  at  the  instance  of  either 
party  the  state  will  compel  the  other  to  perform  as  agreed. 
The  last  proposition  may  be  separated  into  the  following  prop- 
ositions expressing  the  rights  and  liabilities— the  legal  rela- 
tions— between  A.  and  B.,  in  which  the  general  rule  of. law 
before  stated  has  manifested  itself:  A.'s  right  is  with  the  aid 
of  the  state  to  compel  B.  (i.  e.,  A.  can  compel  B.)  to  pay  the 
price  agreed  on,  and  B.'s  corresponding  liability  is  to  pay  that 
price,  A.'s  right  and  B.'s  liability  constituting  a  legal  relation 
between  them.  On  the  other  hand,  B.'s  right  is  with  the  aid 
of  the  state  to  compel  A.  to  deliver  the  chattels ;  and  A.'s 
liability  is  to  deliver  them  ;  B.'s  right  and  A's  liability  again 
constituting  a  legal  relation  between  them. 

§  445.  It  thus  appears  that  rules  of  law  which  manifest 
themselves  in  private  or  civil  rights  and  liabilities, 
o/anact60  are  no  unconditional  commands- from  the  state;  the 
state  merely  standing  ready  to  aid  the  person  pos- 
sessing the  right.  And  it  appears,  moreover,  that  the  only 
legal  effect  of  an  act  (except  in  criminal  or  public  law)  is  to 
bring  the  actor  within  the  operation  of  rules  of  law,  which 
thereupon  manifest  themselves  in  legal  relations  between  the 
actor,  and  other  persons  affected  by  the  act.1 

§  446.  As  a  conclusion  of  the  foregoing  remarks,  a  definition 
of  law  adequate  for  the  purposes  of  this  chapter  may  be  sub- 
mitted. A  law  is  a  rule  for  conduct  which  manifests  itself  in 
a  right  and  a  liability — a  legal  relation — between 

The  consti-  j<i  'i    ,     i  5  • ,  •  c    n 

tution  of  a  persons  of  whom  correlated  conditions  of  facts  may 
t(on°in*  be  asserted,  and  is  enforced  by  the  state  at  the  in- 
what  re-       stance  of  the  person  in  whose  favor  it  has  manifested 

spect  a  law.   .  .  \  .  ,  . 

itself  in  a  right.  And,  m  accordance  with  this 
definition,  the  constitution  of  a  corporation  may  be  said  to  be 
law,  or  to  consist  of  rules  of  law,  in  so  far  as  it  is  a  rule,  or 
consists  of  rules,  for  conduct  manifesting  itself  or  themselves 


1  As  to  the  legal  effect  of  acts,  see 
Holland's  Jurisprudence,  2d  ed. 
chap.  12;  and  an  interesting  discus- 
sion in  a  work  by  Dr.  August  Thon, 

426 


entitled  "  Rechtsnorm  und  Subjec- 
tives  Recht,"  chap.  1.  "  Die  Norm 
und  die  Rechtsfolgen  ihrer  Uebertre- 
tung." 


CHAP.  VIII.]  CORPORATION   AND    STATE.  [§  448. 

in  legal  relations  between  persons  of  whom  correlated  condi- 
tions of  fact  may  be  asserted. 

§447.  It  remains  to  determine  on  some  proper  notion  of  a 
contract,  which  shall  be  consistent  with  the  notion  Notion  of  a 
reached  of  law.  tor  the  present  purpose,  all  acts  x^ciasses 
may  be  divided  into  two  classes :  (a)  acts  whose  of  acts- 
effect  is  to  bring  the  actors  within  the  operation  of  rules  of 
law,  which  thereupon  manifest  themselves  in  legal  relations; 
acts,  in  other  words,  which  occasion  (not  cause)  legal  relations ; 
(b)  all  other  acts.  Acts  of  the  first  class  may  be  called  acts 
having  legal  effect. 

Now  many  acts  which  have  legal  effect  are  not  done  for  the 
purpose  of  occasioning  legal  relations.  For  instance,  if  A. 
strikes  B.,  A.'s  object  is  not  to  occasion  legal  relations  between 
them,  but,  nevertheless,  such  is  the  result  of  the  blow,  for  B. 
thereby  acquires  a  cause  of  action  against  A.  Certain  acts  on 
the  other  hand  are  done  with  the  immediate  purpose  of  occa- 
sioning legal  relations.  Of  these  latter  acts  the  chief  variety * 
are  called  contracts,  which  are  acts  whereby  the  parties  express 
their  intention  of  occasioning  legal  relations  between  them. 
If  the  contract  is  what  is  called  valid  or  binding,  it  effectuates 
the  expressed  intention  of  the  parties,  in  that  it  occasions  the 
legal  relations  which  the  parties  expressed  their  intention  to 
occasion.  By  the  contract  the  parties  have  brought  them- 
selves within  the  operation  of  rules  of  law,  which  at  the  mo- 
ment of  the  execution  of  the  contract  manifest  themselves  in 
the  presumably  desired  legal  relations.2 

§  448.  Now  may  be  explained  what  was  meant  at  the  be- 
ginning of  this  chapter  by  saying  that  the  consti-  How  the 
tution  of  a  corporation,  besides  being  the  group  of  c.onsti*u- 
legal  rules  which  manifest  themselves  in  legal  rela-  corpora- 
tions in  respect  of  the  corporate  enterprise,  always  bodies  a 
embodies  a  contract  among  the  corporators,  and  contract- 
sometimes  a  contract  between  the  corporation  and  the  state. 
To  say  that  it  embodies  a  contract  between  the  corporators 


1 A  tort  may  be  committed  in 
order  to  occasion  legal  relations;  as 
when  one  man  trespasses  on  an- 
other's land  in  order  to  acquire  by 
user  a  right  of  way. 


2  An  invalid  contract,  taken  by 
itself,  is  not  an  act  having  legal  ef- 
fect. 


427 


§  449.]       THE    LAW    OF    PRIVATE   CORPORATIONS.    [CHAP.  VIII. 


means  that  it  embodies  the  terms  of  an  agreement  whereby 
the  parties  have  expressed  their  intention  of  occasioning  legal 
relations  which  are  manifestations  of  the  rules  of  law  compos- 
ing the  very  constitution  which  embodies  the  contract.  The 
rule  of  law  which  ordinarily  manifests  itself  in  legal  relations 
upon  the  making  of  a  valid  contract,  is  simply  that  each  con- 
tracting party  may  compel  the  others  to  perform  their  parts 
according  to  the  intent  and  meaning  of  the  agreement.  But 
in  this  particular  contract  that  causes  incorporation,  the  terms 
through  incorporation  become  themselves  rules  of  law;  and 
thus  the  constitution  of  a  corporation  embodies  the  expression 
of  the  intention  of  parties  which  causes  these  rules  to  operate. 
Further,  to  say  that  the  state,  from  which  emanate  most  of  the 
rules  of  law  composing  the  constitution,  is  a  party  to  the  agree- 
ment which  the  constitution  embodies,  means  that  the  state  has 
done  an  act  whereby  it  has  expressed  its  intention  to  bring  it- 
self within  the  operation  of  some  law  superior  to  itself,  which 
thereupon  manifests  itself  in  legal  relations  between  the  state 
and  the  corporation,  legal  relations  which  the  state  cannot  alter 
at  its  will,1  since  they  are  the  manifestations  of  law  superior 
to  itself.  That  paramount  law  is  expressed  in  the  constitution 
of  the  United  States. 

§  449.  The  constitution  of  a  corporation  is  law   which  the 
state  could  not  impose  on  the  corporators  without 

Acceptance  r  r 

necessary  their  consent,  and  this  because  of  certain  restric- 
of  the  cor-  tions  on  the  power  of  a  state  contained  in  the 
porators.  Federal  constitution  or  existing  in  the  common 
law.2     By  accepting  a  charter  the  corporations  subject  them- 


1  See  Danolds  v.  State  of  New  York, 
89  N.  Y.  36. 

2  See  §456,  and  note,  in  the  present 
chapter.  The  king  could  not  incor- 
porate a  body  of  men,  except  as  a 
municipal  corporation,  without  their 
consent.  See  Rex  v.  Passmore,  3 
T.  R.  199,  240.  A  charter  must  be 
accepted  before  incorporation  can 
take  place.  A  grant  of  a  charter  to 
those  who  have  not  applied  for  it  is 
but  an  offer  on  the  part  of  the  state, 
which  may  be  withdrawn  before 
acceptance.     State    v.    Dawson,    16 

428 


Ind.  40;  Riddle  v.  Proprietors,  7 
Mass.  169,  184;  Ellis  v.  Marshall,  2 
Mass.  269,  277;  Smith  v.  Silver  Val- 
ley M'g  Co.,  64  Md.  86.  Compare 
Bonaparte  v.  Baltimore,  etc.,  R.  R. 
Co.,  75  Md.  340.  But  it  is  not  nec- 
essary to  show  a  written  instrument, 
or  even  a  note  of  acceptance.  Ac- 
ceptance may  be  inferred  from  the 
exercise  of  corporate  powers  under 
the  act;  e.  g.,  the  election  of  officers, 
the  holdiug  of  meetings,  the  adop- 
tion of  by-laws,  etc.  Acceptance 
by  directors   acquiesced   in   by  the 


CHAP.  VIII.]  CORPORATION    AND   STATE. 


[§  449. 


selves  to  duties,  which,  without  their  consent,  the  state  could 
not  have  imposed  upon  them.1  Accordingly,  the  grant  and 
acceptance  of  a  charter  are  held  to  constitute  an  act  whereby 
the  actors  have  expressed  their  intention  to  occasion  legal  re- 


corporation  is  sufficient.  Bank  of 
United  States  v.  Dandridge,  12 
Wheat.  64,  71  ;  Mutual  Fire  Ins. 
Co.  v.  Stokes,  9  Phila.  (Penn.)  80; 
Trustees  of  School  District  v.  Gibbs, 
2  Cush.  (Mass.)  39;  Androscoggin 
Bridge  v.  Bragg,  11  N.  H.  102; 
Sumrall  v.  Sun  Mutual  Ins.  Co.,  40 
Mo.  27;  Augusta  M'f'g  Co.  v.  Ver- 
tices, 4  Lea  (Tenn.),  75;  St.  Joseph, 
etc.,  R'y  Co.  v.  Shambaugh,  106 
Mo.  557;  Fertilizer  Co.  v.  Clute,  112 
N.  C.  440.  See  State  v.  Dawson,  22 
Ind.  272;  applying  for  an  amend- 
ment raises  a  presumption  of  accept- 
ance of  the  original  charter.  Farns- 
worth  v.  Lime  Rock  R.  R.  Co.,  83 
Me.  440.  Slight  irregularities  in 
mode  of  acceptance  by  directors, 
when  by  the  charter  they  have 
power  to  accept  an  amendment,  do 
not  vitiate  the  acceptance.  Dead- 
erick  v.  Wilson,  8  Bax.  (Tenn.)  108, 
126.  So  no  formal  acceptance  of 
an  amendment  or  of  an  act  confer- 
ring new  franchises  need  be  shown. 
Bangor,  Oldtown  and  M.  R.  R.  Co. 
v.  Smith,  47  Me.  34;  Wetumpka  and 
Coosa  R.  R.  Co.  v.  Bingham,  5  Ala. 
657;  Illinois  River  R.  R.  Co.  v.  Zim- 
mer,  20  111.  654;  Palfrey  v.  Paulding, 
7  La.  Ann.  363  ;  Lyons  v.  Orange, 
etc.,  R.  R.  Co.,  32  Md.  18;  Cincin- 
nati, Hamilton,  etc.,  R.  R.  Co.  v. 
Cole,  29  Ohio  St.  126.  See  Vermont 
and  C.  R.  R.  Co.  v.  Vermont  Central 
R.  R.  Co.,  34  Vt.  2,  49,  where  the  ac- 
tion of  a  stockholders1  meeting  in 
making  contracts  authorized  by  the 
amendment,  no  one  objecting,  was 
held  an  acceptance  of  it.  But  see 
State  v.  Accommodation  Bank,  26 
La.    Ann.    288  ;    Commonwealth   v. 


Cullen,  13  Pa.  St.  133.  But  a  reso- 
lution to  accept  an  amendment  does 
not  constitute  an  acceptance,  unless 
it  purport  to  accept  unconditionally. 
Mulloy  v.  Nashville  and  Decatur 
R.  R.  Co.,  8  Lea  (Tenn. ),  427.  A  cor- 
poration already  in  existence  may 
receive  a  new  charter  without  relin- 
quishing its  old  one,  and  may  act 
partly  under  the  new  and  partly  the 
old  charter.  Woodfork  v.  Union 
Bank,  3  Coldw.  (Tenn.)  488.  Stat- 
utes may  provide  that  upon  the  ac- 
ceptance by  existing  corporations 
of  their  provisions,  such  corporations 
shall  be  held  to  have  abandoned 
rights  under  their  charters  inconsist- 
ent with  such  statutes.  Such  ac- 
ceptance need  not  be  formal,  but 
may  be  inferred  from  action  in  ac- 
cordance with  the  provisions  of  such 
statutes.  Cincinnati,  II.  and  D.  R. 
R.  Co.  v.  Cole,  29  O.  St.  126.  A  cor- 
poration is  not  estopped  by  the  acts 
of  individual  officers  or  members  in 
procuring  legislation;  when  it  does 
not  appear  that  they  had  authority 
to  procure  such  legislation  or  that 
the  corporation  had  accepted  it.  Mis- 
sissippi, etc.,  Boom  Co.  v.  Prince,  34 
Minn.  79.  Compare  Baker's  Appeal, 
109  Pa.  St.  461.  As  to  surrender  of 
franchises,  see  §§  433,  434. 

1  By  accepting  a  charter  or  by  in- 
corporating under  a  general  statute, 
the  incorporators  subject  themselves 
to  whatever  conditions  the  state  may 
impose,  and  cannot  afterwards  be 
heard  to  assail  any  statute  then  in 
force  imposing  conditions  on  the  cor- 
poration as  unconstitutional.  Chi- 
cago, R.  I.  &  Pac.  Ry.  Co.  v.  Zernecke, 
183  U.  S.  582. 

429 


§  450.]       THE   LAW    OF    PRIVATE   CORPORATIONS.   [CHAP.  VIII. 


lations  between  them ;  that  is  to  say,  a  contract  has  been  made 
to  which  the  state  is  a  party. 

§  450.  The  state  cannot  alter  any  of  its  laws  so  as  to  affect 
Contract  legal  relations  in  which  the  law  has  already  mani- 
thHtate  fested  itself,  for  such  alteration  would  be  unconsti- 
andthecor-   tutional,  in  that  it  would  impair  the  obligation  of  a 

poration.  '  l  j         •  • 

contract,1  or  at  least  deprive  some  one  of  his  "  vested 
rights."  Therefore,  the  state  cannot  alter  the  constitution  of  a 
corporation  regarded  simply  as  law,  so  as  to  affect  any  legal 
relations  in  which  it  has  manifested  itself.2  But  as  to  the 
corporators,  the  state  cannot  alter  this  constitution  so  as  to 
affect  legal  relations  not  yet  arisen,  because  on  the  accepting 
of  the  charter  by  the  corporators  the  state  is  held  impliedly 
to  agree  that  it  will  not  alter  the  charter  as  a  law,  and  this 
implied  agreement  is  the  contract  between  the  state  and  the 
corporation.  Thus,  the  corporation  acquires  a  right  under  the 
protection  of  the  Federal  constitution,  that  the  rules  of  law 
in  its  own  constitution  shall  remain  unaltered  ;  i.  e.,  it  acquires 
the  right  that  acts  in  respect  of  the  corporate  enterprise,  which 


1  E.  g.,  a  state  law  passed  after 
the  execution  of  a  mortgage,  which 
declares  that  the  equitable  estate  of 
the  mortgagee  shall  not  be  extin- 
guished for  twelve  months  after  a 
sale  under  a  decree  of  chancery,  and 
which  prevents  any  sale  unless  two- 
thirds  of  the  amount  at  which  the 
property  has  been  valued  by  apprais- 
ers shall  be  bid  therefor,  impairs  the 
obligation  of  a  contract  and  is  void. 
Bronson  v.  Kinzie,  1  How.  311;  ace. 
McCracken  v.  Hay  ward,  2  How.  608; 
compare  Curtis  v.  Whitney,  13  Wall. 
68;  Connecticut  Mut.  Life  Ins.  Co. 
v.  Cushman,  108  U.  S.  51.  A  con- 
tract between  a  state  and  a  party 
whereby  he  is  to  perform  certain 
duties  for  a  specific  period  for  a 
stipulated  compensation,  is  within 
the  protection  of  the  Federal  con- 
stitution. Hall  v.  Wisconsin,  103 
U.S.  5;  see  Davis  v.  Gray,  16  Wall. 
203;  Chicago,  etc.,  R'y  Co.  v.  United 
States,  104  U.  S.    680.     A  constitu- 

430 


tional  amendment  providing  that  no 
tax  shall  be  levied  for  certain  state 
railway  aid  bonds,  already  negoti- 
ated, until  the  law  levying  the  tax  be 
submitted  to  a  vote  of  the  people, 
and  be  adopted  by  a  majority  of 
those  voting,  is  void,  as  impairing 
the  obligation  of  a  contract.  State 
v.  Young,  29  Minn.  474.  But  a 
retroactive  act  validating  contracts 
does  not  impair  the  obligation  of 
them.  Canal  Co.  v.  Vallette,  21 
How.  414;  Gross  v.  United  States 
Mortgage  Co.,  108  U.  S.  477;  see 
§  325.  Thus,  a  statute  which,  by 
repealing  a  usury  law,  validates  a 
voidable  contract,  is  constitutional. 
Ewell  v.  Daggs,  108  U.  S.  143. 

2  E.  g.,  the  state  could  not  abolish 
the  personal  liability  of  shareholders 
for  corporate  indebtedness  so  as  to 
affect  legal  regulations  already  sub- 
sisting between  them  and  creditors 
of  the  corporation.  Hawthorne  v. 
Calef,  2  Wall.  10.     See  §  501. 


CHAP.  VIII.]  CORPORATION  AND  STATE.  [§  450. 

bring  the  actors  under  the  operation  of  rules  of  law  contained 
in  the  constitution  of  the  corporation,  shall  continue  to  have 
that  effect ;  shall  continue  to  bring  the  actors  within  the  oper- 
ation of  those  same  rules  of  law  and  occasion  the  same  legal 
relations. 

Much  confusion  seems  to  have  arisen  from  the  omission  of 
courts  and  law  writers  to  specify  more  definitely  what  the 
contract  between  the  corporation  and  the  state  really  is.  It  is 
said  that  the  charter  of  a  corporation  is  a  contract  between  the 
corporation  and  the  state.  But  it  is  clear  that  the  terms  and 
provisions  of  the  charter  are  not  the  terms  and  provisions  of  a 
contract  between  the  state  and  the  corporation  in  the  sense  in 
which  the  terms  and  provisions  of  a  written  agreement  be- 
tween A.  and  B.  are  the  terms  and  provisions  of  a  contract 
between  them.  Ordinarily  in  a  charter  or  enabling  act  the 
state  does  not  purport  to  contract  with  the  corporation  nor 
the  corporation  with  the  state.  The  terms  and  provisions  of 
the  charter  or  enabling  act  are  rather  rules  of  law  which  will 
manifest  themselves  in  legal  relations  among  the  corporators, 
and  between  them  and  other  persons  contracting  in  respect  of 
the  corporate  enterprise.  The  agreement  on  the  part  of  the 
state  is  that  it  will  not  alter  or  repeal  these  rules  of  law. 

Apply  the  ordinary  definition  of  a  (executory)  contract — 
an  agreement  to  do  or  not  to  do  a  particular  thing — to  a  char- 
ter or  enabling  act,  and  it  will  appear  that  the  state  does  not 
agree  to  do  anything,  except  (impliedly)  not  to  alter  the  char- 
ter or  enabling  act  as  a  rule  of  law,  and  (impliedly)  to 
enforce  it  as  a  rule  of  law.  For  instance,  a  statute  authoriz- 
ing the  building  of  a  toll-bridge  over  a  navigable  river  by  a 
corporation  "  with  two  suitable  draws,  which  shall  be  at  least 
thirty  feet  wide,"  was  held  to  constitute  when  accepted  a  con- 
tract between  the  state  and  the  corporation,  which  the  state 
could  not  constitutionally  alter  by  a  subsequent  statute  re- 
quiring the  corporation  to  maintain  larger  draws.1  It  is  ap- 
parent that  the  contract  in  this  case  between  the  corporation 
and  the  state  was  simply  that  the  state  would  not  repeal  or 
modify  the  former  statute.  To  be  sure  a  state  may  make  other 
and  further  contracts  with  a  corporation  ;  e.  g.,  it  may  agree 

1  Commonwealth  v.  New  Bedford  Bridge,  2  Gray,  339. 

431 


§  451.]       THE   LAW   OF   PRIVATE   CORPORATIONS.    [CHAP.  VIII. 

not  to  permit  a  similar  corporation  to  establish  itself  near  the 
former. 

One  may  well  raise  the  question  whether  this  implied  con- 
tract not  to  alter  the  constitution  of  a  corporation  would  be 
held  to  exist,  did  the  matter  arise  as  res  nova  in  regard  to  a 
general  enabling  statute.  If  the  right  to  repeal  were  not 
reserved,  presumably,  under  the  authority  of  past  decisions, 
courts  would  hold  that  the  statute  could  not  be  repealed  or 
changed  so  as  to  affect  the  right  of  existing  corporations  to 
continue  to  carry  on  their  business  as  under  the  statute.  But 
would  courts  so  hold  in  regard  to  a  statute  sanctioning  limited 
partnerships  ?  Is  there  any  implied  contract  between  the 
state  and  a  limited  partnership  any  more  than  between  the 
state  and  an  ordinary  firm  ?  No  citizen  by  acting  under  a 
statute  any  more  than  by  acting  under  a  rule  of  common  law 
acquires  a  right  that  the  statute  shall  remain  unrepealed  so 
that  he  may  always  act  under  it  and  be  protected  by  its  terms.1 
And  why  should  there  be  held  to  exist  an  implied  contract 
between  the  state  and  an  ordinary  business  corporation  any 
more  than  between  the  state  and  a  limited  partnership?  Still, 
who  to-day  is  rash  enough  to  hint  that  the  decision  in  the 
Dartmouth  College  Case  was  based  on  the  false  analogy  be- 
tween a  grant  of  a  franchise  (i.  e.,  the  passage  of  a  special 
law),  and  the  grant  of  property?  As  Justice  Davis  said 
in  The  Binghamton  Bridge  : 2  "  Courts  to-day  are  estopped 
from  questioning  the  doctrine  of  the  Dartmouth  College  Case." 

§  451.  That  the  constitution  of  a  corporation  is  law  is  more 

apparent  in  respect   of  corporations   formed   under 

actsand8      general  enabling  statutes,  while  the  characteristics 

special  0f  a  contract  appear  more  prominently  where  a  spe- 

ctiarters.  l  l  l  ^  L 

cial  charter  is  granted  by  the  state  to  the  corporators.3 
The  differences  between  an  enabling  statute  and  a  charter  are, 


i  See  Munn  v.  Illinois,  94  U.  S. 
113,  opinion  of  Waite,  C.  J. 

*  3  Wall.  51,  73. 

3  A  number  of  state  constitutions 
prohibit  tbe  passage  of  special  acts 
conferring  corporate  francbises.  See 
Atkinson  v.  Marietta,  etc.,  R.  R.  Co., 
15  O.  St.  21;  School  District  v.  In- 
surance Co.,  103  U.  S.  707.     But  it 

432 


is  held  such  a  prohibition  does  not 
prevent  a  legislature  from  extending 
by  special  act  the  duration  of  corpo- 
rate franchises.  Colton  v.  Mississippi, 
etc.,  Boom  Co.,  22  Minn.  372;  or  from 
altering  the  charter  of  an  existing 
corporation.  Attorney-General  v. 
North  America  Life  Ins.  Co.,  82  N. 
Y.  172;  St.  Paul  Fire,  etc.,  Ins.  Co. 


CHAP.  Vin.]  CORPORATION  AND  STATE. 


[§  452. 


i 


however,  mainly  differences  in  form.1  A  charter  as  well  as  an 
enabling  statute  prescribes  rules  for  conduct ;  the  difference 
being  that  these  rules  in  the  case  of  a  charter  have  a  more  lim- 
ited application.  And  an  enabling  statute,  as  well  as  a  charter, 
proffers  terms  and  facilities  of  action  which  are  accepted  by  the 
corporators  by  filing  their  articles  of  association  ;  only  in  the 
case  of  an  enabling  statute  the  terms  are  offered  to  the  citizens 
of  the  state  at  large,  any  sufficient  number  of  whom  may  accept 
them  and  incorporate  themselves  by  complying  with  them.2 

§  452.  Accordingly,  the  constitution  of  a  corporation  being 
of  a  dual  nature — a  law  embodying  a  contract — it  Two  kinds 
follows  that  the  relations  between  the  state  and  between"18 
the  corporation  are  of  two  kinds :  (a)  relations  such  ^thecor- 
as  exist  between  the  lawgiver  and  the  citizen,  and  poratkm. 
(b)  legal  relations  occasioned  by  contract.3  It  will  be  convenient 
to  discuss  the  latter  first. 


v.  Allis,  24  Minn.  75;  or  from  chang- 
ing the  name  of  a  corporation. 
Wallace  v.  Loomis,  97  U.  S.  146. 
Compare  Southern  Pac.  R.  R.  Co.  v. 
Orton,  6  Sawyer,  157,  186. 

1  Except  that  enabling  statutes 
are  almost  universally  subject  to 
alteration  and  repeal,  through  ex- 
press reservation  of  that  power  by 
the  state;  while  many  charters  exist 
wherein  that  power  is  not  reserved. 

3  A  substantial  compliance  with 
the  terms  of  an  enabling  act  is 
necessary  to  form  a  corporation 
thereunder;  e.  g.,  the  filing  of  the 
certificate  is  essential.  Stowe  v. 
Flagg,  72  111.  397;  Bigelow  v.  Greg- 
ory, 73  111.  197;  Harris  v.  McGregor, 
29  Cal.  124;  but  see  Vanneman  v. 
Young,  52  N.  J.  L.  403;  Way  v. 
American  Grease  Co.,  60  N.  J.  Eq. 
263.  And  the  articles  of  association 
must  comply  with  the  statute;  see 
Reed  v.  Richmond  St.  R.  R.,  50  Ind. 
342;  People  v.  Self  ridge,  52  Cal.  331; 
State  v.  Central  Ohio  Relief  Ass1u, 
29  O.  St.  399.  Compare  In  re  Spring- 
Valley  Water  Works,  17  Cal.  132; 
28 


Eastern  Plank  Road  Co.  v.  Vaughan, 
14  N.  Y.  546;  Mokelumne  Hill  M'g 
Co.  v.  Woodbury,  14  Cal.  424,  and 
§§  148,  739. 

3  Legal  relations  occasioned  by 
contract  may  subsist  between  the 
lawgiver  and  the  citizen.  "The 
government  sustains  two  distinct 
relations  to  the  railroad  company, 
and  in  considering  her  rights  under 
this  statute  it  is  important  to  keep 
them  separate.  The  company  is 
organized  under,  and  owes  its  corpo- 
rate existence  to,  an  act  of  Congress. 
The  government  has  all  the  rights 
which  belong  to  any  other  govern- 
ment as  a  sovereign,  and  legislative 
power  over  this  creature  of  that 
power.  That  this  power  should  not 
be  too  much  crippled  by  the  doctrine 
that  a  charter  is  a  contract,  the 
eighteenth  section  declares  that  Con- 
gress may  at  any  time,  having  due 
regard  to  the  rights  of  the  companies 
named  therein,  add  to,  alter,  amend, 
or  repeal  the  act.  The  power  of 
Congress,  therefore,  in  its  sovereign 
and    legislative    capacity   over  this 

433 


§  453.]        THE    LAW    OF   PRIVATE   CORPORATIONS.   [CHAP.  VIII. 


§  453.  That  a  grant  from  a  state  is  a  contract  within  the 
a  charter  a  purview  of  Article  I.  section  10  of  the  Federal 
OutHneof  constitution  was  decided  by  Fletcher  v.  Peck;1  that 
the  doc-        the  charter  of  a  corporation  is  a  arrant  and  therefore 

trine.  l  ° 

a   contract,  was   decided   by  Dartmouth   College  v. 


corporation  is  very  great.  The  gov- 
ernment, however,  holds  another 
very  important  relation,  namely, 
that  of  contract.  It  has  loaned  to 
the  company  twenty-seven  million 
dollars,  and  granted  it  on  certain 
terms  many  million  acres."  United 
States  v.  Union  Pacific  R.  R.  Co.,  98 
U.  S.  569,  613.  It  is  to  be  noticed, 
however,  that  the  contractual  rela- 
tions referred  to  in  this  extract  arose 
from  a  loan  by  the  government  to 
the  company. 

1  6  Cranch,  87.  "  Is  the  power  of 
the  legislature  competent  to  the  an- 
nihilation of  such  title,  and  to  the 
resumption  of  the  property  held  ? 
The  principle  asserted  is  that  one 
legislature  is  competent  to  repeal 
any  act  which  a  former  legislature 
was  competent  to  pass,  and  that  one 
legislature  cannot  abridge  the  powers 
of  a  succeeding  legislature.  The  cor- 
rectness of  this  principle,  so  far  as 
affects  general  legislation,  can  never 
be  controverted.  But  if  an  act  be 
done  under  a  law,  a  succeeding  leg- 
islature cannot  undo  it.  The  past 
cannot  be  recalled  by  the  most  ab- 
solute power.  Conveyances  have 
been  made,  those  conveyances  have 
vested  legal  estates,  and  if  those  es- 
tates may  be  seized  by  the  sovereign 
authority,  still  that  they  originally 
vested  is  a  fact,  and  cannot  cease  to 
be  a  fact. 

"  When,  then,  a  law  is  in  its  na- 
ture a  contract,  when  absolute  rights 
have  vested  under  that  contract,  a 
repeal  of  that  law  cannot  divest 
those  rights;   and  the  act  of  annul- 

434 


ling  them,  if  legitimate,  is  rendered 
so  by  a  power  applicable  to  the  case 
of  every  individual  in  the  commu- 
nity. .  .  . 

"  What  is  a  contract  ?  Is  a  grant 
a  contract  ?  A  contract  is  a  compact 
between  two  or  more  parties,  and  is 
either  executory  or  executed.  An 
executory  contract  is  one  in  which  a 
party  binds  himself  to  do  or  not  to 
do  a  particular  thing;  such  was  the 
law  under  which  the  conveyance  was 
made  by  the  governor.  A  contract 
executed  is  one  in  which  the  object 
of  contract  is  performed;  and  this, 
says  Blackstone,  differs  in  nothing 
from  a  grant.  The  contract  between 
Georgia  and  the  purchasers  was  exe- 
cuted by  the  grant.  A  contract  exe- 
cuted as  well  as  executory  contains 
obligations  binding  on  the  parties. 
A  graut  in  its  own  nature  amounts 
to  an  extinguishment  of  the  right  of 
the  grantor,  and  implies  a  contract 
not  to  reassert  that  right.  A  party 
is  therefore  always  estopped  by  its 
own  grant.  Since  then,  in  fact,  a 
grant  is  a  contract  executed,  the  ob- 
ligation of  which  still  continues,  and 
since  the  constitution  uses  the  gen- 
eral term  'contracts,'  without  distin- 
guishing between  those  which  are 
executory  and  those  which  are  exe- 
cuted, it  must  be  construed  to  com- 
prehend the  latter  as  well  as  the 
former.  ...  It  would  be  strange 
if  a  contract  to  convey  was  secured 
by  the  constitution,  while  an  abso- 
lute conveyance  remained  unpro- 
tected." Marshall,  C.  J.,  6  Cranch, 
135-7. 


chap,  vni.] 


CORPORATION  AND  STATE. 


[§  453. 


"Woodward  ; l  and  that  in  respect  of  the  constitutional  provision 
against  the  enacting  of  a  law  by  a  state  impairing  the  obliga- 
tion of  contracts,  the  grant  is  to  be  construed  strictly  in  favor 
of  the  state,  and  as  giving  no  rights  against  the  public  by 
implication,  was  decided  by  The  Charles  River  Bridge  v.  The 
Warren  Bridge.2  These  three  cases  outline  the  constitutional 
doctrines  on  this  subject. 


14  Wheaton,  518.  "The  objects 
for  which  a  corporation  is  created 
are  universally  such  as  the  govern- 
ment wishes  to  promote.  They  are 
deemed  beneficial  to  the  country; 
and  this  benefit  constitutes  the  con- 
sideration, and  in  most  cases  the 
sole  consideration  of  the  grant.1' 
Marshall,  C.  J.,  4  Wheaton,  p.  637. 
"The  opinion  of  the  court,  after 
mature  deliberation,  is,  that  this  is 
a  contract,  the  obligation  of  which 
cannot  be  impaired  without  violat- 
ing the  Constitution  of  the  United 
States.  This  opinion  appears  to  us 
equally  supported  by  reason  and  by 
the  former  decisions  of  this  court." 
lb.,  p.  650.  Accord,  The  Bingham- 
ton  Bridge,  3  Wall.  51,  where,  at 
p.  73,  Davis,  J.,  says,  giving  the  opin- 
ion of  the  court :  "  We  have  sup- 
posed, if  anything  was  settled  by  an 
unbroken  course  of  decisions  in  the 
Federal  and  state  courts,  it  was  that 
an  act  of  incorporation  was  a  con- 
tract between  the  state  and  the  stock- 
holders.'" It  would  be  a  work  of 
supererogation  to  cite  cases  in  sup- 
port of  the  above  proposition.  Still 
the  following  may  be  referred  to: 
Planters'  Bank  v.  Sharp,  6  How. 
301;  State  Bank  of  Ohio  v.  Knoop, 
16  How.  369;  Bank  of  the  State  v. 
Bank  of  Cape  Fear,  13  Ired.  (N.  C.) 
Law,  75;  Jemison  v.  Planters',  etc., 
Bank,  23  Ala.  168;  Aurora,  etc., 
Turnpike  Co.  v.  Holthouse,  7  Ind. 
59;  Hamilton  v.  Keith,  5  Bush.  (Ky.) 
458;   Regents   of   the   University   of 


Maryland  v.  Williams,  9  Gill  &  J. 
365;  Norris  v.  Trustees  of  Abing- 
ton  Academy,  7  Gill  &  J.  7;  People 
v.  Manhattan  Co.,  9  Wend.  351;  Com- 
monwealth v.  Cullen,  13  Pa.  St.  133; 
State  v.  Noyes,  47  Me.  189.  Contra, 
Mechanics  and  Traders'  Bank  v.  De- 
bolt,  1  Ohio  St.  591;  Toledo  Bank  v. 
Bond,  ib.  622;  Skelly  v.  Jefferson 
Branch  Bank,  9  Ohio  St.  606. 

The  legislature  may  alter  the 
charter  with  the  assent  of  all  the 
corporators.  Smead  v.  Indianapolis, 
P.  and  C.  R.  R.  Co.,  11  Ind.  104. 

In  construing  the  charter  contract 
between  the  corporation  and  the 
state,  reference  is  also  to  be  had  to 
existing  statutes.  Thus,  a  charter 
granted  the  franchise  to  construct  a 
toll-bridge;  at  the  time,  there  exist- 
ed a  law  forbidding  the  erection  of 
one  toll-bridge  within  three  miles  of 
another.  Held,  subsequent  legisla- 
tion permitting  another  toll-bridge 
within  three  miles  of  the  first  was 
unconstitutional.  Micou  v.  Tallas- 
see  Bridge  Co.,  47  Ala.  652;  com- 
pare The  Binghamton  Bridge,  3 
Wall.  51. 

2 11  Peters,  420;  see  Pearsall  v.  Rail- 
way, 161  U.  S.  647;  Skaneateles 
Water  Co.  v.  Skaneateles,  184  U.  S. 
354;  Hartford  Br.  Co.  v.  Union  Ferry 
Co.,  29  Conn.  210;  Fitch  v.  New 
Haven,  New  London,  etc.,  R.  R.  Co., 
30  Conn.  38;  Mills  v.  St.  Clair  Co.,  8 
How.  569;  Fanning  v.  Gregoire,  16 
How.  524;  Shorter  u.  Smith,  9  Ga. 
517;  Collins    v.   Sherman,   31    Miss. 

435 


§  454.]      THE   LAW    OF   PRIVATE   CORPORATIONS.    [CHAP.  VIII. 


Considera- 
tion mov- 
ing to  the 
state.    Its 
rights. 
Mandamus 


§  454.  The  consideration  moving  from  the  corporators  to 
the  state,  is  either  the  supposed  public  benefit 
which  the  state  or  people  acquires  from  the  acts 
which  are  to  be  performed  by  the  corporation ;  or 
the  acting  upon  the  terms  of  the  charter  by  the  cor- 
poration. Thus,  the  state  acquires  the  right  to 
enforce  the  application  of  the  corporate  property  to  the  attain- 
ment of  the  objects  of  incorporation,  at  least  in  so  far  as  the 
public  is  interested  in  their  attainment.  "  There  is  an  implied 
undertaking  on  the  part  of  every  corporation  that  it  will  render 
to  the  public,  so  far  as  it  reasonably  can,  that  service  for  which 
it  was  incorporated,  and  that  it  will  not  voluntarily  disable 
itself  to  serve  the  purpose  for  which  it  was  created."  '  And 
there  is  the  further  implied  agreement  on  the  part  of  the 
grantees  to  exercise  their  franchises  within  a  reasonable  time.2 
Accordingly,  a  mandamus  will  issue  at  the  suit  of  the  people 
of  the  state  to  compel  a  railroad  company  to  operate  its  road,3 


679;  Ruggles  v.  Illinois,  108  U.  S. 
626;  Laket).  Virginia,  etc.,  R.  R.  Co., 
7  Nev.  294;  Brooklyn,  in  re,  143  N.  Y. 
596. 

Where  a  state  charters  a  turnpike 
company  without  expressly  granting 
it  any  exclusive  privileges,  the  state 
may  constitutionally  charter  a  rail- 
road company  to  run  its  road  by  the 
side  of  the  turnpike,  to  the  damage 
of  the  latter.  Turnpike  Co.  v.  The 
State,  3  Wall.  210;  Lafayette  Plank 
Road  Co.  v.  New  Albany,  etc.,  R.  R. 
Co.,  13  Ind.  90;  Bush  v.  Peru  Bridge 
Co.,  3  Ind.  21;  Tuckahoe  Canal  Co. 
v.  Tuckahoe  R.  R.  Co.,  11  Leigh 
(Va.),  42;  see  Water  Co.  v.  Water 
Co.,  80  Me.  544;  compare  Micou  v. 
Tallassee  Bridge  Co.,  ante  ;  similarly, 
to  run  alongside  of  a  canal;  Illinois 
and  M.  Canal  ».  Chicago  and  R.  I. 
R.  R.  Co.,  14  111.  314,  or  one  railroad 
to  run  parallel  with  a  prior  railroad 
between  the  same  termini.     Connect- 

436 


ing  Ry.  Co.  v.  Union  Ry.  Co.,  108  111. 
459. 

The  strict  construction  in  favor  of 
the  state  is  especially  exemplified  in 
cases  of  granted  immunity  from  tax- 
ation. See  §§  487-491;  see  Wiggins 
Ferry  Co.  v.  East  St.  Louis,  107  U.  S. 
305. 

1  Kenton  County  Court  v.  Bank 
Lick  Turnpike  Co.,  10  Bush(Ky.), 
529,  532.  Compare  American  Rapid 
Telegraph  Co.  v.  Connecticut  Tele- 
phone Co.,  49  Conn.  352;  Common- 
wealth v.  Fitchburg  R.  R.  Co.,  12 
Gray  (Mass.),  180;  Gates  v.  Boston, 
etc.,  R.  R.  Co.,  53  Conn.  333;  Peo- 
ple's Gaslight  Co.  v.  Chicago  Gas- 
light Co.,  20  111.  App.  473. 

2  Chincleclamouche  Lumber  Co.  v. 
Commonwealth,  100  Pa.  St.  438. 

3  State  v.  Hartford  and  N.  H.  R. 
R.  Co.,  29  Conn.  538;  see  People  v. 
Albany  and  Vermont  R.  R.  Co.,  24 
N.  Y.  261;  Sherwood  v.  A.  &  D.  R. 
Co.,  94  Va.  291. 


chap,  vni.] 


CORPORATION  AND  STATE. 


[§  455' 


or  to  erect  suitable  stations,1  or  to  build  a  drawbridge  provided 
for  in  its  charter.2 

§  455.  In  a  New  York  case,3  where  the  complaint  alleged 
the  failure  of  certain  railroads  to  receive  and  trans- 
port freight  (on  account  of  a  general  freight  hand- 
lers' strike),  Presiding  Justice  Davis  said,  giving  the  opinion  of 
the  court :  "  The  question  presented  by  this  motion  is  one  of 


Railroads. 


1  Railroad  Commissioners  v.  Port- 
land and  Oxford  C.  R.  R.  Co.,  63 
Me.  269,  where,  at  p.  278,  Dickerson, 
J.,  said,  giving  the  opinion  of  the 
court:  "Railroad  charters  are  con- 
tracts made  by  the  legislature  on 
behalf  of  every  person  interested  in 
anything  to  be  done  under  them. 
In  consideration  of  the  franchise 
they  receive  from  the  state,  railroad 
companies  agree  to  perform  certain 
duties  towards  the  public.  The 
power  of  determining  those  duties 
and  enforcing  their  performance  is 
vested  in  the  appropriate  tribunals 
of  the  state.  Being  creatures  of  the 
law,  intrusted  with  the  exercise  of 
sovereign  powers  to  subserve  public 
necessities  and  uses,  railroad  com- 
panies are  bound  to  conduct  their 
affairs  in  furtherance  of  the  public 
objects  of  their  creation."1  But  in 
People  v.  New  York,  L.  E.  and  W. 
R.  R.  Co.,  104  N.  Y.  58,  the  court 
refused  a  mandamus  to  compel  a 
railroad  company  to  erect  a  station. 

Mandamus  does  not  lie  to  compel 
a  railroad  company  to  do  an  act,  as 
to  build  a  station  at  a  particular 
place,  unless  there  is  a  specific  legal 
duty  on  its  part  to  do  that  act,  and 
clear  proof  of  a  breach  of  that  duty. 
Northern  Pacific  R.  R.  v.  Dustin, 
142  U.  S.  492,  Brewer,  Field,  Harlan, 
JJ.,  dissenting. 

And  a  mandamus  will  issue  at  the 
suit  of  a  private  person  to  enforce  a 
public  duty  not  due  to  the  govern- 
ment as  such.  Union  Pacific  R.  R. 
Co.  v.  Hall,  91  U.  S.  343,  355 ;  People 


v.  Manhattan  Gas  Light  Co.,  45  Barb. 
136;  State  v.  Telephone  Co.,  36  Ohio 
St.  296;  State  v  Dayton  and  South- 
eastern R.  R.  Co.,  36  Ohio  St.  434; 
State  v.  Paterson,  Newark  and  N.  Y. 
R.  R.  Co.,  43  N.  J.  Law,  505.  Man- 
damus lies  to  compel  a  railroad  com- 
pany to  deliver  grain  at  a  particular 
elevator.  Chicago  and  Northwestern 
R.  R.  Co.  ».  People,  56  111.  365.  A 
telephone  company  may  be  compel- 
led by  mandamus  to  furnish  facili- 
ties to  plaintiff.  Webster  Telephone 
Case,  17  Neb.  126.  A  mandamus  was 
granted  at  the  suit  of  an  individual  to 
compel  a  street  car  company  to  issue 
a  transfer  as  required  by  its  charter. 
Richmond  Ry.,  etc.,  Co.  v.  Brown,  97 
Va.  26.     See,  also,  §  475. 

2  New  Orleans,  M.  and  T.  Ry.  Co. 
v.  Mississippi,  112  U.  S.  12. 

8  People  v.  New  York  Central  and 
Hudson  River  R.  R.  Co.,  28  Hun, 
543,  547.  Semble,  substantially  over- 
ruling People  v.  New  York,  Lake 
Erie  and  Western  R.  R.  Co.,  22 
Hun,  533. 

In  general  mandamus  lies  where 
there  is  a  clear  legal  right  in  the 
relator,  a  corresponding  duty  in  the 
defendant,  and  a  want  of  any  other 
appropriate  and  specific  remedy. 
Borough  of  Easton  v.  Lehigh  Water 
Co.,  97  Pa.  St.  554,  560.  A  corpo- 
ration cannot  be  compelled  by  man- 
damus to  do  what  it  has  no  right 
to  do.  See  American  Rapid  Tele- 
graph Co.  v.  Connecticut  Telephone 
Co.,  49  Conn.  352. 

437 


§  455.]       THE   LAW   OF   PRIVATE   CORPORATIONS.    [CHAP.  VHI. 

signal  importance.  It  is  whether  the  people  of  the  state  can 
invoke  the  power  of  the  courts  to  compel  the  exercise  by  rail- 
road companies  of  the  most  useful  public  functions  with  which 
they  are  clothed.  ...  As  bodies  corporate,  their  ownership 
may  be,  and  usually  is,  altogether  private,  belonging  to  the 
holders  of  their  capital  stock,  and  their  management  may  be 
vested  in  such  officers  or  agents  as  the  stockholders  and  direct- 
ors under  the  provisions  of  law  may  appoint.  In  this  sense 
they  are  to  be  regarded  as  trading  or  private  corporations, 
having  in  view  the  profit  or  advantage  of  the  corporators. 
But  these  considerations  are  in  no  just  sense  in  conflict  with 
their  obligations  and  duties  to  the  public.  The  objects  of 
their  creation  are  from  their  very  nature  largely  different  from 
those  of  ordinary  private  and  trading  corporations.  Railroads 
are  in  every  essential  quality  public  highways,  created  for  pub- 
lic use,  but  permitted  to  be  owned,  controlled,  and  managed  by 
private  persons.  But  for  this  quality  the  railroads  of  the  re- 
spondent could  not  lawfully  exist.  Their  construction  de- 
pended on  the  right  of  eminent  domain  which  belongs  to  the 
state  in  its  corporate  capacity  alone,  and  cannot  be  conferred 
except  upon  a  '  public  use.'  .... 

"  The  acceptance  of  such  trusts  on  the  part  of  a  corporation 
by  the  express  or  implied  contracts  already  referred  to,  makes 
it  an  agency  of  the  state  to  perform  public  functions  which 
might  otherwise  be  devolved  upon  public  officers.  .  .  .  The 
analogy  between  such  officials  and  railroad  corporations  in  re- 
gard to  their  relations  to  the  state  is  strong  and  clear,  and  so 
far  as  affects  the  construction  and  proper  and  efficient  main- 
tenence  of  their  railroad  will  be  questioned  by  no  one.  It  is 
equally  clear,  we  think,  in  regard  to  their  duties  as  carriers  of 
persons  and  property.  This  springs  sharply  out  of  the  exclu- 
sive nature  of  their  right  to  do  these  things.  On  other  public 
highways  every  person  may  be  his  own  carrier,  or  he  may  hire 
whomsoever  he  will  to  do  that  service.  ...  In  such  a  case  the 
carrier  has  not  contracted  with  the  state  to  assume  the  duty  as 
a  public  trust,  nor  taken  power  to  do  it  from  the  state,  by  be- 
coming the  special  donee  and  depositary  of  a  trust.  A  good 
reason  may  therefore  be  assigned  why  the  state  will  not  by 
mandamus  enforce  the  performance  of  his  contract  by  such  a 
carrier.  But  the  reason  for  such  a  rule  altogether  fails  when 
•138 


CHAP.  VIII.]  CORPORATION  AND  STATE.  [§  456. 

the  public  highway  is  the  exclusive  property  of  a  body  corpo- 
rate which  alone  has  power  to  use  it  in  a  manner  which  of  ne- 
cessity requires  that  all  management,  control,  and  user,  for  the 
purposes  of  carriage,  must  be  limited  to  itself,  and  which,  as  a 
condition  of  the  franchise  that  grants  such  absolute  and  exclu- 
sive power  over  a  user  of  a  public  highway,  has  contracted  with 
the  state  to  accept  the  duty  of  carrying  all  persons  and  prop- 
erty within  the  scope  of  its  charter  as  a  public  trust.  .  .  . 

"  We  cannot  bring  our  minds  to  entertain  a  doubt  that  a 
railroad  corporation  is  compellable  by  mandamus  to  exercise 
its  duties  as  a  carrier  of  freight  and  passengers,  and  that  the 
power  so  to  compel  it  rests  equally  firmly  on  the  ground  that 
that  duty  is  a  public  trust,  which  having  been  conferred  by 
the  state,  and  accepted  by  the  corporation,  may  be  enforced  for 
the  public  benefit,  and  also  upon  the  contract  between  the  cor- 
poration and  the  state  expressed  in  its  charter,  or  implied  by 
the  acceptance  of  the  franchises,  and  also  upon  ground  that  the 
common  right  of  all  the  people  to  travel  and  carry  upon  every 
public  highway  of  the  state  has  been  changed  by  the  legisla- 
ture, for  adequate  reasons,  in  this  special  instance,  into  a  corpo- 
rate franchise  to  be  exercised  solely  by  a  corporate  body  for 
the  public  benefit,  to  the  exclusion  of  all  other  persons,  whereby 
it  has  become  the  duty  of  the  state  to  see  to  it  that  the  fran- 
chise so  put  in  trust  be  faithfully  administered  by  the  trustee." 
Accordingly,  the  court  held  that  the  fact  that  injured  indi- 
viduals may  have  private  remedies  for  damages  does  not  ex- 
clude the  state  from  its  remedy  by  mandamus,  and  that  a  peace- 
able strike  of  its  freight  handlers  does  not  exclude  a  railroad 
company  from  operating  its  road  and  carrying  freight.1 

§  456.  The  right  to  enforce  the  application  of  the  corporate 
property  to  the  purposes  of  incorporation  the  state   Through 
clearly  would  not  have  had  but  for  the  acceptance  of   ^f  the^har- 
the  charter  by  the  corporation.     The  state  could  not    teronthe 

1A  peculiarity  of  the  rights  ac- 
quired by  the  state  through  the  con- 
tract with  the  corporation  lies  in  the 
fact  that  the  possessor  of  these 
rights,  the  state  itself,  enforces 
them.  They  are,  to  be  sure,  deter- 
mined through  a  judicial  proceed- 
ing, but  it  is  the  power  of  the  state 


that  enforces  judicial  proceedings. 
If  the  state  cannot  enforce  its  own 
laws,  the  assistance  of  the  Federal 
government  may  be  invoked  under 
the  Federal  constitution;  but  such 
necessity  would  occur  only  in  cases 
of  extraordinary  emergency. 

439 


§  456.]       THE   LAW   OF   PRIVATE   CORPORATIONS.  [CHAP.  Vlll. 


part  of  the 
corpora- 
tion, the 

State  ac- 
quires the 
right  to  en- 
force the 
fulfillment 
of  the  cor- 
porate du- 
ties.  Abso- 
lute sov- 
ereignty. 


force  individuals  to  apply  their  property  without 
compensation  to  the  building  of  a  railroad,  because 
such  action  would  be  against  common  right,1  and 
because  the  Federal  constitution  forbids  a  state  to 
take  private  property  without  due  process  of  law.2 
Clearly,  if  the  state  were  absolutely  sovereign,  it 
could  acquire  no  rights  or  further  powers  over  a 
citizen  through  contract,  or  through  the  assumption 


1  "It  may  well  be  doubted  whether 
the  nature  of  society  and  of  govern- 
ment does  not  prescribe  some  limits 
to  the  legislative  power;  and  if  any 
be  prescribed,  where  are  they  to  be 
found  if  the  property  of  an  individ- 
ual, fairly  and  honestly  acquired, 
may  be  seized  without  compensa- 
tion?" Marshall,  C.  J.,  in  Fletcher 
v.  Peck,  6  Cranch,  135.  "We  enter- 
tain an  high  opinion  of  the  legisla- 
tive authority;  but  we  have  never 
dreamt  that  Parliaments  had  any 
right  to  violate  property."  Burke, 
French  Revolution.  And  Bracton 
said  centuries  before,  "  Oinnis  nova 
constitutio  futuris  formam  imponere 
debeat  et  non  prseteritis."  De  Leg., 
4  fol.  228a. 

"  And  it  appears  on  our  own 
books,"  says  Coke,  "that  in  many 
cases  the  common  law  will  controul 
acts  of  Parliament,  and  sometimes 
adjudge  them  to  be  utterly  void  ; 
for  when  an  act  of  Parliament  is 
against  common  right  and  reason, 
or  repugnant  or  impossible  to  be 
performed,  the  common  law  will 
controul  it,  and  adjudge  such  act  to 
be  void."  Bonham's  Case,  8  Rep. 
118a,  in  which  case  instances  are 
cited  where  statutes  were  declared 
null  by  courts.  See  also  Calvin's 
Case,  7  Rep.  14  a. 

"  And  what  my  Lord  Coke  says  in 
Dr.  Bonham's  Case  in  his  8  Co.  is  far 
from  an  extravagancy,  for  it  is  a  very 
reasonable  and  true  saying  that  if  an 

440 


act  of  Parliament  should  ordain  that 
the  same  person  should  be  party  and 
judge,  or,  which  is  the  same  thing, 
judge  in  his  own  case,  it  would  be  a 
void  act  of  Parliament."  Holt,  C.  J., 
in  City  of  London  v.  Wood,  12  Mod. 
669,  687. 

"Even  an  act  of  Parliament  made 
against  natural  equity,  as  to  make  a 
man  a  judge  in  his  own  case,  is  void 
in  itself,  for  jura  naturalia  sunt  im- 
mobilia,  and  they  are  leges  legum." 
Day  v.  Savage,  Hobart,  87. 

In  the  American  system  of  gov- 
ernment there  exists  no  absolute 
power.  "The  theory  of  our  gov- 
ernments, state  and  national,  is  op- 
posed to  the  deposit  of  unlimited 
power  anywhere.  The  executive, 
the  legislative,  and  the  judicial 
branches  of  these  governments  are 
all  of  denned  and  limited  powers. 
There  are  limitations  on  such  power 
which  grow  out  of  the  essential  na- 
ture of  all  free  governments.  Im- 
plied reservations  of  individual 
rights,  without  which  the  social 
compact  could  not  exist,  and  which 
are  respected  by  all  governments 
entitled  to  the  name."  Loan  Asso- 
ciation v.  Topeka,  20  Wall.  655;  ace. 
Parkersburg  i\  Brown,  106  U.  S. 
487.  Compare  License  Cases,  5  How. 
588;  Ablemanw.  Booth,  21  How.  516; 
Tarble's  Case,  13  Wall.  406;  United 
States  v.  Cruikshank,  92  U.  S.  542. 

2  Amendment  XIV. 


CHAP.  Vni.]  CORPORATION  AND  STATE. 


[§  456. 


of  a  duty,  or  the  waiver  of  constitutional  right  on  his  part,  for 
the  state  would,  in  such  case,  already  have  power  to  do  what- 
ever any  citizen  could  agree  that  it  should  do.1  But  in  truth, 
in  no  Anglo-Saxon  community  has  there  ever  existed  absolute 
sovereignty,2  any  power  so  supreme  or  absolute  that  it  could  do 
anything  not  in  itself  impossible.  Although  it  may  be  hard  to 
conceive  any  body  politic  wherein  there  is  not  some  force  supe- 
rior to  all  other  forces,  the  fact,  nevertheless,  remains  that 
there  is  no  unqualified  supreme  power  in  any  state.3  And  by 
this  proposition  no  mere  truism  is  meant,  that  there  is  no  power 
in  a  state  that  can  make  two  and  two  equal  to  five.  The  prop- 
osition means  that  there  never  exists  unqualified  political  su- 
premacy. The  sum  total  of  the  physical  force  of  a  nation 
exists  in  the  people  thereof.  But  this  sum  total  of  physical 
force  is  far  from  constituting  any  unqualified  political  suprem- 
acy, because  it  is  incapable  of  unqualified  organization  ;  in- 
capable through  its  humanity,  of  unconditional  subjection  to 
any  will.  And  as  no  man  ever  absolutely  subjects  himself  to 
the  common  will,  there  can  be  no  unqualified  common  will. 
Accordingly,  it  is  impossible  for  any  state  to  do  all  that  a 
single  being  could,  who  possessed  in  himself  the  entire  physical 
force  of  the  members  of  the  state.  Never  did  there  exist  any 
political  sovereignty  so  absolute  that  it  might  not  wreck  itself 
in  attempting  what  it  could  not  do. 

There  are  certain  things  which  men  of  any  given  race  will 
not  submit  to,  things  which  shock  general  notions  of  right 
and  wrong,  of  justice  and  injustice,  expediency  and  inexpedi- 
ency, however  one  may  phrase  it ;  and  the  result  of  action  by 
government  in  disregard  of  these  notions  is  revolution  ; 4  though 


1  See  Austin,  Province  of  Juris- 
prudence.    Lecture  VI. 

2  If  the  learned  reader  will  appre- 
ciate the  truth  of  this  remark,  let 
him  peruse  Stubb's  Constitutional 
History  of  England,  in  which  he  will 
find  the  growth  of  English  govern- 
ment traced  by  a  master's  hand. 
From  that  work  may  he  learn  how 
hardly  a  government  acquires 
powers.  Indeed  the  history  of  the 
English  constitution,  as  well  as  the 


history  of  the  development  of  our 
own  system  of  government,  exem- 
plifies the  fact  that  the  early  factor 
in  the  development  of  political  power 
is  the  necessity  of  becoming  a  com- 
munity, and  that  the  later  factor  in 
the  same  development,  is  the  neces- 
sity of  becoming  a  nation. 

3  The  term  "state"  is  not  used 
here  as  meaning  one  of  the  United 
States. 

4  Witness  our  own  Revolution. 

441 


§  457.]       THE    LAW    OF   PRIVATE   CORPORATIONS.    [CHAP.  VIII. 

government  will  rarely  act  in  disregard  of  them,  as  it  is  itself 
part  of  the  people  to  whom  these  notions  are  common.  As 
said  in  the  citation  in  the  note,  an  act  of  Parliament  against 
common  equity  is  void,  and  these  general  notions  of  common 
equity  and  common  right  may  well  be  called  the  leges  legion.1 

"  I  must  beg  leave  to  observe,"  says  Burke,  "  that  it  is  not 
only  the  invidious  branch  of  taxation  that  will  be  resisted,  but 
that  no  other  given  part  of  legislative  rights  can  be  exercised 
without  regard  to  the  general  opinion  of  those  who  are  to  be 
governed.  That  general  opinion  is  the  vehicle  and  organ  of 
legislative  omnipotence.  Without  this,  it  may  be  a  theory  to 
entertain  the  mind,  but  it  is  nothing  in  the  direction  of  affairs. 
The  completeness  of  the  legislative  authority  of  Parliament 
over  this  kingdom  is  not  questioned ;  and  yet  many  things  in- 
dubitably included  in  the  abstract  idea  of  that  power,  and 
which  carry  no  absolute  injustice  in  themselves,  yet  being  con- 
trary to  the  opinions  and  feelings  of  the  people,  can  as  little  be 
exercised  as  if  Parliament  in  that  case  had  been  possessed  of 
no  right  at  all.  I  see  no  abstract  reason  that  can  be  given, 
why  the  same  power  which  made  and  repealed  the  High  Com- 
mission Court  and  the  Star  Chamber,  might  not  revive  them 
again  ;  and  these  courts,  warned  by  their  former  fate,  might 
possibly  exercise  their  powers  with  some  degree  of  justice. 
But  the  madness  would  be  as  unquestionable  as  the  competence 

of  that  Parliament  which  should  attempt  such  things 

In  effect  to  follow,  not  to  force  public  inclination;  to  give  a 
direction,  a  form,  a  technical  dress,  and  a  specific  sanction  to 
the  general  sense  of  the  community  is  the  true  end  of  legisla- 
tion."2 

§  457.  The  state  may  also  restrain  the  improper  or  illegal 
Right  of  exercise  of  corporate  powers;3  and  when  a  corpora- 
te state  to    tjon  fajjg  £0  perform  duties  which  it   was  incorpo- 

restrain  an  r  " 

abuse  of        rated   to   perform,  and  in   which    the   public  have 

corporate  .  ..  .......  , 

powers.         an    interest,  or   does   acts   which   it  is  not   author- 
or  eiture.    ^^  or  jg  forDjc]cien  ^Q  c|0)  £ne  state  may  forfeit  its 

franchises  and  dissolve  the  corporation  by  a  proceeding  or  in- 


1  Day  v.  Savage,  Hobart,  87.     See 
former  notes  to  this  section. 

2  Letter  to  the  Sheriffs  of  Bristol 
on  the  affairs  of  America  (1777). 

442 


8  For  a  discussion  of  authorities 
upon  the  right  of  the  state  to  restrain 
ultra  vires  acts  by  injunction,  see 
Trust  Co.  v.    Georgia,  109  Ga.   736. 


chap,  vm.] 


CORPORATION  AND  STATE. 


[§  458. 


formation,  in  the  nature  of  a  quo  warranto, '  for  a  grant  of 
corporate  franchises  is  always  subject  to  the  implied  condition 
that  they  will  not  be  abused.2  The  proper  officer  to  tile  the 
information  or  make  application  for  the  writ  is  the  attorney- 
general.  In  New  York,  for  instance,  the  attorney-general 
may  maintain  an  action  upon  his  own  information,  or  upon 
the  complaint  or  relation  of  a  private  person,  against  one  or 
more  persons  who  act  as  a  corporation  within  the  state  without 
being  duly  incorporated ;  or  who  exercise  within  the  state 
any  corporate  rights,  privileges,  or  franchises  not  granted  to 
them  by  the  law  of  the  state.3 

§  458.  It  is  a  rule  generally  recognized,  that  a  legislature 
cannot  itself  declare  a  forfeiture  of  the  franchises  of 
a  corporation ;  for  a  forfeiture  should  be  enforced   decree 
through  some   judicial  proceeding.4     But,  where  it  nec(>ssary- 


The  attorney-general  may  maintain 
an  information  in  equity  to  restrain 
a  corporation  possessing  the  right  of 
eminent  domain  from  any  abuse  or 
perversion  of  its  powers  that  might 
create  a  public  nuisance  or  endanger 
public  interests.  Attorney-General 
v.  Jamaica  Pond  Aqueduct,  133  Mass. 
361.  By  their  attorney-general  the 
people  may  enjoin  an  attempted  il- 
legal consolidation.  People  v.  Bos- 
ton, etc..  Ry.  Co.,  12  Abb.  N.  C.  (N. 
Y. )  230.  The  jurisdiction,  however, 
of  a  court  of  equity  is  questionable, 
in  the  absence  of  special  statutory 
enablement.  See  Pixley  v.  Roanoke 
Nav.  Co.,  75  Va.  320  ;  Attorney-Gen- 
eral v.  Utica  Ins.  Co.,  2  Johns.  Ch. 
(N.  Y.)371. 

1  People  v.  Utica  Insurance  Co., 
15  Johns.  358  ;  People  v.  Pittsburgh 
R.  R.  Co.,  53  Cal.  694  ;  Golden  Rule 
v.  People,  118  111.  492.  "In  its  rela- 
tions to  the  government,  and  when 
the  acts  or  neglects  of  a  corporation, 
in  violation  of  its  charter  or  the  gen- 
eral law,  become  the  subject  of  pub- 
lic inquiry  with  a  view  to  a  forfeiture 
of  its   charter,   the  wilful  acts  and 


neglects  of  its  officers  are  regarded 
as  the  acts  and  neglects  of  the  corpo- 
ration, and  render  the  corporation 
liable  to  a  judgment  or  decree  of 
dissolution."  Angell  and  Ames  on 
Corp.,  §  310  ;  see  Bank  Commis- 
sioners v.  Bank  of  Buffalo,  6  Paige, 
497  ;  Ward  v.  Sea  Insurance  Co.,  7 
Paige,  294  ;  Bank  Commissioners  v. 
James  Bank,  9  Paige,  457. 

"  To  a  writ  of  quo  warranto,  or  an 
information  in  the  nature  of  one,  the 
defendant  must  either  disclaim  or 
justify,  and  the  state  is  bound  to 
show  nothing."  Angell  and  Ames 
on  Corp.,  §  756  ;  State  v.  Vanderbilt, 
37  O.  St.  591. 

2  Chicago  Life  Ins.  Co.  v.  Needles, 
113  U.  S.  574.  Compare  Cbincle- 
clamouche  Lumber  Co.  v.  Common- 
wealth, 100  Pa.  St.  438. 

3  Code  of  Civil  Procedure,  §  1948. 
It  is  competent  for  the  legislature  to 
confer  on  private  parties  the  right  to 
institute  proceedings  to  forfeit  a 
charter.  Stater.  Consolidation  Coal 
Co.,  46  Md.  1. 

4  Bruffett  v.  Great  Western  R.  R. 
Co.,  25  111.  353;  and  a  court  of  law 

443 


§  459.]         THE  LAW  OF  PRIVATE  CORPORATIONS.    [CHAP.  VIII. 


is  expressly  provided  in  the  charter  of  the  corporation  that  un- 
less certain  things  are  done  by  the  corporation  within  a  certain 
time,  the  franchises  of  the  corporation  shall  cease  and  become 
forfeited,  it  has  been  held  that  the  legislature  may  declare  its 
franchises  forfeited  on  failure  by  the  corporation  to  perform 
within  the  time  specified,  and  may  grant  them  to  another 
corporation.1  Nevertheless,  in  accordance  with  the  funda- 
mental principles  of  our  system  of  government,  while  it  is 
the  province  of  the  legislature  to  make  laws,  it  is  the  province 
of  the  courts  to  say  whether  the  laws  have  been  observed  or 
violated ;  and  accordingly  it  would  seem  proper  that  a  judicial 
tribunal  should  determine  whether  or  not  that  condition  of 
fact  exists  which  the  legislature  has  declared  shall  forfeit  the 
franchises  of  a  corporation.2 

§  459.  When  a  corporation  is  found  guilty  of  acts  which  by 
statute  are  declared  to  be  a  cause  of  forfeiture  of  its 
franchises,  a  court  has  no  discretion  to  refuse  judg- 
ment  of   ouster   therefrom;3   but   in   other  cases  a 
court  has  discretion  in  the  matter  to  refuse  a  judgment  of 
ouster  if  in  the  opinion  of  the  court  the  interests  of  the  public 
do  not  call  for  it ; 4  for  it  is  generally  held  that  the  state  or  the 


Grounds  of 
forfeiture. 


is  the  proper  court  to  determine  the 
question  of  the  forfeiture.  Presi- 
dent, Managers,  etc.,  v.  Trenton  City 
Bridge  Co.,  13  N.  J.  Eq.  46;  Attor- 
ney-General v.  Utica  Ins.  Co.,  2 
Johns.  Ch.  (N.  Y.)  371.  In  absence 
of  statute  chancery  has  no  jurisdic- 
tion to  forfeit  the  franchise  of  a 
corporation.  Chicago  Mutual  Life 
Ass'n  v.  Hunt,  127  111.  257. 

1  Oakland  R.  R.  Co.  v.  Oakland, 
etc.,  R.  R.  Co.,  45  Cal.  365.  See  Mat- 
ter of  Brooklyn,  etc.,  R.  R.  Co.,  75 
1ST.  Y.  335;  Brooklyn  Steam  T.  Co. 
v.  Brooklyn,  78  N.  Y.  524;  Farnsworth 
v.  Minnesota,  etc.,  R.  R.  Co.,  92  U. 
S.  49;  Mobile  &  O.  R.  R.  Co.  v.  State, 
29  Ala.  573.  To  make  the  forfeiture 
clause  self-executing,  the  language 
must  be  clear.  New  York  &  L.  I. 
R.  R.  Co.  in  re,  148  N.  Y.  540.  Cf. 
§432. 

444 


2  See  Flint,  etc.,  Pk.  Rd.  Co.  v. 
Woodhull,  25  Mich.  99.  A  charter 
provided  that  unless  a  certain  road 
was  begun  and  completed  within 
specified  periods  "this  corporation 
shall  cease  and  this  act  shall  be  void." 
Held,  this  was  not  intended  to  de- 
clare a  forfeiture  but  a  cause  of  for- 
feiture, and  that  judicial  action  was 
necessary.  Vermont  &  C.  R.  R.  Co. 
v.  Vermont  Central  R.  R.  Co.,  34 
Vt.  2.  See  Day  v.  Ogdensburgh,  etc., 
R.  R.  Co.,  107  N.  Y.  129;  People  v. 
Los  Angeles  Ry.  Co.,  91  Cal.  338; 
Ohio  Nat.  B'k  v.  Construction  Co., 
17  D.  C.  App.  Cas.  524. 

3  State  v.  Building  Association,  35 
O.  St.  258. 

4  State  v.  Bhlg.  Asso.,  35  Ohio  St. 
258;  State  v.  Essex  Bk.,  8  Vt.  489; 
State  v.  Railway  &  B.  Co.,  91  Iowa, 
517.     See  People   u.  North  Chicago 


CHAP.  VIII.] 


CORPORATION  AND  STATE. 


[§  459. 


public  should  have  some  real  interest  in  procuring  a  forfeit- 
ure of  corporate  franchises.1  The  following  have  been  held 
grounds  of  forfeiture :  a  constant  and  wilful  violation  by  a 
bank  of  the  fundamental  articles  of  its  charter,  by  discounting 
paper  at  higher  rates  than  those  prescribed  ;2  that  the  princi- 
pal office  of  the  corporation  and  its  books  and  records  are  kept 
out  of  the  state,  and  that  none  of  its  general  officers  reside 
within  the  state;3  a  sale  by  a  turnpike  company  of  a  portion 
of  its  road,  and  its  neglect  thereafter  to  keep  that  portion  in 
repair ; 4  non-compliance  by  a  turnpike  company  with  the  re- 
quirements of  its  act  in  regard  to  the  construction  of  its  road  ; 5 
an  unauthorized  assumption  by  an  insurance  company  of  bank- 
ing privileges  ; 6  and,  in  general,  any  substantial  non-compliance 
on  the  part  of  a  corporation,  in  respect  of  its  organization,  with 
the  provisions  of  its  enabling  act.7     The  following  have  been 


Ry.  Co.,  88  111.  537;  People  v.  Ulster, 
etc.,  R.  R.  Co.,  128  N.  T.  240. 

1  Harris  b.  Mississippi  Valley,  etc., 
R.  R.  Co.,  51  Miss.  602;  see  King  v. 
Howell,  Hardwicke's  Cases,  235  ; 
Ibbottson's  Case,  ib.  248;  Attorney- 
General  b.  Tudor  Ice  Co.,  104  Mass. 
239;  People  v.  Bogart,  45  Cal.  73; 
Commonwealth  b.  Arrison,  15  S.  &  R. 
127;  Commonwealth  b.  Union  Fire 
and  Marine  Ins.  Co.,  5  Mass.  230; 
State  v.  Minnesota  Thresher  Mfg. 
Co.,  40  Minn.  213.  Compare  State  v. 
Rio  Grande  R.  R.  Co.,  41  Tex.  217. 
As  to  when  a  state  has  such  an  in- 
terest as  will  entitle  it  to  move  in 
the  Federal  courts  against  a  corpo- 
ration, see  State  of  Pennsylvania  v. 
Wheeling,  etc.,  Bridge  Co.,  13  How. 
618.  Compare  People  v.  Atlantic 
Ave.  R.  R.  Co.,  125  N.  Y.  513. 

2  Commonwealth  v.  Commercial 
Bk.,  28  Pa.  St.  383;  see  Commercial 
Bk.  v.  State  of  Mississippi,  14  Miss. 
599. 

8 State  b.  Milwaukee,  etc.,  Ry.  Co., 
45  Wis.  579.  See  Simmons  v.  Steam- 
boat Co.,  113  N.  C.  147. 

*  State  b.  Pawtuxet  Turnpike  Co., 
8  R.  I.  182. 


5  People  b.  Kingston,  etc.,  Turn- 
pike Co.,  23  Wend.  193;  see  People 
b.  Fishkill,  etc.,  Plank  Road  Co.,  27 
Barb.  445. 

6  People  v.  Utica  Ins.  Co.,  15  Johns. 
358. 

7  State  b.  Central  Ohio  Relief  As- 
sociation, 29  Ohio  St.  399;  State  v. 
Vanderbilt,  37  Ohio  St.  591 ;  State  b. 
Hazleton,  etc.,  Ry.  Co.,  40  O.  St.  504; 
State  b.  Capital  City  Dam  Co.,  62 
Oh.  St.  350;  State  b.  Equitable  L.  & 
I.  Co.,  142  Mo.  325;  People  b.  Cheese- 
man,  7  Col.  376;  People  v.  Buffalo 
Stone  Co.,  131  N.  Y.  140.  Where 
the  statute  requires  a  specified 
amount  to  be  subscribed  for  a  rail- 
road company,  the  subscription  must 
be  made  in  good  faith  by  persons 
having  a  reasonable  expectation  of 
being  able  to  pay;  or  the  state  may 
forfeit  the  franchises,  and  is  not  con- 
cluded by  the  articles  of  incorpora- 
tion filed,  showing  that  the  requisite 
amount  has  been  subscribed  for. 
Holman  b.  State,  105  Ind.  569. 

Substantial  compliance  with  con- 
ditions attached  to  a  grant  of  corpo- 
rate franchises  is  all  that  is  neces- 
sary.    Thus,  where  a  corporation  is 

445 


§  460.]       THE    LAW    OF   PRIVATE   CORPORATIONS.   [CHAP.  VHI. 


held  not  to  be  grounds  of  forfeiture  :  insolvency  of  the  corpora- 
tion;1 the  mere  omission  of  a  corporation  to  use  its  powers;2 
that  the  corporation  has  obtained  a  charter  from  another  state.3 
§  460.  Grounds  of  forfeiture  cannot  be  taken  advantage  of 
or  enforced  collaterally  or  incidentally,  or  in  any 
other  mode  than  by  a  direct  proceeding  for  that 
purpose  against  the  corporation.4  And  the  state 
may  waive  a  forfeiture  by  express  legislation  to 
that  effect  or  by  legislation  recognizing  the  exist- 
ence of  the  corporation.5     But  mere  lapse  of  time  is  not  a 


Grounds  of 
forfeiture 
not  to  be 
taken  ad- 
vantage of 
collater- 
ally. 
Waiver. 


required  by  statute  to  have  paid  up 
one-half  its  capital  stock  "  in  lawful 
money  of  the  United  States,"  it  suf- 
fices if  the  corporation  has  received 
as  payment  property  whose  market 
value  exceeds  the  par  value  of  the 
stock.  State  v.  Wood,  8-4  Mo.  378 
(quaere  ?).  See  State  ex  inf.  Crow 
v.  Hogau,  163  Mo.  43. 

1  State  v.  Bailey,  16  Ind.  46;  but 
see  State  v.  Real  Estate  Bank,  5  Ark. 
595;  Commercial  Bank  of  Natchez 
v.  State,  6  Sin.  &  M.  (Miss.)  617; 
but  see  People  v.  Milk  Exchange,  133 
N.  Y.  565. 

2  Attorney-General  v.  Bank  of  Ni- 
agara, Hopkins  Ch.  (N.  Y. )  354; 
see  State  v.  Barron,  58  N.  H.  370; 
People  v.  Dasbaway  Ass'n,  84  Cal. 
114.  Non-user  of  franchises  held  a 
ground  of  forfeiture  in  State  v.  Min- 
nesota Cent.  Ry.  Co.,  36  Minn.  246; 
Edgar  Collegiate  Inst.  v.  People,  142 
111.  363. 

8  Commonwealth  v.  Pittsburgh 
and  Connellsville  R.  R.  Co.,  58  Pa. 
St.  26.  An  unauthorized  consolida- 
tion of  two  turnpike  companies,  en- 
tered into  in  good  faith,  hut  subse- 
quently declared  void,  is  not  a  ground 
of  forfeiture  of  the  original  charters; 
and  the  property  reverts  to  the  two 
original  companies.  State  v.  Craw- 
fordsville  T.  P.  Co.,  102  Ind.  283; 
Crawfordsville,  etc.,  T.  P.  Co.  v. 
State,  ib.  435. 

446 


4 Duke  v.  Cahawba  Navigation  Co., 
16  Ala.  372;  Briggs  v.  Cape  Cod  Ship 
Canal  Co.,  137  Mass.  71;  Pet.  of  P.  & 
M.  R'y  Co.,  187  Pa.  St.  123;  Gas  Co. 
v.  Borough  of  Downington,  193  Pa. 
St.  255;  Olyphant  Sewage  Co.  v.  Oly- 
phant  Borough,  196  Pa.  St.  553;  see 
Cowell  v.  Springs  Co.,  100  U.  S.  55; 
Bacon  v.  Robertson,  18  How.  480; 
Atty.  Gen'l  v.  Am.  Tobacco  Co.,  55 
N.  J.  Eq.  352;  S.  C,  56  N.  J.  Eq.  847; 
Ga.  Nor.  R'y  Co.  v.  Tifton,  T.  &  G. 
R'y  Co.,  109  Ga.  762;  cf.  State  v. 
Spartanburg,  etc.,  R.  R.  Co.,  51  S.  C. 
129;  and  cases  in  the  following  note. 
Except  where  the  act  or  omission 
produces  in  itself  a  forfeiture;  Brook- 
lyn Steam  Transit  Co.  v.  Brooklyn, 
78  N.  Y.  524;  and  indeed  this  last  is 
taking  advantage  of  a  forfeiture,  not 
a  ground  of  forfeiture.  See,  gener- 
ally, §§  145  et  seq. 

&  Davis  v.  Gray,  16  Wall.  203; 
State  v.  Mississippi,  etc.,  R.  R.  Co., 
20  Ark.  495;  People  v.  Manhattan 
Co.,  9  Wend.  351;  In  re  New  York 
Elevated  R.  R.  Co.,  70  N.  Y.  327; 
Central,  etc.,  Road  Co.  v.  People,  5 
Col.  39,  46;  People  v.  Ottawa  Hy- 
draulic Co.,  115  111.  281.  A  statute 
waiving  a  forfeiture  of  corporate 
rights  confers  no  new  rights  upon 
the  corporation,  but  is  simply  a  sur- 
render or  waiver  by  the  sovereign  of 
its  right  to  claim  the  forfeiture.  So 
a  statute  to  extend  the  time  within 


CHAP.  VIII.]  CORPORATION  AND  STATE. 


[§  460. 


bar  to  the  enforcement  of  a  forfeiture  by  the  state.1  "  Duties 
required  by  the  act  of  incorporation  are  in  the  nature  of 
conditions  annexed  to  the  grant  of  the  franchise.     Such  condi- 


which  corporate  rights  may  be  ex- 
ercised, gives  no  new  substantial 
rights.  In  re  New  York  Elevated 
R.  R.  Co.,  supra.  Compare  Matter 
of  Brooklyn  W.,  etc.,  R.  R.  Co.,  75 
N.  Y.  335.  Legislative  waiver  of  a 
forfeiture,  by  acts  of  recognition, 
cures  defects  in  the  original  organ- 
ization of  the  corporation.  Bashor  v. 
Dressel,  34  Md.  503;  Kanawha  Coal 
Co.  v.  Kanawha  and  Ohio  Coal  Co., 

7  Blatchf.  391;  see  also  Attorney- 
General  v.  Petersburg,  etc.,  R.  R.  Co., 
6  Ired.  L.  470;  State  v.  Fourth  N.  H. 
Turnpike,  15  N.  H.  162.  E.  g.,  by 
granting  an  amendment  to  the  char- 
ter. Farnsworth  v.  Lime  Rock  R.  R. 
Co.,  83  Me.  440.  But  the  doctrine  of 
waiver  of  a  forfeiture  does  not  apply 
when  by  the  terms  of  the  charter 
the  franchise  absolutely  determines 
on  failure  to  perform  the  conditions; 
in  such  case  the  corporation  has 
ceased  to  exist.  State  v.  Old  Town 
Bridge  Co.,  85  Me.  17;  State  v. 
Fourth  N.  H.  Turnpike,  15  N.  H. 
162,  166. 

1  People  v.    Pullman  Co.,    175  111. 
125;  State  v.  Pawtuxet  Turnpike  Co.. 

8  R.  I.  521.  These  cases  may  seem 
not  to  accord  with  the  English  cases, 
which  hold  that  informations  in  the 
nature  of  a  quo  warranto  cannot  be 
maintained  against  a  person  who 
has  enjoyed  a  corporate  office  or  the 
privilege  of  being  a  corporator,  for  a 
number  of  years.  The  number  of 
years  was  first  fixed  at  twenty,  and 
subsequently  reduced  to  six.  Win- 
chelsea  Causes,  4  Burr.  1962,  2022, 
2121;  Rex  v.  Dicken,  4  T.  R.  (Durn. 
&  East)  282;  Rex  v.  Peacock,  ib. 
684;  but  Lord  Mansfield,  who  de- 
cided the  Winchelsea  Causes,   inti- 


mated that  this  rule  did  not  apply 
where  the  action  was  brought  by  the 
crown;  as  he  said:  "Indeed  no 
length  of  usurpation  shall  affect  the 
crown.  Nullum  tempus  occurrit  regi 
.  .  .  .  the  crown  may  still  bring  a 
quo  warranto."  Rex  v.  Wardroper, 
4  Burr.  1965. 

In  regard  to  the  questions  under 
discussiun  in  the  last  few  pages,  see 
generally  the  chapters  in  Angell  and 
Ames  on  Corp.  on  "  Mandamus  "  and 
"  Quo  Warranto;  "  see,  also,  State  v. 
Southern  Pacific  R.  R.  Co.,  24  Tex. 
80;  Danville,  etc.,  Plank  Road  Co.  v. 
State,  16  Ind.  456;  State  v.  Council 
Bluffs  Ferry  Co.,  11  Neb.  354;  Peo- 
ple o.  Improvement  Co.,  103  111.  491. 
An  action  in  the  nature  of  a  quo 
warranto  is  in  effect  a  civil  not  a 
criminal  action.  Ames  v.  Kansas, 
111  U.  S.  449.  Quo  warranto  should 
be  brought  in  the  name  of  the  state 
against  the  corporation.  Neither 
stockholders  nor  officers  need  be 
made  parties.  New  Orleans  Deben- 
ture Redemption  Co.  v.  Louisiana, 
180  U.  S.  320.  When  the  suit  is 
brought  for  usurping  powers  not 
granted,  it  should  be  against  the 
corporation  and  not  against  an  offi- 
cer. Smith  v.  The  State,  21  Ark. 
294.  Quo  warranto  will  not  lie 
against  the  members  of  the  corpo- 
ration alone;  the  corporation  must 
be  a  party.  State  v.  Taylor,  25  Ohio 
St.  280;  People  v.  Montecito  Water 
Co.,  97Cal.  276. 

As  to  the  mode  in  which  proceed- 
ings or  informations  in  the  nature  of 
quo  warranto  are  carried  on,  little  of 
general  value  can  be  said  here.  It  is 
a  matter  of  practice,  and  usually  of 
local  or  statutory  practice.     When  a 

447 


§  461.]       THE   LAW   OF   PRIVATE   CORPORATIONS.    [CHAP.  VIII. 


tions  may  be  precedent  or  subsequent,  and  like  other  condi- 
tions may  be  released  by  the  power  granting,  or  a  new  grant 
may  be  made  free  from  any  limitation  or  condition  by  the 
same  power.  In  accordance  with  well-settled  rules,  the  intent 
to  waive  or  release  conditions,  or  to  make  a  new  grant,  must 
be  expressly  declared  or  plainly  to  be  inferred  from  some  act 
of  the  granting  power."  ' 

§  461.  On  the  other  hand,  what  are  the  rights  of  the  cor- 
poration against  the  state,  occasioned  by  the  con- 
tract between  them  ?  In  brief,  that  the  state  shall 
pass  no  law  changing  the  legal  effect  of  acts  in 
respect  of  the  corporate  enterprise ;  i.  e.,  that  the 
state  shall  not  materially  alter  the  constitution  of 
the  corporation  (unless  it  has  reserved  the  right  to 
do  so)  except  in  the  exercise  of  powers  which  the  state  cannot 
alienate  or  restrict  itself  in  the  exercise  of.  To  be  sure,  the 
corporation  may  have  other  rights  against  the  state  occasioned 
by  contract,  if  the  state  makes  any  special  contract  with  it ; 
as  for  instance  that  the  corporate  property  shall  be  taxed  only 
at  a  certain  rate.2     And  this  special  contract  may  be  so  entered 


Rights  of 
the  corpo- 
ration 

against  the 
state  aris- 
ing from 
the  con- 
tract. 


statute  declares  how  corporate  fran- 
chises shall  be  forfeited,  this  super- 
sedes the  common  law  mode.  Green 
v.  St.  Albaus  Trust  Co.,  57  Vt.  340. 
As  to  necessary  averments  in  the 
pleadings,  see  Territory  v.  Virginia 
Road  Co.,  2  Montana,  90;  Chicago 
City  Ry.  Co.  ».  People,  73  111.  541; 
Attorney-General  v.  Chicago,  etc., 
R.  R.  Co.,  112  111.  520.  When  to  a  g?to 
warranto  a  charter  regular  on  its  face 
is  pleaded,  it  is  competent  for  the 
relator  to  show  by  way  of  replication, 
that  the  charter  has  been  forfeited 
by  the  act  of  the  defendant,  or  that 
the  charter  does  not  confer  upon  the 
defendant  the  particular  franchise  in 
dispute.  State  of  Ohio  v.  Pennsyl- 
vania and  Ohio  Canal  Co.,  23  Ohio 
St.  121.  Compare  State  v.  Cincin- 
nati, 2:5  Ohio  St.  445.  In  proceed- 
ings for  dissolution  of  a  railroad 
company  and  the  forfeiture  of  its 
franchises,    one    who    has    taken   a 

448 


lease  of  a  portion  of  its  road  for  the 
term  of  its  corporate  existence, 
should  be  made  a  party  (under  the 
Code  of  Civil  Procedure).  People 
v.  Albany  and  Vermont  R.  R.  Co.,  77 
N.  Y.  232. 

1  State  v.  Godwiusville,  etc.,  Road 
Co.,  44  N.  J.  L.  496,  499,  opinion  of 
Ct.  per  Magie,  J.  As  to  effect  of 
forfeiture  of  franchises,  see  §§  437, 
504. 

2  See  §§  488-491.  So  a  special 
monopoly  may  be  granted  in  such  a 
way  as  to  constitute  a  contract  be- 
tween the  corporation  and  the  state; 
e.  y.,  an  enactment  by  a  state  in 
incorporating  a  company  to  build  a 
toll-bridge,  that  it  should  not  be 
lawful  for  any  person  to  erect  any 
bridge  within  two  miles  of  the  said 
bridge,  is  an  inviolable  contract 
between  the  corporation  and  the 
state;  and  this  though  the  charter 
of  the  corporation  is  without  limit 


CHAP.  VIII.] 


CORPORATION  AND  STATE. 


[§  ^2. 


into  as  to  remain  irrevocable  by  the  state,  although  the  state 
has  reserved  the  general  right  to  alter  and  repeal  the  enabling 
statute  or  charter  of  the  corporation.1  But  ordinarily  the 
only  contract  between  the  state  and  the  corporation  is  the 
implied  one  that  the  state  will  not  alter  the  corporate  consti- 
tution. 

Of  what  law  are  these  rights  a  manifestation  ?  The  consti- 
tution of  the  United  States,  and  especially  its  provisions  that 
no  state  shall  pass  a  law  impairing  the  obligation  of  contracts, 
nor  shall  deprive  any  one  of  his  property  without  due  process 
of  law.  Accordingly,  the  power  sanctioning  the  rights  of  the 
corporation  against  the  state  differs  from  that  whereby  the 
rights  of  the  state  against  the  corporation  are  enforced.2 

§  462.     In  what  manner  are  the  rights  of  the  corporation 
against   the  state  enforced?     Here  a  peculiarity  in 
this  contract  is  encountered ;  for  these  rights  often    ^rceabie. 
can  be  enforced  only  negatively  as  it  were ;  and  this 
on  account  of  the  inability  of  private  individuals  or  incorpo- 
rated bodies  to  sue  a  state  or  enforce  a  judgment  against  it.3 


as  to  duration.  The  Binghamton 
Bridge,  3  Wall.  51;  Bridge  Com- 
pany v.  Hoboken  Land  and  Improve- 
ment Co.,  13  N.  J.  Eq.  81,  affirmed 
under  the  name  of  Bridge  Proprie- 
tors v.  Hoboken  Co.,  1  Wall.  116. 
Compare,  however,  as  to  granting  a 
special  privilege  to  a  corporation, 
Gordon  v.  Winchester  Building 
Ass'n,  12  Bush  (Ky.),  110. 

1  See  New  Jersey  v.  Yard,  95  U. 
S.  104;  and  compare  University  v. 
People,  99  U.  S.  309;  Citizens  Sav. 
Bank  v.  Oweusboro,  173  U.  S.  63(5; 
Hancock,  Comptroller,  v.  Singer 
M'f'g  Co.,  62  N.  J.  L.  289. 

2  These  two  powers  differ  at  least 
in  their  immediate  source,  the  one 
being  the  power  of  the  state,  the 
other  the  power  of  the  United 
States.  But  ultimately  these  two 
powers  may  become  united;  for,  if 
the  power  of  a  state  is  insufficient, 
it  will  be  supported  by  that  of  the 
United  States;  and  the  power  of  the 

29 


United  States  is  but  the  power  of 
the  people  of  all  the  states.  The 
states  are  part  and  parcel  of  a  nation, 
of  which  the  Federal  government 
exercises  some  of  the  powers.  Com- 
pare License  Cases,  5  How.  588; 
Ableman  v.  Booth,  21  How.  516; 
Tarble's  Case,  13  Wall.  406;  United 
States  i'.  Cruikshank,  92  U.  S.  542. 

3  Where  a  state  provides  for  a  suit 
against  itself  in  its  own  courts,  a 
subsequent  statute  nullifying  such 
provision  cannot  impair  the  obliga- 
tion of  a  contract,  because  there 
never  was  any  power  to  enforce 
such  suit  in  the  court,  and  so  the 
provision  was  no  remedy  in  the  legal 
sense  of  the  term.  Railroad  Co.  v. 
Tennessee,  101  U.  S.  337  ;  Railroad 
Co.  v.  Alabama,  101  U.  S.  832;  see 
Beers  v.  Arkansas,  20  How.  527. 
And  one  state  cannot  sue  another 
state  in  the  United  States  Supreme 
Court  when  the  former  is  merely  the 
assignee,  for  the  purposes  of   bring- 

449 


§  4G2.]       THE    LAW    OF    PRIVATE   CORPORATIONS.    [CHAP.  VHI. 

Accordingly,  the  corporation  can  defend  its  rights,  not  through 
a  suit  brought  directly  against  the  state,  but  by  an  action 
against  any  one  acting,  pursuant  to  the  unconstitutional  state 
law,  in  violation  of  the  rights  of  the  corporation.  To  such  a 
person,  whether  acting  as  agent  of  the  state,  or  as  a  private  in- 
dividual, the  unconstitutional  state  law,  being  void,  will  be  no 
protection.  And  a  state  officer  may  be  enjoined  from  execut- 
ing a  state  law  in  conflict  with  the  constitution  or  laws  of  the 
United  States.1 

A  late  decision  in  regard  to  the  right  of  an  individual  to  sue 
the  officers  and  agents  of  the  Federal  government,  is  United 
States  v.  Lee.2  There  the  defendants,  making  no  claim  as  in- 
dividuals, held  as  agents  for  the  Federal  government  by  a  title 
arising  from  a  defective  tax  sale,  lands  which  the  government 
had  converted  into  a  national  cemetery.  The  defendants  as- 
serted, and  it  was  asserted  by  the  attorney -general  on  behalf 
of  the  United  States,  that,  though  it  had  been  ascertained  by 
a  verdict  of  a  jury,  in  which  was  no  error,  that  the  plaintiff 
had  the  title  to  the  land  in  controversy,  and  that  what  was  set 
up  on  behalf  of  the  United  States  was  no  title  at  all,  the  court 
could  render  no  judgment  in  favor  of  the  plaintiff  against  the 


ing  suit,  of  debts  owing  by  the  latter 
state  to  citizens  of  the  former  state. 
New  Hampshire  v.  Louisiana,  108  U. 
S.  76. 

A  state,  without  its  consent,  can- 
not be  sued  by  an  individual;  and  a 
court  may  not  substitute  its  own 
discretion  for  that  of  executive  offi- 
cers in  matters  belonging  to  the 
proper  jurisdiction  of  the  latter. 
But  when  a  plain  official  duty,  re- 
quiring no  exercise  of  discretion,  is 
to  be  performed,  and  performance 
is  refused,  any  person  who  will  sus- 
tain personal  injury  by  such  refusal 
may  have  a  mandamus  to  compel  its 
performance;  and  when  such  duty 
is  threatened  to  be  violated  by  some 
positive  official  act,  any  person  who 
will  sustain  personal  injury  thereby, 
for  which  adequate  compensation 
cannot  be  had  at  law,  may  have  an 

450 


injunction  to  prevent  it.  Board  of 
Liquidation  v.  McComb,  92  U.  S.  531; 
compare  Louisiana  v.  Jumel,  107  U. 
S.  711,  infra. 

A  state  waives  its  immunity  from 
suit  by  appearing  and  intervening  as 
a  party  defendant  in  a  suit  brought 
in  a  Federal  court.  Clark  v.  Barnard, 
108  U.  S.  436. 

1  Davis  v.  Gray,  16  Wall.  203.  In 
this  case  the  receiver  of  a  railroad 
company  restrained  by  injunction 
the  governor  and  certain  other  offi- 
cers of  the  state  of  Texas  from  issu- 
ing patents  for  lands  which  had 
been  granted  to  the  company.  Da- 
vis v.  Gray  was  questioned  in  Cun- 
ningham v.  Macon  and  Brunswick 
R.  R  Co.,  109  U.  S.  440. 

2  106  U.  S.  196.  See,  also,  In  re 
Ayers,  123  U.  S.  443. 


CHAP.  VIII.]  CORPORATION  AND  STATE.  [§  462. 

defendants  in  the  action,  because  the  latter  held  the  property 
as  officers  and  agents  of  the  United  States,  and  the  property 
was  appropriated  to  lawful  public  uses. 

This  proposition,  say  the  majority  of  the  court  through  Jus- 
tice Miller,  rests  on  the  principle  that  the  United  States  can- 
not be  lawfully  sued  without  its  consent  in  an}'  case,  and  that 
no  action  can  be  maintained  against  any  individual  without 
such  consent,  where  the  judgment  must  depend  on  the  right  of 
the  United  States  to  property  held  by  such  persons  as  officers 
or  agents  for  the  government.  "  The  first  branch  of  this  prop- 
osition is  conceded  to  be  the  established  law  of  this  country 
and  of  this  court  at  the  present  day  ;  the  second,  as  a  necessary 
or  proper  deduction  from  the  first,  is  denied." 1  "  The  doctrine 
[that  the  United  States  or  a  state  cannot  be  sued]  if  not  ab- 
solutely limited  to  cases  in  which  the  United  States  are  made 
defendants  by  name,  is  not  permitted  to  interfere  with  the 
judicial  enforcement  of  the  established  rights  of  plaintiffs  when 
the  United  States  is  not  a  necessary  party  to  the  suit." 2  When 
a  citizen  in  a  court  "  of  competent  jurisdiction  has  established 
his  right  to  property,  there  is  no  reason  why  deference  to  any 
person,  natural  or  artifical,  not  even  the  United  States,  should 
prevent  him  from  using  the  means  which  the  law  gives  him  for 
the  protection  and  enforcement  of  that  right."  3  Then  Justice 
Miller,  after  examining  numerous  cases,  continues :  "  This  ex- 
amination of  the  cases  in  this  court  establishes  clearly  this  result, 
that  the  proposition  that  when  an  individual  is  sued  in  regard 
to  property  which  he  holds  as  an  officer  or  agent  of  the  United 
States,  his  possession  cannot  be  disturbed  when  that  fact  is 
brought  to  the  attention  of  the  court,  has  been  overruled  and 
denied  in  every  case  where  it  has  been  necessary  to  decide  it." 4 
And  the  court  added,  that  it  made  no  difference  that  the  prop- 
erty was  devoted  to  a  public  use ;  as,  indeed,  such  an  objection 
would  be  repugnant  to  the  fifth  amendment  to  the  Constitu- 
tion, that  no  person  shall  be  deprived  of  property  without  due 
process  of  law  and  just  compensation.  "Courts  of  justice  are 
established,  not  only  to  decide  upon  the  controverted  rights  of 


1 106  u.  S.  204. 
2 106  U.  S.  207. 
8  106  U.  S.  208. 


4  106  U.  S.  215.     See  also  Tindal  v. 
Wesley,  167  U.  S.  204. 

451 


§  462.]      THE   LAW   OF   PRIVATE   CORPORATIONS.   [CHAP.  VIII. 

the  citizens  as  against  each  other,  but  also  upon  rights  in  con- 
troversy between  them  and  the  government." ' 

Justice  Gray  (with  whom  concurred  Justices  Waite,  Brad- 
ley, and  Woods)  dissented,  saying :  "  The  sovereign  is  not  lia- 
ble to  be  sued  in  any  judicial  tribunal  without  its  consent.  The 
sovereign  cannot  hold  property  except  by  agents.  To  main- 
tain an  action  for  the  recovery  of  the  possession  of  property 
held  by  the  sovereign  through  its  agents,  not  claiming  any 
right  or  title  in  themselves,  but  only  as  the  representatives  of 
the  sovereign  and  in  its  behalf,  is  to  maintain  an  action  to  re- 
cover possession  of  the  property  against  the  sovereign ;  and  to 
invade  such  possession  of  the  agents,  by  execution  or  other 
judicial  process,  is  to  invade  the  possession  of  the  sovereign, 
and  to  disregard  the  fundamental  maxim  that  the  sovereign 
cannot  be  sued."  2  "  The  view  in  which  this  court  appears  con- 
stantly to  have  acted,  which  reconciles  all  its  decisions,  and  is 
in  accordance  with  the  English  authorities,  is  this :  the  objec- 
tion to  the  exercise  of  jurisdiction  over  the  sovereign  or  his 
property,  in  an  action  in  which  he  is  not  a  party  to  the  record, 
is  in  the  nature  of  a  personal  objection,  which,  if  not  suggested 
by  the  sovereign,  may  be  presumed  not  to  be  intended  to  be 
insisted  upon.  ...  If  property  is  in  the  possession  of  the 
defendants  and  not  of  the  sovereign,  an  informal  suggestion 
that  it  belongs  to  the  sovereign  will  not  defeat  the  action. 
But  if  the  sovereign  in  proper  form,  and  by  sufficient  proof, 
makes  known  to  the  court  that  he  insists  upon  his  exemption 
from  suit,  and  that  the  property  sued  for  is  held  by  the  nom- 
inal defendants  exclusively  for  him  and  in  his  behalf  as  public 
property,  the  right  of  the  plaintiff  to  prosecute  the  suit,  and 
the  authority  of  the  court  to  exercise  jurisdiction  over  it  cease, 
and  all  further  proceedings  must  be  stayed."3  The  reasoning 
in  this  case  applies  to  suits  brought  against  state  officers. 

In  a  still  later  case,  however,  the  Supreme  Court  held  that 
the  creditors  of  a  state,  although  their  rights  against  it  were 
secured  by  a  clear  contract,  could  not  compel  state  officers  to 
carry  out  the  provisions  of  a  statute,  securing  the  rights  of 
creditors,  when  the  state,  by  an  amendment  to  its  constitution, 

1 106  U.  S.  220.  3  106  U.  S.  249. 

2  106  U.  S.  226. 

452 


CHAP.  VIII.] 


CORPORATION  AND  STATE. 


[§  464. 


had  undertaken  to  prohibit  its  officers  from  acting  under  the 
statute,  and  when  the  court,  if  it  required  the  officer  to  pro- 
ceed, could  not  protect  him  with  a  judgment  to  which  the  state 
was  a  party.1  "  The  court,  when  a  state  cannot  be  sued,  can- 
not set  up  its  jurisdiction  over  the  officers  in  charge  of  the  pub- 
lic moneys,  so  as  to  control  them,  as  against  the  political  power, 
in  their  administration  of  the  finances  of  the  state."2  This 
decision  pointed  towards  the  proposition  which  the  Supreme 
Court  has  finally  declared  ;  that  whenever,  in  order  to  enable 
a  court  to  grant  the  relief  sought,  it  appears  that  a  state  is  an 
indispensable  party  to  the  suit,  the  court  has  no  jurisdiction.3 

§  463.  Here  must  be  noticed  further  and  important  limita- 
tions on  the  rights,  which  a  corporation  can  acquire   , .   .     . 

.  -ii  •  •  Limitations 

through  its  contract  with  the  state,  arising  from  lim-   on  the 
itations  on  the  powers  of  the  state  legislatures.     For   acquirable 
the  purposes  of  government,  except  as  its  powers  are   corporation 
restricted  by  the  Federal  constitution,  a  state  may,   against  the 
perhaps,  be  regarded  as  sovereign.     Bnt  the  legisla-   through 
ture  of  the  state  is  not  the  state,  and  its  powers  are 
restricted  (a)  by  the  state  constitution,  and  (b)  by  certain  doc- 
trines of  constitutional  law. 

§  464.  If  the  state  constitution  provides  that  the  power  to 
alter,  amend,  and  repeal  shall  always  be  reserved  to 
the  state  in  enabling  statutes  or  in  charters  of  incor- 
poration, the  legislature  cannot  act  in  violation  of 
this  provision;  it  cannot  contract  with  the  corpora- 
tion not  to  change  the  corporate  constitution.4  Such 
a  contract  would  be  void,  for  constitutional  provisions  are  im 
perative.     Likewise,  if  the  state  constitution  provides  that  rail 


Restrictions 
in  state  con- 
stitutions 
on  state 
legisla- 
tures. 


1  Louisiana  v.  Jumel,  107 U.  S.  711, 
distinguishing  United  States  v.  Lee, 
supra.  See  also  In  re  Ayers,  123  U.  S. 
443.  Compare  Board  of  Public  Works 
v.  Gaunt,  76  Va.  455;  U.  S.  Bank  v. 
Planters1  Bk.,  9  Wheat.  904;  Bank  of 
Kentucky  v.  Wister,  2  Pet.  318. 

2  107  U.  S.  728.  See  Belknap  v. 
Schild,  161  U.  S.  10. 

8  Cunningham  v.  Macon,  etc.,  R.  R. 
Company,  109  U.  S.  446;  Stanley  v. 
Schwalby,  147  U.  S.  508.  When  a 
state  begins  suit  against  a  person  or 


corporation,  the  defendant  may  set 
off,  but  cannot  have  judgment  over, 
in  absence  of  a  statute  authorizing 
it.  Commonwealth  v.  Owensboro, 
etc.,  R.  R.  Co.,  81  Ky.  572. 

4  Spring  Valley  Water  Works  v. 
Schottler,  110  U.  S.  347,  355.  When 
a  reservation  to  the  legislature  of 
the  power  to  revoke  charters  (or  re- 
peal enabling  statutes),  is  contained 
in  the  constitution  of  a  state,  a  char- 
ter is  subject  to  this  power,  though 
not  expressly  made  so.     Spring  Val- 

453 


§  465.]       THE    LAW    OF   PRIVATE   CORPORATIONS.     [CHAP.  VIII. 


road  corporations  shall  not  be  created  by  special  charter,  a 
special  charter,  if  granted  by  the  state  legislature,  will  be  void, 
and  the  corporation  will  acquire  no  rights  therefrom.1 

It  was  said  that  the  power  of  the  state  legislature  is  restricted 
by  the  state  constitution.  The  phrase  seems  proper,  for,  un- 
like the  constitution  of  the  United  States,  state  constitutions 
are  restrictive  or  regulative,  rather  than  enabling  in  their  gen- 
eral nature.2  Some  special  power  or  capacity  of  action  may  be 
granted  to  the  legislature  by  the  state  constitution  ;  but  ordi- 
narily legislatures  are  held  to  possess  all  the  powers  of  the  state 
except  as  restricted  by  the  state  constitution  or  by  certain  doc- 
trines of  constitutional  law  which  may  now  be  considered. 
§  465.  There  are  certain  powers  necessary  to  the  welfare, 
if  not  to  the  existence,  of  the  state  as  a  self-govern- 
ing community,  and  to  justify  the  doctrine  that 
these  powers  override  all  private  rights,  one  need 
not  look  beyond  the  maxim,  Salus  populi  suprema 
lex.  The  powers  themselves  fall  under  the  general  heads  of 
eminent  domain  and  what  is  loosely  called  the  "  police  power  " 
of  the  stated  It  is  a  well-known  doctrine  of  constitutional  law 
that  these  powers  cannot  be  granted  away  or  abridged  by  one 
legislature  so  as  in  any  way  to  bind  its  successors  or  even  it- 


Otker  re- 
strictions 
on  legis- 
lative 
powers. 


ley  Water  Works  v.  Schottler,  110 
U.  S.  347,  352 ;  Delaware  R.  R.  Co.  v. 
Tharp,  5  Har.  (Del.)  454;  State  v. 
Person,  32  N.  J.  L.  134;  Griffin  v. 
Kentucky  Ins.  Co.,  3  Bush  (Ky.), 
592;  so  when  the  reservation  is  con- 
tained in  some  statute  of  general  ap- 
plication. State  v.  Commissioner  of 
Railroad  Taxation,  37  N.  J.  L.  228. 

1  See  Ames  v.  Lake  Superior  and 
Mississippi  R.  R.  Co.,  21  Minn.  241. 

2  See  Davis  v.  State,  68  Ala.  58; 
Dorman  v.  State,  34  Ala.  216,  236; 
Lynn  v.  Polk,  21  Am.  Law  Reg.  N. 
S.  321,  326;  People  v.  Draper,  15  N. 
Y.  532;  Thorpe  v.  Rutland  and  Burl- 
ington R.  R.  Co.,  27  Vt.  140;  Sawyer 
v.  City  of  Alton,  4  111.  127;  Winch  v. 
Tobin,  107  111.  212;  Concord  R.  R. 
Co.  v.  Greeley,  17  N.  H.  47;  State  v. 

454 


Nashville  R.  R.  Co.,  12  Lea  (Tenn.), 
583.  Still  the  words  of  Judge  Story 
in  a  dissenting  opinion  are  worthy  of 
attention.  "  But  the  legislature  of 
Massachusetts  is  ....  in  no  just 
sense  the  sovereign  of  the  state. 
The  sovereignty  belongs  to  the  peo- 
ple of  the  state  in  their  original  char- 
acter as  an  independent  community; 
and  the  legislature  possesses  those 
attributes  of  sovereignty,  and  those 
only  which  have  been  delegated  to 
it  by  the  people  of  the  state  under 
its  constitution."  Charles  River 
Bridge  v.  Warren  Bridge,  11  Pet. 
644. 

3  A  discussion  of  the  extent  of 
these  powers  comes  properly  in  a 
subsequent  part  of  this  chapter. 
§§  470  et  seq. 


CHAP.  VIII.] 


CORPORATION  AND  STATE. 


[§  466. 


self.1  Consequently,  the  power  to  alter  the  rights  of  a  corpora- 
tion through  the  exercise  of  the  right  of  eminent  domain  or  the 
police  power,  and  to  take  its  property  for  public  purposes,  can 
never  be  surrendered  by  the  legislature ;  any  law  or  charter 
purporting  to  surrender  it  would  in  that  respect  be  void.  There- 
fore, taking  the  property  of  a  corporation  by  the  exercise  of  the 
power  of  eminent  domain  or  of  the  police  power  can  never  im- 
pair the  obligation  of  a  contract,  as  these  powers  must  in  all 
cases  be  held  to  have  been  reserved  to  the  legislature.2 

§  4:66.  The  legislature  of  the  state,  however,  as  before  re- 
marked, is  not  the  state,  and  although  the  legislature  cannot 
surrender  the  eminent  domain  or  the  police  power  of  the 
state,  it  does  not  follow  that  the  ultimate  power  of  the  state 
cannot  do  so.  This  ultimate  power  exists  in  a  majority  of 
the  people  of  the  state,  and  at  first  sight  it  would  seem  com- 
petent for  them  to  do  any  political  act  which  the  Federal 
constitution  does  not  forbid  the  states  to  do.  Accordingly, 
would  it  not  be  competent  for  the  people  by  direct  vote  to 
surrender  the  right  of  eminent  domain  as  to  the  property  of 
any  given  corporation  ?  If  so,  and  such  corporation  accepted 
a  charter  with  such  provision  in  it,  would  not  that  acceptance 
create  a  contract  the  obligation  of  which  would  be  impaired 
by  the  exercise  as  to  any  property  of  that  corporation  of  the 
power  of  eminent  domain  %  These  are  questions  of  theoreti- 
cal interest  mainly.  No  partial  surrender,  it  is  thought,  of 
its  right  to  exercise  its  eminent  domain  has  ever  been  made 
by  a  state,  and  such  a  surrender  would  never  be  implied. 
"Whether  the  courts  would  hold  such  a  surrender  to  be  a  valid 
contract,  and    as  such   within    the  protection  of   the  Federal 


1  "  When  the  existence  of  a  par- 
ticular power  in  the  government  is 
recognized  on  the  ground  of  neces- 
sity, no  delegation  of  the  legislative 
power  by  the  people  can  be  held  to 
vest  authority  in  the  department 
which  holds  it  in  trust  to  bargain 
away  such  power  or  to  so  tie  up  the 
hands  of  the  government  as  to  pre- 
clude its  repeated  exercise  as  often 
and  under  such  circumstances  as  the 


needs  of  the  government  may  re- 
quire." Cooley,  Cons.  Lim.,  p.  525. 
2  See  Twenty-second  Street,  In  re, 
102  Pa.  St.  10S;  Philadelphia  Pas- 
senger Ry.  Co.'s  Appeal,  102  Pa.  St. 
123.  Chicago,  etc.,  Ry.  Co.  v.  Ne- 
braska, 170  U.  S.  57,  holding  that  an 
ordinance  requiring  the  railroad  to 
repair  a  viaduct  did  not  violate  any 
contract  between  the  state  and  the 
company.  See,  also,  Laclede  Gas 
Light  Co.  v.  Murphy,  170  U.  S.  78. 
455 


§  468.]        THE    LAW    OF    PRIVATE   CORPORATIONS.   [CHAP.  VIII. 

constitution  ;  or  whether  they  would  hold  that,  as  states  are 
integral  parts  of  the  United  States,  the  Federal  constitution 
cannot  sanction  an  act  which  might  tend  towards  the  disinte- 
gration or  extinction  of  one  of  these  integral  parts  remains  an 
open  question. 

§  467.  A  word  may  be  added  here  in  regard  to  corporations 

organized  under  authority  from  Congress.  Al- 
tions°ra"  though  the  constitutional  provision  against  passing 
Congress7     a  ^aw  imPairmg  the  obligation  of  contracts  does  not 

apply  to  Congress,  the  prohibition  against  depriv- 
ing any  one  of  his  property  without  due  process  of  law  and 
just  compensation  does;  and  as  rights  which  have  already 
vested  under  a  contract  are  held  to  be  property,  Congress 
seems  nearly  as  restricted  as  if  the  provision  against  passing 
a  law  impairing  the  obligation  of  contracts  applied  to  it.1  It 
will  be  seen,  however,  that  any  rights  of  a  corporation  against 
the  United  States  would  lack  any  sanction  except  the  comity 
of  the  government,  which,  strictly  speaking,  is  no  sanction.2 
§  468.  Questions  whether  or  not  particular  state    statutes, 

or  particular  acts  done  on  behalf  of  a  state,  impair 
tiono/the  the  obligation  of  any  contract  between  a  state  and 
courts*1        a  corporation,  come  up    properly    for  discussion  in 

the  following  pages  of  this  chapter,  in  connection 
with  the  topics  of  eminent  domain,  police  power,  taxation^ 
and  the  right  which  a  state  may  reserve  to  alter  and  amend 
the  constitution  of  a  corporation.  Questions  of  this  character 
are  often  decided  in  the  Federal  courts  ;  and  as  the  final  deci- 
sion, whether  the  obligation  of  a  contract  is  impaired  by  a  state 
law,  rests  with  the  Supreme  Court  of  the  United  States,3  the 
utterances  of  that  court  are  of  universal  authority. 


1  County  of  Cass  v.  Morrison,  28 
Minn.  257;  see  Chicago,  etc.,  R'y  Co. 
v.  United  States,  104  U.  S.  680;  and, 
for  the  construction  of  a  contract 
between  the  United  States  and  a  cor- 
poration, see  Lake  Superior  and 
Mississippi  R.  R.  Co.  v.  U.  S.,  93  U. 
S.  442. 

2  Compare  generally  United  States 
v.  Lee,  106  U.  S.  196,  and  Louisiana 
d.  Jumel,  107  U.  S.  711. 

456 


8  Where  a  party  to  a  suit  sets  up 
that  under  one  statute  a  state  made 
a  contract  with  him,  and  that  by  a 
subsequent  statute  it  violated  the 
contract,  and  the  highest  court  of 
law  or  equity  of  the  state  has  held 
the  subsequent  act  to  be  a  valid  act, 
and  decreed  accordingly,  the  Su- 
preme Court  of  the  United  States 
has  jurisdiction  under  sec.  25  of  the 
Judiciary    Act.      The     Binghamton 


CHAP.  Vin.]  CORPORATION  AND  STATE. 


[§  469. 


Iu  construing  the  statutes  of  a  state,  the  Federal  Supreme 
Court  will  follow  as  far  as  may  be  the  courts  of  the  state 
whose  statute  it  is  construing ; J  but  when  the  highest  court 
of  a  state  has  held  repeatedly  that  certain  state  statutes  are 
valid,  and  when  rights  have  vested  under  them,  the  Federal 
Supreme  Court  will  not  follow  in  construing  such  statutes 
any  oscillations  of  the  state  court ;  at  least  when  the  Supreme 
Court  is  deciding  upon  the  legal  effect  of  transactions  taking 
place  before  the  change  in  state  judicial  opinion  had  tran- 
spired.2 

§  469.  We  now  come  to  the  relations  between  the  state  and 
the  corporation  other  than  the  legal  relations  occa- 
sioned by  the  contract  between  them ;  to  relations,   between 
that  is,  existing  between  the  lawgiver  as  such  and   andthecor- 
citizens.     Reverting  for  an  instant   to    the  distinc-   P°ratlon 

o  other  than 

tion  before  mentioned  between  the  state  considered   legal  reia- 

•  •   •  <■  tions  occa- 

as  the  ultimate  political  power  thereof  and  the  state   sioned  by 

legislature,  it  may  be  added  that,  though  the  powers 

of  the  legislature  are  more  restricted  than  those  of  the  state, 


Bridge,  3  Wall.  51.  And  when  a 
state  statute  creates  a  contract,  and 
a  subsequent  statute  is  alleged  to 
impair  the  obligation  of  that  con- 
tract, and  the  highest  court  of  law 
or  equity  in  the  state  construes  the 
first  statute  in  such  a  manner  that 
the  second  statute  does  not  impair 
the  contract,  whereby  the  second 
statute  remains  valid  under  the 
United  States  constitution,  the  Fed- 
eral Supreme  Court  may  pass  on  the 
decision.  Bridge  Proprietors  v.  Ho- 
boken  Co.,  1  Wall.  116.  The  Fed- 
eral question  relied  on  must  have 
been  raised  on  the  trial  in  the  state 
court.  Susquehanna  Boom  Co.  v. 
West  Branch  Boom  Co.,  110  U.  S. 
57;  Brown  v.  Colorado,  106  U.  S.  95. 
The  question  whether  a  state  may 
tax  the  franchises  of  a  corporation 
derived  from  acts  of  Congress  is  re- 
movable to  the  Federal  courts. 
Southern  Pacific  R.  R.  Co.  v.  Cali- 
fornia, 118  U.  S.  109. 


The  constitution  of  a  state  is  a 
"law"  within  the  meaning  of  the 
clause  in  the  Federal  constitution 
which  forbids  a  state  to  pass  a  law 
impairing  the  obligation  of  contracts. 
Railroad  Co.  v.  McClure,  10  Wall. 
511. 

1  See  Wright  ».  Nagle,  101  U.  S. 
791;  Secombe  v.  Railroad  Co.,  23 
Wall.  108;  but  compare  Burgess  v. 
Seligman,  107  U.  S.  20;  see,  also, 
Beauregard  v.  New  Orleans,  18  How. 
497,  502;  Bank  of  Hamilton  v.  Dud- 
ley's Lessee,  2  Pet.  492,  524;  Elmen- 
dorf  v.  Taylor,  10  Wheat.  152,  159; 
Green  v.  Neal's  Lessee,  6  Pet.  291, 
298.  A  decision  by  a  state  court 
that  a  statute  of  the  state  is  in  ac- 
cordance with  the  state  constitu- 
tion binds  the  Federal  courts.  Rail- 
road Co.  v.  Georgia,  98  U.  S.  359. 

2  Gelpcke  v.  City  of  Dubuque,  1 
Wall.  175  ;  Havemeyer  v.  Iowa 
County,  3  Wall.  294;  see  Olcott  v. 
Supervisors,  16  Wall.    678;  Douglas 

457 


•469a.]      THE   LAW    OF   PRIVATE   CORPORATIONS.   [CHAP.  VTII. 


still  the  legislature  for  ordinary  purposes  may  be  regarded  as 
the  state  itself;  and  for  the  purposes  of  the  following  discus- 
sion, except  as  restrained  by  the  state  and  Federal  constitu- 
tions, and  by  the  constitutional  doctrines  before  referred  to, 
the  power  of  the  state  legislature  over  corporations  may  be 
regarded  as  unlimited  in  law ;  for  persons  interested  in  a  cor- 
porate enterprise  are,  in  respect  of  the  same,  subject  to  the 
laws  of  the  state  just  as  in  all  other  respects. 

§  409a.  The  political  powers  possessed  by  the  Federal  and 
state  governments  over  corporations  may  be  grouped  under 
the  general  heads  of  police  power,  power  to  tax,  and  eminent 
domain.  These  three  powers  have  their  common  source  in 
the  function  of  government  to  provide  for  the  welfare  of  the 
people.  Their  distinguishing  characteristics  may  be  thus 
stated : 

By  virtue  of  its  police  power  the  state  regulates  the  use  of 
property,  but  takes  nothing. 

By  virtue  of  its  power  to  tax,  the  state,  according  to  a  ratio 
proportioned  as  evenly  and  justly  as  may  be,  takes  property 
for  public  uses  without  making  direct  compensation.1 

By  virtue  of  its  power  of  eminent  domain,  the  state  takes 
the  property  of  individuals  for  a  public  purpose,  making  just 
compensation,  but  without  regard  to  whether  it  takes  more  of 
one  man's  property  than  another's. 

It  is  essential  to  the  existence  of  these  powers  that  they 
should  override  private  rights.  Yet  our  system  of  institutions 
places  limitations  on  them.     These  limitations  are  of  two  dis- 


v.  Pike  County,  101  U.  S.  677.  Com- 
pare Wade  v.  Travis  County,  174  U. 
S.  499.  But  the  Federal  courts  will 
not  follow  a  state  court  in  deciding 
upon  questions  of  general  commer- 
cial law  not  depending  on  local  usage 
or  statutes.  Swift  v.  Tyson,  16  Pet. 
1;  Railroad  Co.  v.  National  Bank, 
102  U.  S.  14;  nor,  of  course,  in  de- 
ciding whether  a  state  statute  con- 
flicts with  the  Federal  constitution. 
Jefferson  Branch  Bank  v.  Skelly,  1 
Black,  436.     See  §  318. 

1  There   would  often  be   manifest 
injustice    in   subjecting    the   whole 

458 


property  of  a  city  or  of  any  district 
to  taxation  for  a  local  improvement. 
The  rule  of  equality  and  uniformity 
prescribed  in  cases  of  taxation  for 
state  and  county  purposes,  does  not 
require  that  all  property  or  all  per- 
sons in  a  county  or  district  should 
be  taxed  for  local  purposes.  He 
who  reaps  the  benefit  should  bear 
the  burden.  Hagar  v.  Reclamation 
District,  111  U.  S.  700,  705;  Louisi- 
ana v.  Pillsbury,  105  U.  S.  278,  295; 
County  of  Mobile  v.  Kimball,  102 
U.  S.  691,  704. 


CHAP.  VIII.]  CORPORATION  AND  STATE. 


[§  46%. 


tinct  classes,  between  which  the  division  is  fundamental.  The 
first  class  springs  from  the  relations  between  the  Federal 
government  and  the  states  ;  the  second  from  the  relations  be- 
tween the  individual  or  corporation  whose  property  is  regu- 
lated or  taken,  and  the  government,  state  or  Federal,  taking 
or  regulating  it.  The  one  class  is  based  on  political  considera- 
tions, the  other  on  requirements  of  justice. 

§  4:69b.  Limitations  of  the  first  class  apply  to  the  exercise 
of  all  three  powers.  Within  the  range  of  its  constitutional 
powers  the  Federal  government  is  superior  to  the  state  gov- 
ernments.1 The  constitution  declares  this  ; 2  and  that  it 
should  be  so  is  essential  to  the  existence  of  the  Federal  gov- 
ernment as  the  government  of  a  nation  of  which  the  states  are 
constituent  parts.  Consequently,  wherever  there  is  concur- 
rent authority  in  the  Federal  and  state  governments,  and  the 
Federal  government  legislates,  state  laws  in  so  far  as  incon- 
sistent must  yield.  Certain  powers  moreover,  conferred  on 
Congress,  are  essentially  exclusive,  even  while  unexercised, 
as  for  instance  the  power  to  regulate  commerce  with  foreign 
nations  and  among  the  states.  Therefore  state  legislation  can 
not  extend  within  their  domain,  and  besides  this,  the  Federal 
constitution  in  close  connection  with  these  exclusive  powers  of 
Congress,  places  certain  express  prohibitions  on  the  states,  for- 
bidding them,  for  instance,  to  lay  imposts  or  duties  on  exports 
and  imports.  Nevertheless,  the  Federal  government,  though 
supreme  within  its  sphere,  possesses  only  such  powers  as  are 
conferred  on  it  by  the  constitution  ;  and  Federal  legislation 
beyond  the  scope  of  these  powers  is  void.3 

The  second  class  of  restrictions  is  summed  up  in  the  two 


1  Gibbons  v.  Ogden,  9  Wheat.  1, 
210;  Tennessee  v.  Davis,  100  U.  S. 
257,263;  Railway  Co.  v.  Hafley,  158 
U.  S.  98.  See  Trans.  Co.  v.  Wheel- 
ing, 99  U.  S.  273,  281. 

2  Art'.  VI.  §  2. 

3  An  act  of  Congress  making  it  a 
misdemeanor  to  mix  for  sale  naphtha 
and  illuminating  oils,  or  to  sell  or 
offer  such  mixture  for  sale,  is  a 
police  regulation,  relating  exclusively 
to  the  internal  trade  of  the  states,  and 


can  only  have  effect  where  the  legis- 
lative authority  of  Congress  excludes 
territorially  all  state  legislation,  as, 
e.  g.,  in  the  District  of  Columbia. 
Within  state  limits  it  can  have  no 
constitutional  operation.  United 
States  v.  Dewitt,  9  Wall.  41.  Prop- 
erty covered  by  letters-patent  is  sub- 
ject to  regulation  by  police  powers 
of  a  state,  like  other  property.  Pat- 
terson v.  Kentucky,  97  U.  S.  501. 

459 


§  470.]       THE    LAW    OF   PRIVATE   CORPORATIONS.    [CHAP.  VIII. 

fundamental  rules  that  no  man's  property  shall  be  taken  with- 
out (1)  due  process  of  law,  and  (2)  just  compensation.  The 
first  is  a  restriction  on  the  power  of  eminent  domain  and  the 
power  to  tax,  the  second  only  on  the  power  of  eminent  domain 
and  on  such  instances  of  the  exercise  of  the  police  power  as 
raise  the  question  whether  property  has  been  taken,  and  not 
merely  regulated.1 

§  470.  By  the  exercise  of  its  power  of  eminent  domain,2  the 
Eminent  state  may  take  the  property  of  corporations  for 
Restrict  public  purposes,  on  making  due  compensation,  just 
tions.  as  the  state  may  take  other  property.3    The   exer- 


1  No  compensation  need  be  made 
when  private  property  is  regulated 
by  the  police  power.  Talbot  v.  Hud- 
son, 10  Gray  (Mass.),  417. 

2  Eminent  domain  (or  the  right 
or  power  of  eminent  domain)  "is 
the  rightful  authority  which  exists 
in  every  sovereignty  to  control  and 
regulate  those  rights  of  a  public  na- 
ture which  pertain  to  its  citizens  in 
common,  and  to  appropriate  and  con- 
trol individual  property  for  the 
public  benefit  as  the  public  safety, 
necessity,  convenience,  or  welfare 
may  demand."  Cooley,  Cons. 
Lim'ns,  524;  People  v.  Humphrey, 
23  Mich.  471.  It  will  be  noticed 
that  the  notion  of  eminent  domain 
given  by  this  definition  resembles  in 
some  respects  notions  of  the  police 
power.  See  infra,  §§  474  et  seq.; 
also  §§  171  et  seq. 

The  power  of  eminent  domain  is 
not  granted  by  the  state  constitution 
to  the  legislature,  but  is  inherent 
in  the  legislature,  limited  only  by 
constitutional  restrictions.  Central 
Branch  U.  P.  R.  R.  Co.  v.  Atchison, 
T.  and  S.  F.  R.  R.  Co.,  28  Kan.  45:5. 
A  state  may  condemn  property  for 
the  use  of  the  United  States.  Orr  v. 
Quimby,  53  N.  H.  590. 

8  A  bridge  held  by  an  incorporated 

460 


company  under  a  charter  from  a 
state  may  be  condemned  and  taken 
as  part  of  a  public  road,  under  the 
laws  of  that  state.  This  charter, 
although  a  contract  between  the 
state  and  the  company,  is,  like  all 
other  private  property,  subject  to 
the  right  of  eminent  domain.  The 
Federal  constitution  does  not  take 
away  this  right,  the  exercise  of  which 
does  not  interfere  with  the  inviola- 
bility of  contracts.  All  property 
and  contracts  are  subject  to  eminent 
domain,  and  property  held  by  an  in- 
corporated company  stands  on  the 
same  footing  with  that  held  by  an 
individual,  and  a  franchise  cannot  be 
distinguished  from  other  property. 
West  River  Bridge  Co.  v.  Dix,  0 
How.  507.  Accord,  Central  Bridge 
Co.  v.  City  of  Lowell,  4  Gray,  474; 
Metropolitan  City  R'y  Co.  v.  Chicago 
West  Div.  R'y  Co.,  87  111.  317;  Sixth 
Avenue  R.  R.  Co.  v.  Kerr,  72  N.  Y. 
330;  Backus  «.  Lebanon,  11  N.  H. 
10;  Philadelphia  Passenger  R'y  Co. 'b 
Appeal,  102  Pa.  St.  123;  Boston  and 
L.  R.  R.  Co.  v.  Salem,  etc.,  R.  R.  Co., 
2  Gray  (Mass.),  1;  compare  Enfield 
Toll  Bridge  Co.  v.  Hartford  and  New 
Haven  R.  R.  Co.,  17  Conn.  453;  S.  C, 
17  Conn.  40;  Pennsylvania  R.  R.  Co.'s 
Appeal,  93  Pa.  St.  150. 


CHAP.  Vni.]  CORPORATION  AND  STATE. 


[§  471. 


cise  of  this  power  either  by  the  United  States 1  or  by  a  state, 
is  subject  to  two  restrictions  contained  in  the  Federal  consti- 
tution (as  well  as  in  state  constitutions) :  (1)  no  person  shall  be 
deprived  of  his  property  without  due  process  of  law ;  (2)  nor 
shall  private  property  be  taken  for  public  use  without  just  com- 
pensation.2 

§471.  The  phrase  "due  process  of  law"  is  one  that  seems 
likely  for  many  years  to  remain  without  adequate    ..Duepro. 
definition.      It  means   the   "law  of  the  land,"    as   cess  of 
those  words  are  used  in  Magna  Carta;3  and,  conse- 
quently, it  means  something  which  is  continuously  undergoing 
modification    and    development.      The    provision    in   Magna 
Carta  is  a  restriction  on  the  power  of  the  Crown  rather  than 
on  that  of  Parliament ;  but  the  provision  in  our  constitution 
that  no  person  shall  be  deprived  of  his  property  without  due 


1  The  United  States,  directly  or 
through  a  railroad  corporation  char- 
tered by  it,  may  in  the  exercise  of 
its  constitutional  powers  take  lands 
by  eminent  domain  in  the  territories 
(even  lands  held  by  Indians)  or  in  a 
state.  Cherokee  Nation  v.  Kansas 
Ry.  Co.,  135  U.  S.  641.  See  Darling- 
ton v.  United  States,  82  Pa.  St.  382. 

2  Am'd't  V.,  which  does  not  apply 
to  the  states;  Withers  v.  Buckley,  20 
How.  84;  and  Am'd't  XIV.,  which 
does  apply  to  the  states.  The  provi- 
sion that  private  property  shall  not 
be  taken  without  just  compensation 
is  not  in  Am'd't  XIV.;  but  is  con- 
tained in  most  of  the  state  constitu- 
tions. And  the  Federal  Supreme 
Court  holds  that  for  a  state  to  take 
private  property  for  a  public  use 
without  compensation  is  "  wanting 
in  the  due  process  of  law  required 
by  the  Fourteenth  Amendment." 
Chicago,  B.  &  Q.  R.  R.  Co.  v.  Chicago, 
166  U.  S.  226,  241.  See  Matter  of 
Tuthill,  36  App.  Div.  (N.  Y.)  492, 
498,  aff'd,  163  N.  Y.  163.  The  state 
cannot  take  private  property  on  pay- 
ment of  less  than  its  value.  Opinion 
of  the  Justices,  66  N.  H.  629. 


That  the  right  of  eminent  domain 
exists  in  the  government  of  the 
United  States,  and  may  be  exercised 
by  it  within  the  states  so  far  as  is 
necessary  to  the  exercise  of  the 
powers  conferred  on  the  Federal 
government  by  the  constitution,  was 
held  in  Kohl  v.  United  States,  91 
U.  S.  367.  The  state  cannot  delegate 
a  right  to  take  property  by  eminent 
domain,  for  a  private  purpose.  §  163, 
ante. 

3  Murray's  Lessee  v.  Hoboken 
Land  Co.,  18  How.  272.  Magna 
Carta  was  granted  or  enacted  by 
John  "per  consilium"  of  his  pri- 
mate, his  barons,  and  the  papal 
legate.  The  thirty-ninth  section, 
which  contains  the  phrase  in  ques- 
tion, runs  thus:  "  Nullus  liber  homo 
capiatur,  vel  imprisonetur,  aut  dis- 
saisiatur,  aut  utlagetur,  aut  exule- 
tur,  aut  aliquomodo  destruatur,  nee 
super  eum  ibimus,  nee  super  eum 
mittimus,  nisi  per  legale  judicium 
parium  suorum  vel  per  legem  ter- 
rae."  Stubb's  Select  Charters,  276- 
291.     See  §  492. 


461 


§  473.]       THE   LAW   OF   PRIVATE   CORPORATIONS.  [CHAP.  VIII. 


process  of  law  is  a  restriction  on  the  power  of  the  state  govern- 
ments acting  in  any  manner  whatsoever,  and  on  the  power  of 
the  Federal  government.1 

§  472.  When  applied  to  judicial  proceedings,  the  term  "  due 
process  of  law  "  means  a  course  of  legal  proceedings  according 
to  the  rules  and  principles  which  have  been  established  in  our 
systems  of  jurisprudence  for  the  protection  and  enforcement 
of  private  rights.  To  give  such  proceedings  validity,  there 
must  be  a  tribunal  competent  by  the  law  of  its  creation  to  pass 
upon  the  subject-matter  of  the  suit,  and,  if  the  suit  involves 
merely  a  determination  of  the  personal  liability  of  the  defend- 
ant, he  must  be  brought  within  the  jurisdiction  of  the  court 
by  service  of  process  within  the  state,  or  by  his  voluntary  ap- 
pearance.2 

§  473.  The  other  constitutional  restriction  on  the  power  of 

eminent  domain  is  that  private  property  shall  not 

peuLtion"     De  taken   without  just  compensation.3     To  bring  a 

case  within  the  protection  of  this  provision,  it  is 

not  necessary  that  property  should  be  taken  in  the  narrowest 


1  It  seems  that  even  before  the 
passage  of  Amendment  XIV.,  a  state 
cuuld  not  through  its  legislature 
have  made  anything  due  process  of 
law.  See  Murray's  Lessee  v.  Hobo- 
ken  Land  Co.,  18  How.  272. 

2  Pennoyer  v.  Neff,  95  U.  S.  714, 
733;  see  St.  Clair  o.  Cox.  106  U.  S. 
350;  and  compare  American  Express 
Company  v.  Conant,  45  Mich.  642; 
McNichol  v.  United  States  Mercan- 
tile Reporting  Agency,  74  Mo.  457; 
Pope  v.  Terre  Haute  Car  Co.,  87  N. 
Y.  137.  Notice  is  essential.  Camp- 
bell v.  Campbell,  63  111.  402. 

"  Due  process  of  law,"  requires 
that  a  party  shall  be  properly  brought 
into  court,  and  that  he  shall  have 
an  opportunity  when  there  to  prove 
any  fact  which  according  to  the  con- 
stitution, and  the  usages  of  the  com- 
mon law,  would  be  a  protection  to 
him  and  his  property.  But  the  legis- 
lature may  take  away  any  particular 
form  of  remedy,  and  give  a  new  one. 

462 


And  the  "law  of  the  land"  means 
about  the  same  as  "due  process  of 
law."  People  v.  Supervisors,  70  N. 
Y.  228.  "  By  the  law  of  the  land  is 
most  clearly  intended  the  general 
law;  a  law  which  hears  before  it 
condemns;  which  proceeds  upon  in- 
quiry and  renders  judgment  only 
after  trial.  The  meaning  is  that 
every  citizen  shall  hold  his  life,  lib- 
erty, property,  and  immunities  un- 
der the  protection  of  the  general 
rules  which  govern  society."  Web- 
ster arguendo  in  Dartmouth  College 
v.  Woodward,  4  Wheat.  519,  581. 

3  See  Garrison  v.  City  of  New 
York,  21  Wall.  196.  "The  power 
to  take  private  property  for  public 
uses,  generally  termed  the  right  of 
eminent  domain,  belongs  to  every 
independent  government.  It  is  an 
incident  of  sovereignty,  and  requires 
no  constitutional  recognition.  The 
provision  found  in  the  fifth  amend- 
ment to  the  Federal  constitution  and 


CHAP.     VIII.]  CORPORATION  AND  STATE. 


[§  474. 


sense  of  the  word :  it  is  enough  that  some  private  right  be 
materially  impaired.1  In  determining  the  value  of  property 
taken  for  public  purposes,  the  same  considerations  are  to  be 
regarded  as  in  the  sale  of  property  between  private  persons. 
The  inquiry  should  be,  what  is  the  property  worth  in  the  market, 
not  merely  with  reference  to  the  uses  to  which  it  is  at  the  time 
applied,  but  with  reference  to  those  to  which  it  is  plainly 
adapted.2 

In  the  absence  of  any  specific  provision  in  the  constitution 
of  a  state,  a  state  legislature  may  regulate  in  its  discretion  the 
mode  of  exercising  the  right  of  eminent  domain.3  The  power 
to  exercise  this  right  may  be  delegated  to  private  citizens  or 
to  corporate  bodies,  public  or  private ; 4  but,  in  the  absence 
of  special  provision,  the  right  of  eminent  domain  may  not  be 
delegated  by  the  person  or  body  receiving  it  from  the  state.5 

§  474.  As  by  virtue  of  its  power  of  eminent  domain  a  state 
may  take  the  property  of  corporations,  so  may  a 
state   modify  corporate  constitutions,  and  regulate   p°^°® 
corporate  property,  by  virtue  of  its  police  power ; 
which  is  the  power  necessarily  inherent  in  the  state  as  a  self- 
governing   community  to  pass  laws   for   the   public  welfare.6 


in  the  constitutions  of  the  several 
states,  for  just  compensation  for  the 
property  taken,  is  merely  a  limita- 
tion on  the  use  of  the  power.  It  is 
no  part  of  the  power  itself,  but  a 
condition  upon  which  the  power  may 
be  exercised."  United  States  v. 
Jones,  109  U.  S.  513,  518,  opinion  of 
court  per  Field,  J. 

1  The  backing  of  water  so  as  to 
overflow  the  lands  of  individuals  is 
such  a  taking.  Pumpelly  v.  Green 
Bay  Co.,  13  Wall.  166.  See  §§  171- 
176  for  a  fuller  discussion  of  what 
constitutes  such  a  taking  of  private 
property  or  impairment  of  private 
rights  (by  a  corporation)  as  to  re- 
quire compensation. 

2  Boom  Co.  v.  Patterson,  98  U.  S. 
403.  See  for  cases  on  the  rule  of 
damages  for  property  taken  by  a  rail- 
road or  other  corporation,  §  178. 


3Secombe  v.  Railroad  Co.,  23  Wall. 
108. 

4Brayton  v.  Fall  River,  124  Mass. 
95,  97.  Compare  United  States  v. 
Joues,  109  U.  S.  513.  But  this 
power  can  never  be  presumed  to 
exist  either  in  municipal  or  private 
corporations.  Phillips  v.  Dunkirk, 
Warren,  etc.,  R.  R.  Co.,  78  Pa.  St. 
177;  Allen  v.  Jones,  47  Ind.  438.  Com- 
pare Pennsylvania  R.  R.  Co.'s  Appeal, 
93  Pa.  St.  150.     See  §  163. 

5 See  §166,  ante. 

6  See  Chicago  Life  Ins.  Co.  v. 
Needles,  113  U.  S.  574.  Compare 
Lake  View  v.  Rose  Hill  C.  Co.,  70111. 
191.  A  state  can  compel  an  insur- 
ance company  to  make  detailed  re- 
turns. Eagle  Ins.  Co.  v.  Ohio,  153 
U.  S.  446. 


463 


§  474.]      THE   LAW   OF   PRIVATE   CORPORATIONS.    [CHAP.  VIII. 

Thus,  in  a  case  where  a  corporation  was  chartered  with  the 
rig-lit  to  hold  lotteries  for  twenty-five  years,  and  subsequently 
the  state  which  had  chartered  it  adopted  a  new  constitution 
containing  a  provision  forbidding  lotteries,  it  was  held  that 
this  constitution,  operating  as  it  did  to  annul  the  right  of  the 
corporation  to  hold  lotteries,  was  not  repugnant  to  the  Fed- 
eral constitution  as  impairing  the  obligation  of  the  charter, 
but  was  a  valid  exercise  of  the  police  power  of  the  state,  which 
the  legislature  could  not  grant  away.  "No  legislature  can 
bargain  away  the  public  health  or  the  public  morals.  The 
people  themselves  cannot  do  it,  much  less  their  servants. 
The  supervision  of  both  these  subjects  of  governmental  power 
is  continuing  in  its  nature,  and  they  are  to  be  dealt  with  as 
the  special  exigencies  of  the  moment  may  require.  Govern- 
ment is  organized  with  a  view  to  their  preservation,  and  can- 
not divest  itself  of  the  power  to  provide  for  them." x  But  a 
legislature  may  grant  a  franchise,  as  for  instance  the  exclu- 
sive right  to  supply  gas  or  water  to  a  municipality,  and  can- 
not revoke  it  through  the  exercise  of  its  police  power  after  the 
grantee  has  performed  the  conditions  of  the  grant :  yet  by 
granting  such  franchises  the  legislature  does  not  part  with  its 
power  to  regulate  them  so  as  to  protect  the  public  health  and 
morals.2 


1  Stone  v.  Mississippi,  101  U.  S. 
814  ;  approved,  Douglas  v.  Kentucky, 
168  U.  S.  488  ;  accord,  State  «.  Morris, 
77  N.  C.  512  ;  see  Slaughter  House 
Cases,  16  Wall.  36  ;  Crescent  City, 
etc.,  Co.  v.  New  Orleans.  33  La.  Ann. 
934:  Richmond,  etc.,  R.  R.  Co.  v. 
Richmond,  26  Gratt.  (Va.)83  ;  Chi- 
cago, etc.,  R.  R.  Co.  p.  Haggerty,  67 
111.  113.  In  matters  relating  to  the 
public  health  and  the  public  morals 
the  legislature  of  a  state  cannot  by 
any  contract  limit  the  exercise  of  its 
police  power  to  the  prejudice  of  the 
general  welfare.  Legislation  abro- 
gating valid  exclusive  privileges  of 
slaughtering  animals  held  constitu- 
tional. Butchers'  Union  Slaughter 
House,  etc.,  Co.  v.  Crescent  City  Co., 
Ill  U.  S.  746.  The  legislation  held 
464 


valid  in  this  case  destroyed  the  ex- 
clusive nature  of  the  privileges  held 
valid  iu  Slaughter  House  Cases,  16 
Wall.  36.  A  law  prohibiting  the  em- 
ployment of  women  and  persons 
under  eighteen  in  any  manufacturing 
establishment  more  than  sixty  hours 
a  week  violates  no  contract  of  this 
commonwealth  implied  in  granting 
the  charter  of  a  manufacturing  com- 
pany. Commonwealth  v.  Hamilton 
M'f'g  Co.,  120  Mass.  383.  See  Wood- 
lawn  Cemetery  v.  Everett,  118  Mass. 
354. 

2  New  Orleans  Gas  Co.  v.  Louisi- 
ana Light  Co.,  115  U.  S.  650  ;  New 
Orleans  Water  Works  Co.  v.  Rivers, 
115  U.  S.  674  ;  Louisville  Gas  Co.  v. 
Citizens'  Gas  Co.,  115  U.  S.  683  ;  Tam- 
many Water  Works  v.  New  Orleans, 


CHAP.  VIII.] 


CORPORATION  AND  STATE. 


[§  4746. 


Police 
power. 
Commerce 
clause. 


§474«.  In  the  exercise  of  its  police  power  a  state  must 
avoid  infringing  the  restrictions  before  referred  to : 1  (1)  it 
must  not  enter  the  domain  of  legislation  exclusively  reserved 
to  Congress  by  the  constitution,  or  interfere  with  Federal 
regulations  constitutionally  made  ;  and  (2)  it  must  not  take 
the  property  of  an  individual  or  a  corporation  without  just 
compensation  determined  by  due  process  of  law. 

§474&.  The  opinion  of  the  Supreme  Court  of  the  United 
States  in  Gibbons  v.  Ogden,2  delivered  by  the  great 
Chief  Justice,  is  still  "  the  accepted  canon  of  con- 
struction "  of  the  commerce  clause  in  this  consti- 
tution.3 The  main  point  decided  in  that  case  was 
that  the  New  York  statutes  giving  to  Fulton  and  Livingston 
the  exclusive  right  to  navigate  by  steam  all  waters  within  the 
territorial  jurisdiction  of  New  York  state  were  unconstitu- 
tional in  so  far  as  they  excluded  from  those  waters  vessels  li- 
censed for  the  coasting  trade  under  United  States  laws.4  Mar- 
shall expounded  the  clause  broadly,  and  Gibbons  v.  Ogden  is 
recognized  as  authority  for  the  following  propositions  : 

The  power  of  Congress  to  regulate  commerce  has  no  limita- 
tions other  than  those  prescribed  in  the  constitution.3 

The  power  to  regulate  is  the  power  "  to  prescribe  the  rule  by 
which  commerce  is  to  be  governed." 6 

Commerce  among  the  states  cannot  stop  at  the  boundary  of 
each  state  ;  so  the  power  of  Congress  to  regulate  commerce 
among  the  states  reaches  into  their  interiors,  although  it  does 
not  extend  to  the  regulation  of  commerce  entirely  confined  to 
one  state.7  "  The  power  of  Congress,  then,  comprehends  navi- 
gation within  the  limits  of  every  state  in  the  Union  ;  so  far  as 


120  U.  S.  64  ;  Walla  Walla  v.  Walla 
Walla  Water  Co.,  172  U.  S.  1  ;  State 
v.  Murphy,  130  Mo.  10. 
i-Ante,  §§469a,  4696. 

2  9  Wheat.  1. 

3  Henderson  v.  Mayor  of  New  York, 
92  U.  S.  259,  270. 

*  Compare  Pensacola  Tel.  Co.  v. 
Western  Un.  Tel.  Co.,  96  U.  S.  1, 
which  held  that  a  state  could  not 
give  a  telegraph  company  a  monop- 
oly within  certain  of  its  own  coun- 

30 


ties,  when  Congress  had    regulated 
interstate  telegraphing. 

5  Gibbons  v.  Ogden,  9  Wheat.  1, 
196;  approved  in  Brown  v.  Mary- 
land, 12  Wheat.  419,  446. 

6  lb.  9  Wheat.  196. 

7  lb.  9  Wheat.  194,  approved  in 
Brown  ».  Maryland,  12  Wheat.  419. 
See  United  States  v.  Forty-three 
Gallons  of  Whiskey,  93  U.  S.  188; 
Guy  v.  Baltimore,  100  U.  S.  434. 

465 


§  474<7.]    THE   LAW   OF   PRIVATE    CORPORATIONS.    [CHAP.  VIII. 

that  navigation  may  be  in  any  manner  connected  with  com- 
merce with  foreign  countries  or  among  the  several  states  or  with 
the  Indian  tribes."  l 

The  power  of  Congress  to  regulate  commerce  extends  to  car- 
riers of  passengers,2  and  comprehends  every  species  of  com- 
mercial intercourse  between  the  United  States  and  foreign 
nations.3  "  Commerce  undoubtedly  is  traffic,  but  it  is  some- 
thing more;  it  is  intercourse.  It  describes  the  commercial 
intercourse  between  nations,  and  parts  of  nations,  in  all  its 
branches,  and  is  regulated  by  prescribing  rules  for  carrying  on 
that  intercourse.  The  mind  can  scarcely  conceive  a  system 
for  regulating  commerce  between  nations,  which  shall  exclude 
all  laws  concerning  navigation,  which  shall  be  silent  on  the 
admission  of  the  vessels  of  the  one  nation  into  the  ports  of  the 
other,  and  be  confined  to  prescribing  rules  for  the  conduct  of 
individuals,  in  the  actual  employment  of  buying  and  selling, 
and  of  barter." 4  But  "  inspection  laws,  quarantine  laws,  health 
laws  of  every  description,  as  well  as  laws  for  regulating  the 
internal  commerce  of  a  state,  and  those  which  respect  turnpike 
roads,  ferries,  etc.,"  are  within  the  proper  scope  of  state  legis- 
lation.5 

§  ±7±c.  Regarding  commerce  by  water,  it  is  held  that  a 
state  may  authorize  a  city  to  build  wharves  on  navigable 
waters  and  to  charge  fees  for  their  use,6  but  in  so  doing  must 
not  discriminate  against  interstate  commerce  in  favor  of 
commerce  wholly  internal  to  the  state.7  And  a  state  may 
regulate  the  management  of  vessels  within  its  harbors.8     It 


Gibbons  v.  Ogden,  9  Wheat.  1, 
197.  See  United  States  v.  Coombs, 
12  Pet.  72. 

2  Gibbons  v.  Ogden,  9  Wheat.  1, 
215. 

3  lb.  9  Wheat.  1,  190  et  seq. 
*Ib.  9  Wheat.  1,  189,  190. 

8  lb.  9  Wheat.  1,203;  Card  well  v. 
Bridge  Co.,  113  U.  S.  205;  Mor- 
gan's Steamship  Co.  v.  Louisiana 
Board  of  Health,  118  U.  S.  455.  See 
Conway  v.  Taylor's  Executor,  1 
Black,  (503. 

6  Packet  Co.  v.  St.  Louis,  100 
U.  S.  423;  Packet  Co.  v.  Keokuk, 
466 


95  U.  S.  80;  Vicksburg  v.  Tobin, 
100  U.  S.  430;  Packet  Co.  v.  Cat- 
lettsburg,  105  U.  S.  559;  Ouachita 
Packet  Co.  v.  Aiken,  121  U.  S.  444. 
Compare  Sands  v.  Manistee  River 
Imp.  Co.,  123  U.  S.  288. 

7  Guy  v.  Baltimore,  100  U.  S.  434. 

8  Cooley  v.  Board  of  Wardens,  12 
How.  299;  County  of  Mobile  v.  Kim- 
ball, 102  U.  S.  691;  Wilson  v.  Mc- 
Narnee,  102  U.  S.  572.  But  compare 
Foster  v.  Master,  etc.,  of  New  Or- 
leans, 94  U.  S.  246;  Steamship  Co.  v. 
Portwardens,  6  Wall.  31. 


CHAP.  VIII.]  CORPORATION  AND  STATE. 


[§  474tf. 


may  be  that  by  proper  and  just  regulations  a  state  can  protect 
itself  against  objectionable  immigrants,  and  to  that  end  re- 
quire full  information  regarding  all  immigrants  ; '  but  a  state 
cannot  lay  a  tax  on  immigrants,  however  veiled  in  the  form 
of  harbor  or  quarantine  regulations;2  and  a  law  prescribing 
terms  or  conditions  on  which  alone  a  vessel  can  discharge  its 
passengers  is  a  regulation  of  commerce,  and  is  a  regulation 
of  commerce  with  foreign  nations  if  the  vessel  comes  from  a 
foreign  port ;  it  is  no  argument  to  call  the  power  to  pass  such 
regulations  the  police  power,  for  a  state  cannot  exercise  that 
power  in  matters  confided  exclusively  to  the  jurisdiction  of 
Congress.3 

§  4:7±d.  "Commerce  on  land  between  the  different  states  is 
so  strikingly  dissimilar,  in  many  respects,  from  commerce  by 
water,  that  it  is  often  difficult  to  regard  them  in  the  same 
aspect  in  reference  to  the  respective  constitutional  powers  and 
duties  of  the  state  and  Federal  governments.  No  doubt  com- 
merce by  water  was  principally  in  the  minds  of  those  who 
framed  and  adopted  the  constitution,  although  both  its  lan- 
guage and  spirit  embrace  commerce  by  land  as  well."  4  State 
legislation  seeking  to  impose  a  direct  burden  on  interstate 
commerce  by  land  or  water,  or  to  interfere  directly  with  its 


1  See  City  of  New  York  v.  Miller, 
11  Pet.  102. 

2  Passenger  Cases,  7  How.  283 ; 
Henderson  v.  Mayor  of  New  York, 
92  U.  S.  259;  Chy  Lung  v.  Freeman, 
92  U.  S.  275;  People  v.  Compagnie 
Generate  Transatlantique,  107  U.  S. 
59. 

3  Henderson  v.  Mayor  of  New 
York,  92  U.  S.  259,  271,  272.  See 
Gloucester  Ferry  Co.  v.  Pennsylvania, 
114  U.  S.  196. 

By  examining  the  cases  in  the  Su- 
preme Court,  in  which  state  legis- 
lation has  been  adjudged  invalid  in 
regard  to  the  commerce  clause,  "it 
will  be  found  that  the  legislation 
adjudged  invalid  imposed  a  tax  upon 
some  instrument  or  subject  of  com- 
merce, or  exacted  a  license  fee  from 
parties  engaged  in  commercial  pur- 


suits, or  created  an  impediment  to 
the  free  navigation  of  some  public 
waters,  or  prescribed  conditions  in 
accordance  with  which  commerce  in 
particular  articles  or  between  par- 
ticular places  was  required  to  be  con- 
ducted. In  all  the  cases,  the  legis- 
lation condemned  operated  directly 
upon  commerce,  either  by  way  of 
tax  upon  its  business,  license  upon 
its  pursuits  in  particular  channels, 
or  conditions  for  carrying  it  on." 
Sherlock  v.  Ailing,  93  U.  S.  99. 
Opinion  of  the  court  per  Field,  J., 
p.  102;  as  to  the  power  of  Congress 
to  pass  such  laws,  see  Head  Money 
Cases,  112  U.  S.  580. 

*  Railroad  Co.  v.  Maryland,  21 
Wall.  456,  470;  Opin.  of  Ct.  per  Brad- 
ley, J. 

467 


§  474'/.]    THE   LAW    OF    PRIVATE   CORPORATIONS.    [CHAP.  VIII. 

freedom,  encroaches  on  the  exclusive  power  or  Congress.1 
Thus,  a  statute  of  Missouri  prohibiting  driving  or  conveying 
Texan,  Mexican,  or  Indian  cattle  into  the  state  between  the 
first  days  of  March  and  November  is  an  unconstitutional  reg- 
ulation of  interstate  commerce.2  But,  Congress  not  having 
acted  on  the  subject,  it  is  held  not  to  conflict  with  the  powers 
of  Congress  to  regulate  interstate  commerce,  for  several  states 
by  concurrent  legislation  to  consolidate  railroad  companies  so 
as  to  create  a  consolidated  corporation  running  a  continuous 
line  of  road  through  several  states,3  and  state  statutes  regulat- 
ing the  tolls  of  railroad  companies  within  state  limits,  making 
no  discrimination  between  local  and  interstate  rates,  are  con- 
stitutional police  regulations,  so  far  as  regards  the  commerce 
clause  in  the  Constitution,  even  though  they  affect  a  railroad 
company  operating  a  road  through  several  states.4     Thus,  as 


*Hall  v.  DeCuir,  95  U.  S.  485. 
See  Western  Union  Tel.  Co.  v.  Pen- 
dleton, 122  U.  S.  347.  So  long  as 
Congress  does  not  pass  any  law 
regulating  commerce  among  the 
states,  it  indicates  its  will  that  inter- 
state commerce  should  be  free  and 
untrammelled.  Brown  v.  Houston, 
114  U.  S.  622. 

2  Railroad  Co.  v.  Husen,  95  U.  S. 
465.  See  Minnesota  v.  Barber,  136 
U.  S.  313;  Brimmer  o.  Rebman,  138 
U.  S.  78;  cf.  Kimmish  v.  Ball,  129 
U.  S.  217;  Missouri,  K.  &  T.  Ry.  Co. 
v.  Haber,  169  U.  S.  613.  A  statute 
authorizing  the  governor,  upon  as- 
certaining that  disease  is  epidemic 
among  sheep  in  any  place,  to  desig- 
nate such  place  and  to  prohibit  im- 
portation therefrom,  except  upon 
such  restrictions  as  he  and  the  state 
sheep  inspector  should  impose,  is 
valid.  Rasmussen  v.  Idaho,  181 U.  S. 
198.  See,  also,  Smith  v.  St.  Louis 
&  S.  W.  Ry.  Co.,  181  U.  S.  248.  But 
an  act  forbidding  railroad  and  ex- 
press companies  to  bring  intoxicat- 
ing liquors  within  the  state,  except 
under  certain  conditions,   was  held 

468 


void.  Bowman  v.  Chicago,  etc.,  Ry. 
Co.,  125  U.  S.  465.  Rhodes  v.  Iowa, 
170  U.  S.  412.  A  state  cannot  for- 
bid the  sale  of  oleomargarine  brought 
into  the  state  from  another  state. 
Schollenberger  v.  Penna.,  171 U.  S.  1; 
Collins  v.  New  Hampshire,  171  U.  S. 
30.  Nor  can  a  state  forbid  the  sale 
of  intoxicating  liquors  in  the  orig- 
inal kegs  or  packages  in  which  they 
were  imported.  Leisy  v.  Hardin,  135 
U.  S.  100.  Otherwise  as  to  retailing. 
See  Crowley  v.  Christensen,  137  U. 
S.  86  ;  cf.  In  re  Rahrer,  140  U.  S. 
545.  For  the  power  of  states  to  au- 
thorize bridges  over  their  navigable 
waters,  see  Oilman  v.  Philadelphia,  3 
Wall.  713;  Escanaba  Co.  v.  Chicago, 
107  U.  S.  678;  People  v.  Saratoga, 
etc.,  R.  R.  Co.,  15  Wend.  (N.  Y.)  113; 
Railroad  Co.  v.  Richmond,  19  Wall. 
584. 

3  Boardman  v.  Lake  Shore,  etc., 
Ry.  Co.,  84  N.  Y.  157.  This  seems 
tacitly  recognized  in  many  cases  in 
the  Federal  Supreme  Court. 

4  Railroad  Co.  v.  Fuller,  17  Wall. 
560.  Cf.  Covington  Bridge  Co.  v. 
Kentucky,  154  U.  S.  204. 


CHAP.  VIII.] 


CORPORATION  AND  STATE. 


[§  475- 


far  as  regards  this  clause,  a  state  may  constitutionally  pre- 
scribe a  maximum  charge  for  the  transportation  of  passengers 
and  merchandise  carried  within  the  state,  or  taken  up  outside 
the  state  and  brought  into  it,  or  taken  up  inside  and  carried 
out — at  least  until  Congress  legislates  concerning  interstate 
commerce.1 

§  475.  Turning  now  to  a  consideration  of  the  restrictions 
placed  on  the  police  power  by  the  requirements  of  police  o^er 
justice,  it  may  be  remarked  that  the  term  "  police  its  limits. 
power  "  is  not  well  chosen,  as  the  power  in  question  wE^L"1 
extends  some  what  beyond  the  scope  of    what  are  J^^Jfe^S. 
ordinarily  regarded    as    police    regulations.2     The 
limits    of    this    power   are     necessarily    undefinable,    as,    in 


1  Peik  v.  Chicago,  etc.,  Ry.  Co.,  94 
U.  S.  164;  Chicago,  etc.,  R.  R.  Co.  v. 
Iowa,  94  U.  S.  155;  People  v.  Wabash, 
etc.,  Ry.  Co.,  104  111.  476;  S.  C,  105 
111.  236.  But  see  Carton  &  Co.  v. 
Illinois  Cent.  R.  R.  Co.,  59  Iowa,  148. 
But  a  state  statute  regulating  rail- 
road charges  for  a  transportation 
which  constitutes  a  part  of  commerce 
among  the  states  is  void.  Wabash, 
St.  L.  &  P.  Ry.  Co.  v.  Illinois,  118 
U.  S.  557;  Railway  Co.  v.  Hefley,  158 
U.  S.  98;  L.  &  N.  R.  R.  Co.  o.  Eu- 
bank, 184  U.  S.  27.  A  state  statute 
compelling  railroad  companies  to 
stop  their  trains  at  county  seats,  con- 
strued by  the  state  court  to  include 
fast  interstate  passenger  and  mail 
trains,  is  void.  Illinois  C.  R.  R.  ». 
Illinois,  163  U.  S.  142.  But  such  a 
statute  applying  only  to  regular 
passenger  trains  running  wholly 
within  the  state,  is  a  valid  exei'cise 
of  the  state's  police  power.  Gladson 
v.  Minnesota,  166  U.  S.  427.  And  it 
is  held  that  a  statute  requiring  every 
railroad  to  stop  three  trains  a  day,  if 
so  many  are  run,  at  places  having 


3,000  inhabitants,  is  not  repugnant 
to  the  Federal  Constitution,  as  ap- 
plied to  interstate  trains,  in  the 
absence  of  legislation  by  Congress. 
Lake  Shore  &  M.  S.  Ry.  Co.  v.  Ohio, 
173  U.  S.  285.  But  a  state  statute 
requiring  all  trains  to  stop  a  certain 
length  of  time  at  county  seats  was 
held  invalid,  as  applied  to  a  through 
express  train,  when  four  trains  a  day 
stopped.  Cleveland,  C.  C.  &  St.  L. 
R'y  Co.  ».  Illinois,  177  U.  S.  514.  A 
statute  requiring  two  railroads  to 
provide  at  their  intersection  facili- 
ties for  transferring  cars,  is  not  a 
regulation  of  interstate  commerce. 
Wisconsin,  M.  &  P.  R.  R.  Co.  v. 
Jacobson,  179  U.  S.  287.  Congress 
has  now  passed  an  "  Interstate  Com- 
merce Bill."  As  to  its  construction 
see  Inter-State  Commerce  Com'rs  v. 
Baltimore,  etc.,  R.  R.  Co.,  145  U.  S. 
263 ;  Charlotte,  etc.,  R.  R.  Co.  v. 
Gibbes,  142  U.  S.  386;  New  York  v. 
Squire,  145  U.  S.  175;  Cincinnati, 
etc.,  Ry.  v.  Inter.  Com.  Com.,  162  U. 
S.  184;  Texas  &  Pac.  Ry.  v.  Same, 
ib.  197;  Inter.  Com.  Com.  v.  Railway, 


2  "Police  is  in  general  a  system  of 
precaution  for  the  prevention  of 
crimes    and    calamities."      J.    Ben- 


tham,  Edinburgh  Ed.  of  Works,  part 
ix.  p.  157;  quoted  in  Kansas  Pacific 
Ry.  Co.  v.  Mower,  16  Kan.  571. 

469 


§  -4:75. ]       THE    LAW    OF    PRIVATE    CORPORATIONS.    [CHAP.  \  III. 


accordance  with  its  essential  nature  and  purposes,  its  exer- 
cise must  depend  on  circumstances.  Whether  any  given  enact- 
ment or  regulation  comes  properly  within  its  limits  is  a  question 
resting  for  decision  in  the  first  instance  with  the  legislature, 
but  reviewable  by  the  courts.  Its  scope  is  greater  with  respect 
to  property  in  the  management  of  which  the  public  has  a 
plain  interest,  as  a  railroad,1  or  a  ferry,  or  even  a  grain  eleva- 


167  U.  S.  479;  Same  v.  Same,  ib.  633; 
Same  v.  Same,  168  U.  S.  144;  Louis- 
ville &  N.  K.  R.  Co.  v.  Belli  mer,  175 
U.  S.  648.  East  Tenn.,  Va.  &  Ga. 
R'y  Co.  v.  Inter.  Com.Commissiouers, 
181  U.  S.  1.  State  statutes  (similar 
iu  intent  to  the  Federal  Interstate 
Commerce  Act)  recognizing  and  en- 
forcing as  to  traffic  within  the  state 
the  duty  of  railroad  companies  to 
put  all  their  patrons  on  absolute 
equality,  are  quite  proper;  it  is  no 
business  of  railroad  companies  to 
foster  particular  enterprises  by  re- 
bates and  discriminations.  Union 
Pac.  Ry.  v.  Goodridge,  149  U.  S.  680. 
1  The  legislature  can  compel  a  rail- 
road company  to  fence  its  road. 
Thorpe  v.  Rutland  &  BmTg'n  R.  R. 
Co.,  27  Vt.  140;  Gorman  v.  Pacific 
R.  R.,  26  Mo.  441;  Kansas  Pac.  R.  R. 
Co.  v.  Mower,  16  Kan.  573;  New  Al- 
bany &  Salem  R.  R.  Co.  v.  Tilton,  12 
Ind.  3;  Ohio  &  Miss.  R.  R.  Co.  v.  Mc- 
Clelland, 25  111.  140;  see  Hayes  v. 
Mich.  Cent.  R.  R.  Co.,  Ill  U.  S.  228; 
and  make  it  liable  in  double  dam- 
ages for  stock  killed  till  it  is  fenced; 
Minneapolis  &  St.  L.  Ry.  v.  Emmons, 
149  U.  S.  364;  Missouri  Pac.  Ry.  Co. 
v.  Humes,  115  U.  S.  512;  Humes  v. 
Missouri  Pac.  Ry.  Co.,  82  Mo.  221; 
or  make  it  liable  for  all  damages  by 
fire  along  its  route;  St.  Louis,  etc., 
Ry.  Co.fl.  Mathews,  165  IT.  S.  1;  13.  & 
O.  R'y  Co.  v.  Kreager,  61  Oh.  St.  312; 
to  ring  bells  or  whistle  before  cross- 
ing a  road;  Galena,  etc.,  R.  R.  Co.  v. 
Loomis,  13  111.  548;  to  erect  a  bridge 
necessary  for  travellers  along  a  turn- 

470 


pike;  People  v.  Boston  &  Alb.  R.  R. 
Co.,  70 N.  Y.  569;  to  stop  trains  at  a 
certain  station  (right  to  alter  and 
repeal  being  reserved);  Railroad  Co. 
v.  Hammersley,  104  U.  S.  1 ;  Chicago 
&  Alton  R.  R.  Co.  v.  People,  105  111. 
657;  State  v.  New  Haven  &  North- 
ampton Co.,  43  Conn.  351;  Penna. 
Co.  b.  Wentz,  37  Ohio  St.  333;  Com- 
monweal tli  v.  Eastern  R.  R.  Co.,  103 
Mass.  254:  to  light  their  tracks  in 
cities;  Cincinnati  H.  &  D.  R.  R.  Co. 
v.  Sullivan,  32  O.  St.  152.  So  the 
legislature  may  regulate  the  speed 
of  locomotives  in  passing  through 
cities  and  towns;  Mobile  &  Ohio  R. 
R.  Co.  v.  State,  51  Miss.  137;  Myers 
v.  C.  R.  I.  &  P.  R.  II.  Co.,  57  Iowa, 
555;  State  v.  East  Orange,  41  N.  J.  L. 
127  ;  or  at  highways  and  crossings; 
see  Roc kf ord,  etc.,  R.  R.  Co.  v.  Hi  11- 
mer,  72  111.  235;  Horn  v.  Chicago, 
etc.,  R.  R.  Co.,  38  Wis.  403;  Toledo 
P.  &  W.  Ry.  Co.  v.  Deacon,  C3  111. 
91;  and  may  regulate  the  grade  of 
railways,  and  prescribe  how  railway 
tracks  shall  cross  each  other;  Fitch- 
burg  R.  R.  Co.  v.  Grand  Junc't  R.  R. 
Co.,  1  Allen,  552;  Pittsburg,  etc.,  R. 
R.  Co.  v.  South  West  Penn.  R.  R. 
Co.,  77  Pa.  St.  173;  Chicago,  M.  & 
St.  P.  R'y  Co.  v.  Milwaukee,  97  Wis. 
418;  compare  State  v.  Noyes,  47  Me. 
189;  may  impose  upon  railroads  the 
entire  expense  of  a  change  of  grade 
at  highway  crossings;  R.  R.  Co.  v. 
Bristol,  151  U.  S.  556;  and  a  city  may 
forbid  a  railroad  company  to  run  its 
trains  by  steam  within  certain  parts 
of  the  city;  R.  R.  Co.  v.  Richmond, 


CHAP.  Vlir.]  CORPORATION  AND  STATE. 


[§  ^5. 


tor.  The  following  extract  is  from  the  opinion  of  the  majority 
of  the  court  by  Chief  Justice  Waite,  in  Munn  v.  Illinois:1 
"  Looking  then  to  the  common  law  from  whence  came  the 
right  which  the  constitution  protects,  we  find  that  when 
private  property  is  '  affected  with  a  public  interest  it  ceases 
to  be  juris  privati  only.'  This  was  said  by  Lord  Chief  Jus- 
tice Hale  more  than  two  hundred  years  ago  in  his  Treatise 
De  Portibus  Maris,  1  Harg.  Law  Tracts,  78,  and  has  been 
accepted  without  objection  as  an  essential  element  of  the  law 
of  property  ever  since.  Property  does  become  clothed  with 
a  public  interest  when  used  in  a  manner  to  make  it  of  public 
consequence,  and  affect  the  community  at  large.  When, 
therefore,  one  devotes  his  property  to  a  use  in  which  the  pub- 
lic has  an  interest,  he,  in  effect,  grants  to  the  public  an  inter- 
est in  that  use,  and  must  submit  to  be  controlled  by  the 
public  for  the  common  good,  to  the  extent  of  the  interest  he 
has  thus  created.  He  may  withdraw  his  grant  by  discon- 
tinuing the  use  ;  but  so  long  as  he  maintains  the  use,  he  must 
submit  to  the  control."2 


96  U.  S.  521.  The  legislature  may 
impose  penalties  for  delays  in  for- 
warding freight.  McGowan  v.  Wil- 
mington, etc.,  R.  R.  Co.,  95  N.  C. 
417;  a  state  may  forbid  the  running 
of  freight  trains  within  the  state  on 
Sundays.  Hennington  v.  Georgia,  163 
U.  S.  299.  Such  regulations  as  the 
above,  in  order  to  be  a  valid  exer- 
cise of  the  police  power,  must  be 
reasonable.  Toledo,  W.  &  N.  Ry. 
Co.  o.  Jacksonville,  67  111.  37.  A 
statute  providing  that  railroad  com- 
panies shall  be  liable  for  the  attor- 
ney fees  up  to  $10  of  parties  success- 
fully litigating  claims  against  them, 
is  unconstitutional  as  depriving 
them  of  the  equal  protection  of  the 
laws  and  of  their  property  without 
due  process  of  law.  Gulf,  etc.,  Ry.  v. 
Ellis,  165  U.  S.  150;  but  see  Atchison, 
T.,  etc.,  Ry.  Co.  v.  Matthews,  174 
U.  S.  96.  An  act  compelling  certain 
corporations  (and  not  all)  to  pay 
their  employes'   wages  every  week, 


is  unconstitutional,  as  depriving 
them  of  property  (of  the  right  to 
contract  freely)  without  due  process 
of  law;  Braceville  Coal  Co.  o.  People, 
147  111.  66.  A  statute  requiring  the 
redemption  in  cash  of  store  orders, 
etc.,  issued  in  payment  of  wages,  is 
valid.  Knoxville  Iron  Co.  v.  Har- 
bison, 183  U.  S.  13.  A  statute  regu- 
lating the  liability  of  railroads  for 
injuries  to  its  employes  is  valid. 
Tullis  v.  Lake  Erie  &  W.  R.  R.  Co., 
175  U.  S.  348. 

1  94  U.  S.  113,  126  (Elevator  Cases). 

2  The  property  of  a  telephone 
company  is  property  in  the  use  of 
which  the  public  is  interested — it  is 
property  devoted  to  a  public  use — 
and  its  rates  may  be  fixed  by  statute. 
Hockett  v.  State,  105  Ind.  250;  Cen- 
tral Union  Telephone  Co.  v.  Brad- 
bury, 106  Ind.  1;  so,  the  business  of 
supplying  water.  City  of  Danville  v. 
Danville  Water  Co.,  178  111.  299. 

471 


§  476.]       THE    LAW    OF    PRIVATE   CORPORATIONS.    [CHAP.  VIII. 

§  476.  These  remarks  are  undoubtedly  sound  as  far  as  they 
go.  The  real  difficulty,  however,  is  to  draw  a  line  between 
property  in  the  management  of  which  the  public  has  a 
clearly  defined  interest,  and  property  in  regard  to  which  it 
has  none.  "Where  the  property  in  question  is  that  of  a  cor- 
poration, the  interest  of  the  public  might  be  roughly  said  to 
be  coextensive  with  the  grant  to  the  corporation  of  powers 
which  it  would  be  unconstitutional  or  improper  for  the  legis- 
lature to  grant,  except  for  purposes  in  the  attainment  of  which 
the  public  was  directly  concerned.  For  instance,  it  is  ordi- 
narily incompetent  for  the  legislature  to  grant  the  right  of 
taking  private  property  on  compulsory  process  except  for  the 
attainment  of  an  object  of  public  importance.1  Accordingly, 
as  this  right  is  ordinarily  granted  to  a  railroad  corporation, 
the  possession  of  the  right  by  such  corporation  would  seem  to 
indicate  a  clear  interest  on  the  part  of  the  public  in  its  affairs. 
This  is  a  clear  case  of  a  defined  public  interest  in  a  private 
enterprise.  But  such  a  test,  taken  by  itself,  is  not  applica- 
ble to  all  cases ;  for  the  public  is  sometimes  held  to  have  an 
interest  in  enterprises  where  no  such  extraordinary  powers 
have  been  granted,  as,  for  instance,  in  the  grain  elevator  case, 
whence  the  foregoing  extract  is  taken.  The  truth  of  the  mat- 
ter seems  to  be,  that  what  may  constitute  such  an  interest  of 
the  public  in  private  enterprises  as  will  warrant  the  regulation 
of  them  by  the  police  power  of  the  state,  is  essentially  incapa- 
ble of  definition.  The  Chief  Justice  says:  "When,  there- 
fore, one  devotes  his  property  to  a  use  in  which  the  public  has 
an  interest,  he  in  effect  grants  to  the  public  an  interest  in 
that  use."  What  is  "a  use  in  which  the  public  has  an  inter- 
est" ?  To  this  question  the  remarks  of  the  Chief  Justice  give 
no  answer.  In  any  private  business,  as  the  manufacture  of 
soap,  the  public  has  always  at  least  this  negative  interest  that 
the  business  shall  not  be  carried  on  in  such  a  way  as  to  become 
a  public  nuisance.  Yet  the  business  of  manufacturing  soap 
is  as  private  as  any  business  can  be.  Take  for  another  exam- 
ple,  the   business   of   supplying   milk  in   a   city.     This  is   a 


1  See    Beekman    v.    Saratoga    and 

Schenectady  R.   R.  Co.,  3  Paige,  73; 

Ten   Eyck  u.    Delaware,  etc.,    Canal 

Co.,  18  N.   J.   Law,   200;  Bloodgood 

472 


v.  Mohawk  and  Hudson  R.  R.  Co., 
18  Wend.  9,  55;  Edgewood  R.  R. 
Co.'s  Appeal,  79  Pa.  St.  257. 


CHAP.  VIII. J  CORPORATION  AND  STATE. 


[§  476. 


business  in  which  the  public  is  held  to  have  an  interest  to  this 
extent,  that  the  milk  supplied  shall  be  pure  and  wholesome.1 
In  truth,  the  interests  of  a  societ}7,  be  they  called  public  or 
private,  are  so  correlated  and  interwoven  that  it  is  impossible 
to  pick  out  the  life  or  occupation  of  any  individual  and  say : 
that  is  an  occupation  in  which  the  public  has  no  conceivable 
interest.2  Whatever  the  public  welfare  calls  for,  the  police 
power  of  the  state  exists  to  afford,  and  whether  any  given 
exercise  of  this  power  is  a  proper  one,  is  a  question  for  the 
discretion  of  the  legislature,  subject  to  review  in  some  wTay  by 
the  courts.3 


1  See  Commonwealth  v.  Evaus,  132 
Mass.  11. 

2  The  business  of  supplying  gas  is 
one  in  which  the  public  is  interested. 
Gibbs  v.  Baltimore  Gas  Co.,  130 
U.  S.  396.  "  The  sovereign  police 
power  which  the  state  possesses  is 
to  be  exercised  only  for  the  general 
public  welfare,  but  it  reaches  to 
every  person,  to  every  kind  of  busi- 
ness, to  every  species  of  property 
within  the  Commonwealth."  People 
u.  Salem,  20  Mich.  452,  478,  per 
Cooley,  J.  See  Mugler  o.  Kansas. 
123  U.  S.  623,  660;  Cin.,  B.  &  Q.  R.  K. 
v.  Chicago,  166  U.  S.  226. 

3  "  As  a  general  proposition  it  may 
be  stated,  it  is  the  province  of  the 
law-making  power  to  determine 
when  the  exigency  exists,  calling 
into  exercise  this  (police)  power. 
What  are  the  subjects  of  its  exercise, 
is  clearly  a  judicial  question.11  Lake 
View  v.  Rose  Hill  Cemetery  Co.,  70 
111.  191,  195,  opinion  of  court  per 
Scott,  J.  See,  also,  Toledo,  W.  and 
N.  R'y  Co.  v.  City  of  Jacksonville,  67 
111.  37;  Jamieson  v.  Indiana  Nat.  Gas 
Co.,  128  Ind.  555.  A  few  more  deci- 
sions on  the  exercise  of  the  police 
power  are  given  in  this  note. 

If  the  public  safety  or  the  public 
moi'als  require  the  discontinuance  of 
any  manufacture  or  traffic,  the  legis- 
lature cannot  be  stayed  from  provid- 


ing for  its  discontinuance  by  any 
incidental  inconvenience  which  in- 
dividuals or  corporations  may  suffer. 
All  rights  are  held  subject  to  the 
police  power  of  the  state.  The  court 
said,  that  they  did  not  mean  to  hold 
that  property  actually  in  existence, 
in  which  the  right  of  the  owner  had 
become  vested,  could  be  taken  for 
the  public  good  without  just  com- 
pensation; but  that  they  did  hold, 
in  accordance  with  Bartemeyer  v. 
Iowa,  18  Wall.  129,  that  as  a  measure 
of  public  regulation,  a  state  law  pro- 
hibiting the  manufacture  and  sale  of 
intoxicating  liquors  is  not  repugnant 
to  the  constitution  (the  charter  of 
the  corporation  in  this  case  was  sub- 
ject to  alteration  and  repeal).  Beer 
Co.  v.  Massachusetts,  97  U.  S.  25. 
See  also  Mugler  v.  Kansas,  123  U.  S. 
623;  Kidd  v.  Pearson,  128  U.  S.  1. 
The  appropriate  regulation  of  the 
use  of  property  is  not  a  "  taking1'  of 
property  within  the  meaning  of  the 
Federal  constitution.  Railroad  Co. 
o.  Richmond,  96  U.  S.  521.  The 
charter  of  a  fertilizing  company,  or- 
ganized to  make  dead  animals  into 
manure,  is  a  sufficient  license  until 
revoked.  But  it  cannot  be  regarded 
as  a  contract  guarantying  exemption 
from  the  exercise  of  the  police  power 
of  the  state,  however  serious  the 
nuisance   may  become  by  reason  of 

473 


§  476a.]     THE    LAW    OF    PRIVATE   CORPORATION'S.  [CHAP.  VIII. 


§  47G«.  Munn  v.  Illinois  1  is  the  leading  case  on  the  power  of 
the  state  to  regulate  charges  for  the  use  of  property  devoted 
Elevator  t°  a  public  use.  It  decided  that  the  legislature 
road  Rail"  C0lH(l  regulate  the  charges  for  storing  grain  de- 
charges,  manded  by  the  owners  of  grain  elevators  in  large 
cities.  Similar  considerations  arise  with  regard  to  the  right  of 
legislatures  to  limit  tolls  charged  by  railroad  companies. 

"  Railroad  companies  are  carriers  for  hire.  They  are  incor- 
porated and  given  extraordinary  powers  in  order  that  they 
may  the  better  serve  the  public  in  that  capacity.  They  are, 
therefore,  engaged  in  a  public  employment  affecting  the  public 
interest,  and  (under  the  decision  in  Munn  v.  Illinois)  subject 
to  legislative  control  as  to  their  rates  of  fare  and  freight,  un- 
less protected  by  their  charters.  .  .  .  This  company  in  the 
transaction  of  its  business  has  the  same  rights,  and  is  subject 
to  the  same  control  as  private  individuals  under  the  same  cir- 
cumstances. It  must  carry  when  called  upon  to  do  so,  and 
can  charge  only  a  reasonable  rate  for  the  carriage.  In  the 
absence  of  any  legislative  regulation  upon  the  subject,  the 
courts  must  decide  for  it,  as  they  do  for  private  persons, 
when  controversies  arise,  what  is  reasonable.  But  when  the 
legislature  steps  in,  and  prescribes  a  maximum  of  charge,  it 
operates  upon  this  corporation  the  same  as  it  does  upon  indi- 
viduals  engaged   in  a  similar   business.      It  was   within   the 


the  growth  of  population.  Fertiliz- 
ing Co.  ».  Hyde  Park,  97  U.  S. 
659. 

The  legal  tender  acts  are  constitu- 
tional, whether  applied  to  contracts 
made  before  or  after  their  passage. 
Legal  Tender  Cases,  12  Wall.  457, 
overruling  Hepburn  v.  Griswold,  8 
Wall.  603;  Chase,  C.  J.,  and  Clifford, 
Field,  and  Nelson,  JJ.,  dissenting. 
Giving  the  opinion  of  the  majority 
of  the  court,  Strong,  J.,  said:  "As  in 
a  state  of  civil  society  property  of  a 
citizen  or  subject  is  ownership  sub- 
ject to  the  lawful  demands  of  the 
sovereign,  so  contracts  must  be  un- 
derstood as  made  in  reference  to  the 
possible  exercise  of  the  rightful  au- 
thority of  the  government,   and  no 

474 


obligation  of  a  contract  can  extend 
to  the  defeat  of  the  legitimate  gov- 
ernment authority."  12  Wall.  551. 
And  see  the  constitutionality  of 
these  acts  reaffirmed  (Field,  J.,  only, 
dissenting)  in  Legal  Tender  Case,  110 
U.  S.  421. 

1  94  U.  S.  113.  Affd  Budd  v.  New 
York,  143  U.  S.  517.  Brass  v.  Stoeser, 
153  U.  S.  391.  Munn  v.  Illinois  is 
criticized  at  length  in  State  ex  rel. 
Star  Pub.  Co.  v.  Associated  Press, 
159  Mo.  410,  holding  that  the  gather- 
ing of  news  is  not  such  a  public  em- 
ployment that  the  court  could  com- 
pel it  to  render  service  to  one  with 
whom  it  declines  to  contract. 
Contra,  Inter-Ocean  Co.  v.  Associ- 
ated Press,  184  111.  438. 


CHAP.  VIII.]  CORPORATION  AND  STATE. 


[§  476A. 


power  of  the  company  to  call  upon  the  legislature  to  fix  per- 
manently this  limit,  and  make  it  a  part  of  the  charter ;  and, 
if  it  was  refused,  to  abstain  from  building  the  road  and  estab- 
lishing the  contemplated  business.  If  that  had  been  done, 
the  charter  might  have  presented  a  contract  against  future 
legislative  interference.  But  it  was  not ;  and  the  company 
invested  its  capital,  relying  upon  the  good  faith  of  the  people 
and  the  wisdom  and  impartiality  of  legislators  for  protection 
against  wrong  under  the  form  of  legislative  regulation."  l 

§  476 b.  The  Federal  Supreme  Court  has  recently  held  that 
when  legislation  establishes  a  tariff  of  rates  so  unreasonable  as 
practically  to  destroy  the  value  of  the  property  of  companies 
engaged  in  the  carrying  business,  courts  may  treat  the  question 
as  a  judicial  one,  and  may  hold  such  acts  to  be  in  conflict  with 
the  Federal  constitution,  as  depriving  the  companies  of  their 
property  without  due  process  of  law,  and  as  depriving  them  of 
the  equal  protection  of  the  laws.2     Moreover,  when  power  has 


1  Chicago,  etc.,  R.  R.  Co.  v.  Iowa,  94 
U.  S.  155,  161,  162;  opinion  of  court 
per  Waite,  C.  J.  These  remarks  are 
authoritative.  Accord,  Peik  v.  Chi- 
cago, etc.,  Ry.  Co.,  94  U.  S.  164;  Chi- 
cago, etc.,  R.  R.  Co.  v.  Ackley,  94  U. 
S.  179;  Ruggles  v.  State  of  Illinois, 
108  U.  S.  526;  Dow  ».  Beidelman,  125 
U.  S.  680;  Chicago,  etc.,  Ry.  Co.  u. 
Wellman,  143  U.  S.  339;  Blake  v. 
Winona,  etc.,  R.  R.  Co.,  19  Minn. 
418;  aff'd  sub  nom.  Winona,  etc., 
R.  R.  Co.  v.  Blake,  94  U.  S.  180;  Illi- 
nois Cent.  R.  R.  Co.  v.  People,  95  111. 
313;  City  of  Indianapolis  v.  Navin, 
151  Ind.  139.  Cf.  Reagan  v.  L.  &  T. 
Co.,  154  U.  S.  362.  In  the  absence 
of  legislation  by  Congress,  the  power 
of  the  state  to  regulate  charges  within 
its  borders  extends  to  railroads  in- 
corporated by  the  United  States, 
Smyth  v.  Ames,  169  U.  S.  466.  A 
license  tax  upon  grain  elevators  situ- 
ated along  the  railroads  was  sus- 
tained in  Cargill  Co.  v.  Minnesota, 
180  U.  S.  452.  And  the  state  may 
attach  a  penalty  for  taking  more  tolls 


than  allowed  by  statute.  State  of 
Minn.  v.  Winona,  etc.,  R.  R.  Co.,  19 
Minn.  434;  Mobile  &  M.  Ry.  Co.  v. 
Steiuer,  61  Ala.  559.  Compare  Chi- 
ago  &  A.  R.  R.  Co.  v.  People,  67  111. 
11;  Wabash,  St.  L.  &  P.  Ry.  Co.  v. 
People,  105  111.  236.  But  such  a 
penalty  cannot  constitutionally  be  at- 
tached to  past  acts  and  omissions. 
Wilson  v.  Ohio,  etc.,  Ry.  Co.,  64  111. 
542.  A  statute  establishing  a  com- 
mission to  regulate  railroad  charges, 
and  making  its  decisions  final  and 
giving  the  railroad  companies  no  op- 
portunity for  a  judicial  hearing  was 
held  to  be  unconstitutional  in  Chi- 
cago, etc.,  Ry.  Co.  v.  Minnesota,  134 
U.  S.  418. 

2  Railway  Co.  v.  Gill,  156  U.  S.  649; 
Covington,  etc.,  T.  Co.  v.  Sandford, 
164  U.  S.  578;  Smyth  v.  Ames,  169 
U.  S.  466,  holding  that  the  reason- 
ableness of  the  rates  must  be  deter- 
mined without  reference  to  interstate 
business.  The  reasonableness  of  the 
charges  is  to  be  determined  by  the 
fair  value  of  the  property  of  the  cor- 

475 


§  476/'. J     THE    LAW   OP    PRIVATE   CORPORATIONS.  [CHAP.  VIII. 

been  expressly  given  a  railroad  company  to  take  tolls  in  its  dis- 
cretion, without  any  legislative  reservation,  the  state  cannot 
regulate  its  tolls  and  charges,  as  that  would  impair  the  obliga- 
tion of  the  contract  between  the  corporation  and  the  state ;  and 
the  police  power  does  not  extend  so  far  as  to  impair  or  destroy 
a  franchise  or  a  power  essential  to  its  exercise.1  But  "grants 
of  immunity  from  legitimate  governmental  control  are  never  to 
be  presumed.  On  the  contrary,  the  presumptions  are  all  the 
other  way,  and  unless  an  exemption  is  clearly  established  the 
legislature  is  free  to  act  on  all  subjects  within  its  general  juris- 
diction, as  the  public  interest  may  seem  to  require."2  Accord- 
ingly, only  wThen  the  terms  are  clear  and  express  will  the  leg- 
islature be  held  to  have  granted  away  its  rights  to  regulate 
tolls.3  Thus,  an  amendment  in  a  charter  gave  the  directors  of 
a  railroad  company  power  to  establish  rates  of  toll  as  they 
should  by  their  by-laws  determine,  but  provided  that  their  by- 
laws should  not  be  repugnant  to  the  laws  of  the  state.  It  was 
held  that  the  amendment  did  not  release  the  company  from 
restrictions  upon  rates  of  toll  contained  in  the  laws  of  the  state.4 
In  this  case  in  a  concurring  opinion,  Harlan,  J.,  said,  after  re- 


poration.  A  railroad  cannot  issue 
stock  and  bonds  far  in  excess  of  its 
value,  and  then  impose  upon  the 
public  the  burden  of  producing  a 
profit  thereon.  Smyth  v.  Ames, 
(supra).  See  Chicago,  M.  &  St.  P. 
Ry.  Co.  ».  Tompkins,  176  U.  S.  167; 
L.  &  N.  Ry.  Co.  v.  K'y,  183  U.  S.  503; 
Steenerson  v.  Gt.  Northern  Ry.  Co., 
69  Minn.  353.  A  statute  requiring  a 
railroad  to  issue  mileage  books  at 
certain  rates  is  invalid.  Lake  Shore 
&  M.  S.  Ry.  Co.  v.  Smith,  173  U.  S. 
684,  followed  Beardsley  v.  N.  Y.,  L. 
E.  &  W.  Ry.  Co.,  162  N.  Y.  230;  cf. 
Purdy  v.  Erie  R.  R.  Co.,  162  N.  Y.  42. 
And  a  statute  so  framed  as  to  apply 
to  only  one  company  is  invalid. 
Cotting  v.  Kansas  City  Stock  Yards 
Co.  et  al.,  183  U.  S.  79. 

1  Phila.,  W.  &  B.  R.  R.  Co.  v.  Bow- 
ers, 4  Houst.  (Del.)  506;  Attorney- 
Gen,  i'.   Railroad  Cos.,  35  Wis.  425; 

476 


Sloan  v.  Pacific  R.  R.  Co.,  61  Mo.  24; 
Iron  R.  R.  Co.  v.  Lawrence  Furnace 
Co.,  29  O.  St.  208;  Pingree  v.  Mich. 
C.  R'y  Co.,  118  Mich.  314;  see  Pingry 
v.  Washburn,  1  Aiken  (Vt.),  264; 
semble  contra,  Illinois  Central  R.  R. 
Co.  v.  People,  95  111.  313. 

2Ruggles  v.  State  of  Illinois,  108 
U.  S.  526,  531. 

3  Railroad  ComVs  Cases,  116  U.  S. 
307;  Georgia  Bkg.  Co.  v.  Smith,  128 
U.  S.  174;  Illinois  Cent.  R.  R.  Co.  v. 
People,  95  111.  313;  Georgia  R.  R.  v. 
Smith,  70  Ga.  694;  Shields  v.  Ohio, 
95  U.  S.  319;  Winchester,  etc.,  T.  R. 
Co.  v.  Croxton,  98  Ky.  739.  Com- 
pare Los  Angeles  v.  Los  Angeles  City 
Water  Co.,  177  U.  S.  558;  Freeport 
Water  Co.  v.  Freeport  City,  180  U. 
S.  587;  Detroit  v.  Detroit  Citizens' 
St.  Ry.  Co.,  184  U.  S.  368. 

4  Ruggles  v.  State  of  Illinois,  108 
U.  S.  526. 


CHAP.  Vni.]  CORPORATION  AND  STATE.  [§  477. 

viewing  the  cases  on  the  subject,  that  the  cases  established  these 
principles  :  "  1.  That  the  charter  of  a  railroad  corporation  is  a 
contract  within  the  meaning  of  the  contract  clause  in  the  Fed- 
eral constitution.  2.  That  such  corporation  may  be  protected 
by  its  charter  against  absolute  legislative  control  in  the  matter 
of  rates  for  the  carriage  of  passengers  and  freight.  3.  That 
when  the  charter  is  granted  subject  to  such  regulations  as  the 
legislature  from  time  to  time  may  provide,  or  subject  to  the 
authority  of  the  legislature  to  alter  or  repeal  it,  in  either  of  such 
cases  the  legislature  has  the  same  power  over  rates  or  tolls  that 
it  had  when  the  charter  was  granted.  4.  In  the  absence  of 
statutory  regulations  upon  the  subject,  it  is  necessarily  implied 
from  the  occupation  of  a  railroad  corporation  that  it  shall  exact 
only  reasonable  compensation  for  carriage." 1 

§  477.  Another  power  necessary  to  the  existence  of  the 
state,  which,  while  it  may  perhaps  be  regarded  as 
incidental  to  the  police  power,  is  important  enough  Jower**1118 
for  detailed  discussion,  is  the  power  to  tax,  that  is 
to  take  the  property  of  individuals  for  a  public  use,2  without 
making  compensation.3  Perplexing  questions  arise  in  the  con- 
struction of  statutes  imposing  taxes  on  corporate  property, 
because  of  the  equivocal  use  of  such  phrases  as  "  capital  stock," 
"  shares  of  stock,"  "  stock,"  "  franchises,"  "  earnings," 4  etc. 
Yery  likely  no  one  has  a  clear  understanding  of  all  these 
phrases.  At  all  events  their  meaning,  as  they  are  used  in  tax 
statutes,  is  so  ambiguous  that  it  can  only  be  determined  from 
the  context,  and  accordingly  a  decision  construing  any  of  these 
terms  is  apt  to  be  of  doubtful  application  in  any  other  case 
than  that  in  which  it  was  rendered. 

Said  Chief  Justice  Waite,  giving  the  opinion  of  the  Federal 
Supreme  Court  in  Tennessee  v.  Whitworth : 5  "In  corporations 
four  elements  of  taxable  value  are  sometimes  found :  1,  fran- 
chises ;  2,  capital  stock  in  the  hands  of  the  corporation  ;  3,  cor- 


1  108  U.  S.  537. 

2  There  can  be  no  lawful  tax  which 
is  not  levied  for  a  public  purpose. 
Loan  Association  v.  Topeka,  20  Wall. 
655;  Parkersburg  v.  Brown,  106  U. 
S.  487. 


3  See  Gilman  v.  City  of  Sheboygan, 
2  Black, 510;  and  §  469a. 

4  As  to  earnings  and    profits,  see 
§  565.     Also  Memphis  and  C.  R.  R. 
Co.  v.  United  States,  108  U.  S.  228. 

s  117  U.  S.  129. 

477 


§  477a.]     THE    LAW    OF    PRIVATE   CORPORATIONS.   [CHAP.  VIII. 


porate  property;1  and  4,  shares  of  the  capital  stock  in  the 
hands  of  the  individual  stockholders.  Each  of  these  is,  under 
some  circumstances,  an  appropriate  subject  of  taxation ;  and 
it  is  no  doubt  within  the  power  of  a  state,  when  not  restrained 
by  constitutional  limitations,  to  assess  taxes  upon  them  in  a 
way  to  subject  the  corporation  or  the  stockholders  to  double 
taxation.  Double  taxation  is,  however,  never  to  be  presumed." 2 
§  477rt.  A  construction  of  tax  laws  that  will  impose  double 
taxation  is  not  to  be  adopted  unless  required  by  the 
taxation.  express  words  of  the  statute  or  by  necessary  impli- 
cation.3 The  franchise  of  a  corporation  is  plainly 
distinct  from  its  capital  or  property ;  consequently,  a  tax  on 
the  franchise  coupled  with  a  tax  on  the  capital  or  property  of 
a  corporation  is  not  double  taxation.4  And  the  franchise  of  a 
railroad  company,  for  instance,  may  be  valued  for  taxation 


1  A  tax  upon  the  capital  stock  of 
a  company  is  a  tax  upon  its  property 
and  assets.  Commonwealth  v.  Stan- 
dard Oil  Co.,  101  Pa.  St.  119;  Fox's 
Appeal,  112  Pa.  St.  337;  Com.  v.  R. 
R.  Co.,  188  Pa.  St.  169.  Cf.  People 
v.  Barker,  146  N.  Y.  304;  Hancock, 
Comp.  v.  Singer  Mfg.  Co.,  62  N.  J.  L. 
289.  There  is  no  double  taxation 
where  a  corporation  is  assessed  on 
its  tangible  property,  and  also  on  the 
value  of  its  capital  stock  in  excess 
of  the  value  of  its  tangible  property. 
Porter  v.  Rockford,  etc.,  R.  R.  Co., 
76  111.  561 ;  Chicago,  B.  &  Q.  R.  R. 
Co.  v.  Siders,  88  111.  320. 

2  See  Commissioners  v.  Tobacco 
Co.,  116  N.  C.  441;  Commonwealth 
v.  Gas  Co.,  162  Pa.  St.  603.  For  the 
purposes  of  taxation,  property  of  a 
corporation  may  consist  of  three  dis- 
tinct things — its  capital  stock,  its 
surplus,  its  franchise;  but  these 
three  tilings,  several  in  the  owner- 
ship of  the  company,  are  united  in 
the  ownership  of  the  shareholders. 
Under  the  N.  Y.  Statute  of  1857  the 
"capital  stock  of  every  company" 
shall  be  assessed  at  its  actual  value. 

478 


This  value  is  not  to  be  ascertained 
by  multiplying  the  nominal  capital 
by  the  market  price  of  the  shares, 
and  then  deducting  the  value  of  its 
non-taxable  property.  People  v. 
Coleman,  126  N.  Y.  433. 

3  Salem  Iron  Factory  v.  Danvers,  10 
Mass.  514;  Amesbury  Woolen,  etc., 
Co.  v.  Amesbury,  17  Mass.  461;  Bank 
of  Georgia  v.  Savannah,  Dudley  ( Ga. ), 
130;  Iron  City  Bk.  v.  Pittsburg,  37 
Pa.  St.  340;  Light  &  Heat  Co.  v.  Elk 
County,  191  Pa.  St.  465;  Cooley  on 
Taxation,  2d  ed.  227. 

4  Carbon  Iron  Co.  v.  Carbon  Co., 
39  Pa.  St.  251;  Lackawanna  Iron, 
etc.,  Co.  v.  County  of  Luzerne,  42 
Pa.  St.  424;  Delaware  R.  R.  Tax,  18 
Wall.  206;  Commonwealth  v.  Lowell 
Gas  L.  Co.,  12  Allen  (Mass.),  75; 
Commonwealth  v.  Hamilton  Mfg. 
Co.,  12  Allen  (Mass.),  298;  Monroe 
Sav.  Bk.  v.  Rochester,  35  N.  Y.  365; 
Spring  Valley  Water  Wks.  v.  Schot- 
tler,  62  Cal.  69.  But  cf.  Common- 
wealth v.  Railroad,  165  Pa.  St.  44. 
See,  also,  Pheuix  Carpet  Co.  v.  State, 
118  Ala.  143;  R.  R.  v.  Harris,  99 
Tenn.  684. 


chap,  vni.] 


CORPORATION  AND  STATE. 


[§  477a. 


separately  from  its  property.1  Further,  the  capital  stock  of  a 
corporation  is  distinct  from  the  shares  of  its  capital  stock, 
which  represent  or  constitute  the  legal  interest  of  the  share- 
holders in  the  corporate  property;2  consequently,  both  the 
capital  stock  and  the  shares  thereof  in  the  hands  of  share- 
holders may  be  taxed,  and  still  there  be  no  double  taxation.3 
As  Justice  Nelson  said,  giving  the  opinion  of  the  Federal 
Supreme  Court  in  Tan  Allen  v.  Assessors  :  "  The  tax  on  shares 
is  not  a  tax  on  the  capital  of  the  bank.  The  corporation  is 
the  legal  owner  of  all  the  property  of  the  bank.  .  .  .  The 
interest  of  the  shareholder  entitles  him  to  participate  in  the 
net  profits  earned  by  the  bank  in  the  employment  of  its  capital, 
during  the  existence  of  its  charter,  in  proportion  to  the  number 
of  his  shares ;  and  upon  its  dissolution  or  termination,  to  his 
proportion  of  that  which  may  remain  of  the  corporation  after 
the  payment  of  its  debts.  This  is  a  distinct  independent  inter- 
est or  property  held  by  the  shareholder,  like  any  other  property 
that  may  belong  to  him."4 


1  Wilmington,  C.  and  A.  Railroad 
Company  v.  Board  of  Commissioners, 
72  N.  C.  10.  For  cases  on  the  valua- 
tion of  capital  stock  and  franchises, 
see  State  Railroad  Tax  Cases,  92  U. 
S.  575;  Railroad  Co.  v.  Vance,  96  U. 
S.  450;  Railway  Co.  v.  Backus,  154 
U.  S.  421;  Adams  Exp.  Co.  v.  Ohio, 
166  U.  S.  185;  Boston  &  L.  R.  R.  Co.  v. 
Commonwealth,  100  Mass.  399;  Peo- 
ple v.  Equitable  Trust  Co.,  96  N.  Y. 
387;  People  v.  Coleman,  107  N.  Y. 
541. 

When  the  statute  requires  the  capi- 
tal stock  of  a  corporation  to  be  as- 
sessed at  its  "actual  value,"  it 
should  be  estimated  above  or  below 
par,  according  to  the  fact.  Oswego 
Starch  Factory  v.  Dolloway,  21  N.  Y. 
449. 

2  Farrington  v.  Tennessee,  95  U".  S. 
679,  686;  New  Orleans  v.  Houston, 
119  U.  S.  265;  State  Bk.  o.  City  of 
Richmond,  79  Va.  113;  Porter  v. 
Rockford,  etc.,  R,  R.  Co.,  76  111.  561; 
Greenleaf  v.  Board  of  Review,    184 


111.  226;  State  v.  Bank,  95  Tenn.  222; 
Commonwealth  v.  Building  Co.,  90 
Va.  790;  Allen  v.  Com.,  98  Va.  80; 
Jefferson  Co.  Sav.  B'k  v.  Hewitt, 
112  Ala.  546.  A  tax  upon  the  undis- 
tributed surplus  of  a  railroad  com- 
pany is  not  a  tax  upon  a  stock  divi- 
dend thereafter  declared,  and  a  mu- 
nicipal corporation  holding  stock  in 
such  railroad  is  not  entitled  to  re- 
cover back  a  proportion  of  the  tax 
so  paid.  Logan  County  v.  United 
States,  169  U.  S.  255. 

3  Cases  in  last  note.  But  see  Che- 
shire County  Telephone  Co.  v.  State, 
63  N.  H.  167.  A  statute  requiring 
the  corporation  to  pay  a  tax  on  the 
shares  of  its  stock  irrespective  of  the 
fact  whether  there  are  dividends  or 
not,  is  substantially  a  tax  on  the 
corporation.  New  Orleaus  v.  Hous- 
ton, 119  U.  S.  265. 

4  3  Wall.  573,  583.  See  §§  483,  484. 
For  purposes  of  taxation  the  situs  of 
shares  is  at  the  residence  of  the 
owner,  unless  otherwise  declared  by 

479 


§  479.]      THE   LAW    OF   PRIVATE   CORPORATIONS.    [CHAP.  VIII. 


§47S.  The  Federal  Congress,  in  the  exercise  of  powers 
conferred  on  it  by  the  constitution,  may  tax  the 
Congress.  property  of  corporations  :  "  The  Congress  shall  have 
power  to  lay  and  collect  taxes,  duties,  imposts,  and 
excises,  to  pay  the  debts  and  provide  for  the  common  defence 
and  general  welfare  of  the  United  States."  '  But  the  power 
of  Congress  to  tax  is  restricted  to  the  scope  of  the  purposes 
thus  specified,  and  also  by  the  following  provisions  : — 

"All  duties,  imposts,  and  excises  shall  be  uniform  through- 
out the  United  States.2 

"No  capitation  or  other  direct  tax  shall  be  laid,  unless  in 
proportion  to  the  census  or  enumeration  hereinbefore  directed 
to  be  taken. 

"  No  tax  or  duty  shall  be  laid  on  articles  exported  from  any 
state. 

"  No  preference  shall  be  given  by  any  regulation  of  com- 
merce or  revenue  to  the  ports  of  one  state  over  those  of  an- 
other ;  nor  shall  vessels  bound  to  or  from  one  state  be  obliged 
to  enter,  clear,  or  pay  duties  in  another." 3 

§  479.  Unlike  the  taxing  power  of  Congress,  the  power  of 

a  state  to  tax  the  property  of  corporations  is  not  re- 

u!eVstates.     stricted  in  the  scope  of  its  purposes  and  objects  by 

Restric-        the  Federal    constitution ;    nor  do   the   specific  re- 

tions.  '  l 

strictions  above  referred  to,  on  the  taxing  power  of 
Congress,  apply  to  the  states.     But,  on  the  other  hand,  the 


statute.  Ogdeu  ».  City  of  St.  Joseph, 
90  Mo.  522;  Mercantile  Trust  Co.  v. 
Mellon,  19G  Pa.  St.  176.  But  the 
statute  may  fix  it  at  the  place  where 
the  corporation  is  located.  Street 
Railroad  Company  v.  Morrow,  87 
Tenn.  406. 

1  Cons.,  sec.  8,  art.  I. 

The  ninth  section  of  the  act  of 
Congress  of  July  13,  180G,  providing 
that  every  national  hank,  state  bank, 
or  state  banking  association  shall 
pay  a  tax  of  ten  per  cent,  on  the 
amount  of  the  notes  of  any  state 
bank  or  state  banking  association 
paid  out  by  them  after  August  1, 
1866,  does  not  lay  a  direct  tax  with- 
in the  meaning  of  the    constitution, 

480 


and  is  constitutional.  Congress, 
having  undertaken  in  the  exercise  of 
undisputed  constitutional  power  to 
provide  a  currency  for  the  whole 
country,  may  constitutionally  secure 
the  benefit  of  it  to  the  people  by 
appropriate  legislation,  and  to  that 
end  may  restrain  the  circulation  of 
any  notes  not  issued  under  its  au- 
thority. Veazie  Bank  v.  Fenno,  8 
AVall.  533;  see  National  Bank  v. 
United  States,  101  U.  S.  1. 

2  Cons.,  sec.  8,  art.  I. 

3  Cons.,  sec.  9,  art.  I.  Direct 
taxes  within  the  meaning  of  the 
constitution  are  only  capitation 
taxes  and  taxes  on  land.  Springer 
v.  United  States,  102  U.  S.  586. 


CHAP.  VIII.] 


CORPORATION  AND  STATE. 


[§  479. 


power  of  a  state  to  tax  is  subject  to  restrictions  to  which  the 
taxing  power  of  Congress  is  not ;  and,  in  the  first  place,  is  lim- 
ited by  the  territorial  limitations  to  the  political  jurisdiction 
of  the  state.1  Thus,  a  state  cannot  tax  the  interest  on  bonds 
held  by  a  non-resident,  secured  by  a  railroad  mortgage,  al- 
though the  railroad  lies  within  the  limits  of  the  state  ;  for 
such  bonds  are  property  in  the  possession  of  their  owners,  and 
when  held  by  non-residents,  are  property  beyond  the  jurisdic- 
tion of  the  state,  and,  consequently,  not  subject  to  her  tax 
laws,  which  can  have  no  extra-territorial  operation.2  Neither 
can  a  state  tax  the  entire  track  and  equipment,  or  the  total 
capital  stock  of  a  railroad  company  whose  track  lies  partly 
without  the  boundaries  of  the  state;  but  may  tax  only  the 
portion  of  the  road  within  its  limits,  or  such  proportion  of  the 
total  capital  stock  as  represents  that  portion.3 


i Commonwealth  v.  Standard  Oil 
Co.,  107  Pa.  St.  119;  cf.  State  v. 
Stephens,  146  Mo.  622. 

2  Case  of  the  State  Tax  on  Foreign 
Held  Bonds,  15  Wall.  300.  It  makes 
no  difference  that  the  mortgaged 
property  lies  within  the  state,  for  a 
debt  has  no  situs  apart  from  the 
domicile  of  the  creditor.  lb.  See 
Kirtland  v.  Hotchkiss,  100  U.  S.  491; 
Bonaparte  v.  Appeal  Tax  Court,  21 
Am.  Law  Reg.,  N.  S.  290  (U.  S. 
Supr.  Ct.);  Railroad  Co.  v.  Jackson, 
7  Wall.  262;  Commonwealth  v.  Ches- 
apeake, etc.,  R.  R.  Co.,  27  Gratt. 
(Va.)  344;  Valle  v.  Zeigler,  84  Mo. 
214.  It  has,  however,  been  recently 
held,  that  bonds  belonging  to  a  non- 
resident decedent,  issued  by  a  for- 
eign corporation,  but  which  are 
actually  in  a  box  in  the  state,  are 
subject  to  taxation  by  the  Transfer 
Tax  Act,  because  physically  present 
in  the  state.  Whiting,  in  re,  150  N. 
Y.  27.  On  the  other  hand,  bonds  of 
a  domestic  corporation,  belonging  to 
non- resident  decedent,  and  actually 
outside  of  the  state,  and  passing  by 
will  to  non-residents,  are  not  sub- 
ject to  this  tax.     Bronson.  in  re,  150 

31 


N.  Y.  1.  Personal  property  other 
than  a  debt  may  have  a  situs  apart 
from  the  domicile  of  the  owner,  at 
least  for  the  purposes  of  taxation. 
Thus,  the  legislature  of  a  state  may, 
for  the  purpose  of  taxation,  locate 
shares  of  stock  in  a  national  bank  at 
the  bank's  place  of  business,  though 
the  shareholders  reside  elsewhere. 
Tappan  v.  Merchants1  Nat.  Bk.,  19 
Wall.  491;  see,  also,  North  Car.  R.  R. 
Co.  v.  Commissioners,  91  N.  C.  454; 
St.  Albans  v.  Nat.  Car  Co.,  57  Vt.  68; 
Crossley  v.  East  Orange,  62  N.  J.  L. 
583;  compare  Miller  v.  U.  S.,  11 
Wall.  269.  However,  shares  may  be 
taxed  at  the  residence  of  the  owner 
also.  Thus,  a  city  may  tax  its  citi- 
zens on  shares  owned  by  them  in  the 
stock  of  a  foreign  corporation;  and 
it  may  do  this,  although  the  state 
incorporating  the  corporation  also 
taxes  the  shares.  Seward  v.  City 
of  RisiDg  Sun,  79  Ind.  351  ;  see 
Cm'wealth  v.  Gloucester  Ferry  Co., 
98  Pa.  St.  105;  McKeen  v.  North'ton 
Co.,  49  Pa.  St.  519;  Worth  v.  Com- 
missioners, 90  N.  C.  409  ;  State  v. 
Kidd,  125  Ala.  413. 
3  State   Treasurer  v.    Aud'r-Gen'l, 

481 


§  479.]       THE   LAW   OF   PRIVATE   CORPORATIONS.  [CHAP.  VIII. 


A  state  may  lay  a  tax  on  the  "  corporate  franchise  or  busi- 
ness" of  a  foreign  corporation  doing  business  within  the  state  j1 
and  when  a  tax  is  imposed  on  the  "  business "  of  a  foreign 
corporation  doing  business  in  the  state,  the  court  will  not  pre- 
sume that  the  tax  is  imposed  on  the  business  done  outside  the 
state  (which  might  be  unconstitutional),  although  the  tax  is 
computed  on  the  capital  stock  of  the  corporation.2  A  foreign 
corporation,  by  doing  business  within  a  state,  does  not  bring 
its  capital  into  the  state  constructively,  so  as  to  subject  to  taxa- 
tion its  property  outside  of  the  state.3  But  it  is  held  that  a 
state  can  tax  the  entire  capital  stock  of  a  corporation  formed 


46  Mich.  224.  See  Ohio  &  M.  R.  R. 
Co.  v.  Weber,  90  111.  443;  Pullman's 
Car  Co.  v.  Pennsylvania,  141  U.  S. 
18;  Massachusetts  v.  West.  Un.  Tel. 
Co.,  141  U.  S.  40;  West.  Un.  Tel. 
Co.  d.  Taggart,  163  U.  S.  1 ;  cf.  Com. 
v.  Old  Dom.  Stm.  Co.,  128  N.  C.  558. 
Where  a  corporation  brings  part  of 
its  movable  property  (railway  cars) 
into  a  state,  and  there  uses  it,  a 
state  may  levy  a  tax  upon  the  aver- 
age amount  of  such  property,  al- 
though its  identity  is  constantly 
changing,  and  although  it  is  used 
in  interstate  commerce.  American 
Ref.  Transit  Co.  v.  Hall,  174  U.  S. 
70;  Union  Refrigerator  Transit  Co. 
v.  Lynch,  177  U.  S.  149.  But  the 
United  States  may  tax  the  interest 
payable  on  railroad  bonds  held  by 
alien  non-resident  owners;  and  may 
compel  the  corporation  to  withhold 
such  tax  from  the  bondholders.  U. 
S.  v.  Erie  Ry.  Co.,  106  U.  S.  327. 
But  it  is  held  that  in  assessing  the 
value  of  stock  for  the  purposes  of 
state  taxation,  it  is  not  illegal  to  in- 
clude real  estate  owned  by  the  cor- 
poration, but  situated  outside  of  the 
state.  Amer.  Coal  Co.  v.  County 
Commissioners,  59  Md.  185.  A  stat- 
ute provided  that  the  personal  prop- 
erty of  corporations  should  be  taxed 
in  the  town  "  in  which  it  has  its 
principal  place  of  business  or  exer- 

482 


cises  its  corporate  powers."  Held, 
that  the  principal  place  of  business, 
within  the  meaning  of  this  statute, 
is  the  place  where  the  governing 
power  of  the  corporation  is  exer- 
cised. Middletown  Ferry  Co.  v. 
Middletown,  40  Conn.  65.  Not  where 
the  principal  labor  of  the  employes 
of  the  corporation  is  done.  lb.  Com- 
pare Oswego  Starch  Factory  v.  Dol- 
loway,  21  N.  Y.  449. 

1  Horn  Silver  Mng.  Co.  v.  New  York, 
143  U.  S.  305;  Com'l  Elec.  L.  &  P. 
Co.  v.  Judson,  21  Wash.  49;  Edison 
Elec.  Co.  v.  Spokane  Co.,  22  Wash. 
168;  but  see  People  v.  Equitable 
Trust  Co.,  96  N.  Y.  387.  As  to  when 
a  corporation  may  be  said  to  be  "  do- 
ing business,"  see  State  v.  Auniston 
Rolling  Mills,  125  Ala.  121. 

2  People  v.  Equitable  Trust  Co.,  96 
N.  Y.  387;  see  Maine  v.  Grand  Trunk 
Ry.  Co.,  142  U.  S.  217.  A  railroad 
company  is  "doing  business"  in  a 
state  where  part  of  its  road  is  situ- 
ated. Erie  Ry.  Co.  v.  Pennsylvania, 
21  Wall.  492.  Compare  People  v. 
Horn  Silver  Mining  Co.,  105  N.  Y.  76. 

3  Commonwealth  v.  Standard  Oil 
Co.,  101  Pa.  St.  119.  A  corporation 
will  be  regarded  as  "  doing  business" 
in  a  state  where  its  officers  have  their 
offices,  where  its  directors  hold  their 
meetings,  where  its  dividends  are  de- 
clared and  paid,  and  large  portions 


: 


CHAP.  VIII.] 


CORPORATION  AND  STATE. 


[§  480. 


by  the  consolidation  of  corporations  created  by  it  and  by  an- 
other state.1 

§  480.  The  power  of  a  state  to  tax  is  expressly  restricted  by 
section  10,  article  I.  of  the  Federal  constitution  :  viz. :  "  No 
state  shall,  without  the  consent  of  the  Congress,  lay  any  imposts 
or  duties  on  imports  or  exports,  except  what  may  be  absolutely 
necessary  for  executing  its  inspection  laws,2  ....  nor  lay  any 
duty  on  tonnage."3  And  the  taxing  power  of  a  state  is  also 
restricted  by  the  clause  in  Amendment  XIV.  to  the  Federal 
constitution,  which  forbids  any  state  to  deny  to  any  person 
within  its  jurisdiction  the  equal  protection  of  the  laws.1  Thus, 
when  a  state  allows  individuals  to  deduct  the  amount  of  the 
mortgages  on  their  property  in  estimating  its  tax  valuation,  it 
is  unconstitutional  for  the  state  to  provide  that  in  assessing  the 
property  of  railroad  companies  the  amount  of  the  mortgages 
therein  shall  not  be  deducted.5  And  further,  to  make  no  pro- 
vision for  giving  the  company  notice  of  the  assessment,  and  to 
allow  it  no  chance  to  be  heard  in  respect  thereof,  deprive  it  of 
its  property  without  due  process  of  law.6 

On  the  other  hand,  as  corporations  are  held  not  to  be  citi- 
zens within  the  meaning  of  the  clause  in  the  constitution 
which  secures  to  the  citizens  of  each  state  the  privileges  and 
immunities  of  the  citizens  in  the  several  states,7  a  state  may 


of  its  property  are  sold  from  time  to 
time.  It  is  not  essential  that  all  its 
business  be  clone  in  the  state.  Peo- 
ple v.  Horn  Silver  Mining  Co.,  105 
N.  Y.  76. 

i  Keokuk  Bdg.  Co.  v.  People,  161 
111.  132;  ace.  Ashley  v.  Ryan,  153  U. 
S.  437. 

2 See  Brown  v.  Maryland,  12  Wheat. 
419;  Turner  o.  Maryland,  107  IT.  S. 
38;  People  v.  Compagnie  Generale 
Transatlantique,  107  U.  S.  59 ;  Wood- 
ruff v.  Parham,  8  Wall.  123;  Pace  ». 
Burgess,  92  U.  S.  372;  Guy  v.  Balti- 
more, 100  TJ.  S.  434;  Tiernan  v. 
Rinker,  102  TJ.  S.  123;  Higgins  ». 
Three  Hundred  Casks  of  Lime,  130 
Mass.  1. 

3  See  Peete  v.  Morgan,  19  Wall.  581; 
Cannon  v.  New  Orleans,  20  Wall.  577; 


Inman  Steamship  Co.  v.  Tinker,  94 
TJ.  S.  238;  State  Tonnage  Taxes,  12 
Wall.  204. 

4  This  provision  applies  to  and 
protects  corporations.  Santa  Clara 
County  o.  Southern  Pacific  R.  R.  Co., 
118  TJ.  S.  394;  Hammond  Beef  Co.  v. 
Best,  91  Me.  431.  But  does  not  pro- 
tect foreign  corporations  until  they 
have  entered  the  state.     See  §  400. 

5  Railroad  Tax  Cases,  13  Fed.  Rep. 
722.  See  People  v.  Fire  Ass'n,  92  N. 
Y.  311.  Contra,  Central  Pac.  R.  R. 
Co.  v.  State  Board,  60  Cal.  35;  San 
Francisco,  etc.,  R.  R.  Co.  v.  State 
Board,  60  Cal.  12. 

6  lb.  See  People  v.  Supervisors, 
70  N.  Y.  228;  post,  §  492. 

7  Cons.,  sec.  2,  ar.  IV.;  Pyrolusite 
Manganese  Co.  v.  Ward,  73  Ga.  491; 

483 


§  481.]        THE   LAW    OF   PRIVATE   CORPORATIONS.  [CHAP.  VIII. 


ordinarily  discriminate  in  its  taxation  between  foreign  and 
domestic  corporations,1  and  may  lay  additional  taxes  on  a 
foreign  corporation  as  a  condition  of  its  being  allowed  to  trans- 
act business  within  the  limits  of  the  state.2 

§  481.  But  the  most  important  of  the  restrictions  in  the 
Federal  constitution  on  the  power  of  the  states  to 
tax  arise  by  implication  from  the  exigencies  of  the 
Federal  government,  and  from  the  nature  of  certain 
powers  granted  to  Congress.  Within  the  scope  of 
tile  exigen-  its  constitutional  powers  the  Federal  government  is 
Federal116  superior  to  the  state  governments.3  And,  since  a 
men"1  power  to  tax  the  agencies  and  instruments  of  a  gov- 

ernment involves  a  power  to  trammel  and  destroy 
them,  it  is  evident  that  any  power  in  the  state  to  tax  the  agen- 


Restric- 
tions  on  the 
power  of 
the  states 
to  tax  aris- 


Anglo-American  Prov.  Co.  v.  West 
India  Iinp't  Co.,  169  N.  Y.  506; 
Hawley  v.  Hurd,  72  Vt.  122. 

1  Ducat  v.  Chicago,  48  111.  172; 
Phoenix  Ins.  Co.  v.  Commonwealth, 
5  Bush  (Ky.),  68;  Tatem  v.  Wright, 
23  N.  J.  L.  429;  see  Commonwealth 
v.  Gloucester  Ferry  Co.,  98  Pa.  St. 
105,  and  compare  Commonwealth  v. 
Texas  and  Pacific  R.  R.  Co.,  98  Pa. 
St.  90.  It  is  not  entirely  clear  to  the 
writer  that  these  decisions  are  in 
accord  with  the  Federal  Circuit 
Court  decision  of  Railroad  Tax 
Cases,  supra.  With  that  decision, 
however,  the  view  of  the  New  York 
Court  of  Appeals,  in  People  v.  Fire 
Ass'n,  92  N.  Y.  311,  is  perfectly 
reconcilable;  i.  e.,  that  the  Amend- 
ment XIV.,  which  prohibits  states 
from  denying  to  any  person  the 
equal  protection  of  the  laws,  does 
not  apply  to  conditions  imposed  on 
foreign  corporations  on  entering  the 
state,  although  it  may  afford  them 
security  after  they  have  complied 
with  such  conditions.  See  §  400. 
At  all  events,  corporations  are  "  per- 
sons "  within  the  meaning  of  the 
clause  in  the  Fourteenth  Amend- 
ment   to    the    Federal    constitution, 

484 


|  forbidding  states  to  deprive  any  per- 
son of  property  without  due  process 
of  law,  or  deny  to  any  person  the 
equal  protection  of  its  laws.  Min- 
neapolis Ry.  Co.  v.  Beckwith,  129 
U.  S.  26;  Pembina  Mfg.  Co.  v.  Penn- 
sylvania, 125  U.  S.  181;  Santa  Clara 
County  v.  Southern  Pac.  R.  R.,  118 
U.  S.  394. 

2  People  v.  Fire  Ass'n,  92  N.  Y. 
311;  Phoenix  Ins.  Co.  o.  Welch,  29 
Kans.  672;  State  ».  Western  Un.  Tel. 
Co.,  73  Me.  518;  Western  Un.  Tel. 
Co.  v.  Mayer,  28  Ohio  St.  521;  but  see 
Clark  v.  Port  of  Mobile,  10  Ins.  Law 
Journal,  357;  Scottish  Union,  etc., 
lus.  Co.  v.  Herriot,  109  Iowa,  606; 
except  where  such  taxation  would 
conflict  with  the  exercise  of  powers 
granted  to  Congress  by  the  Federal 
constitution,  see  §  486.  The  state 
may  levy  a  franchise  tax  upon  a  cor- 
poration doing  business  in  that  state 
from  which  are  exempted  corpora- 
tions foreign  and  domestic  wholly 
engaged  in  manufacture  in  that  state. 
New  York  State  v.  Roberts,  171  U.  S. 
658.  See,  also,  §§  379  et  seq.,  on 
the  territorial  extent  of  corporate 
powers. 

3  See  ante,  §  4696. 


CHAP.  VIII.] 


CORPORATION  AND  STATE. 


[§  -±82. 


cies  and  instruments  of  the  national  government  would  be 
incompatible  with  that  government's  existence.  Since  the 
greatest  of  constitutional  decisions,  McCulloch  v.  Maryland,1 
these  propositions  have  not  been  questioned. 

§  482.  The  exemption  of  Federal  agencies  from  state  taxa- 
tion is  held  to  depend,  not  upon  the  nature  of  the 
agencies,  nor  upon  the  manner  in  which  they  are  j^f^i 
constituted,  nor  even  upon  the  fact  that  they  are 
such  agencies.  Does  the  tax,  in  truth,  impair  their  power  to 
serve  the  Federal  government  as  they  were  intended  to  serve 
it?  this  is  the  material  question.2  Accordingly,  while  a  state 
tax  on  the  operations  of  a  Federal  agency  or  instrument  would 
be  void  as  a  direct  obstruction  to  the  exercise  of  the  powers  of 
the  Federal  government,  yet  if  such  agency  or  instrument  be  a 
stock  corporation,  a  state  tax  upon  its  property  may  be  valid, 
provided  the  tax  leaves  the  corporation  free  efficiently  to  dis- 
charge its  duties  to  the  Federal  government,  and  in  no  way 
impairs  the  functions  of  the  corporation  as  a  Federal  agency.3 
If  these  propositions  are  correct,  a  fortiori  the  employment  of 
a  corporation,  originally  chartered  by  a  state,  in  the  service  of 
the  Federal  government,  does  not  exempt  it  from  state  taxa- 
tion ;  at  least  in  the  absence  of  legislation  on  the  part  of  Con- 
gress indicating  that  such  exemption  is  deemed  by  Congress 


1  4  Wheat.  405.  Franchises  granted 
to  a  corporation  by  Congress  cannot 
be  taxed  by  a  state.  California  v. 
Pacific  R.  R.  Co.,  127  U.  S.  1.  A  state 
cannot  tax  the  capital  stock  of  a  cor- 
poration issued  for  patent  rights 
granted  by  the  United  States.  Com- 
monwealth v.  Philadelphia  County, 
157  Pa.  St.  527;  Peo.  ex  rel.  Edison 
Co.  v.  Assessors,  156  N.  Y.  481 ;  copy- 
rights are  likewise  exempt  from  the 
taxing  power  of  the  state.  Peo.  ex 
rel.  A.  J.  Johnson  Co.  v.  Roberts,  159 
N.  Y.  70. 

2  Railroad  Co.  v.  Peniston,  18 
Wall.  5. 

3  Railroad  Co.  v.  Peniston,  supra; 
Central  Pac.  R.  R.  v.  California,  1G2 
U.S.  91;  Adams  Exp.  Co.  v.  Ohio, 
165  U.  S.  194;  National  Bk.  v.  Com- 


monwealth, 9  Wall.  353;  see  Bank  of 
Commerce  v.  New  York  City,  2 
Black,  620;  Bank  Tax  Case,  2  Wall. 
200;  Society  of  Savings  v.  Coite,  6 
Wall.  594;  Provident  Institution  ». 
Massachusetts,  6  Wall.  611;  Hamil- 
ton Co.  v.  Massachusetts,  6  Wall.  633. 
A  state  tax  on  the  capital  stock  is 
not  a  tax  on  franchises  granted  by 
the  Federal  government,  and  is  valid. 
Keokuk  and  Hamilton  Bridge  Co.  v. 
Illinois,  175  U.  S.  626.  It  may  be 
assumed,  however,  inasmuch  as  Con- 
gress has  power  to  charter  corpora- 
tions only  in  furtherance  of  some 
Federal  object,  that  any  state  tax  on 
the  property  of  corporations  so  char- 
tered, in  any  way  discriminating 
against  them,  would  be  held  uncon- 
stitutional. 

485 


§  483.]       THE   LAW    OF    PRIVATE   CORPORATIONS.     [CHAP.  VIII 


essential  to  the  full  performance  on  the  part  of  the  corporation 
of  its  obligations  to  the  Federal  government.1 

§  483.  The  most   numerous  and  important  class   of  corpo- 
rations incorporated  by  Congress  are  the  national 
state  taxa-    j^^g  .    wi^h  are  instruments  designed  to  aid  the 
national        Federal   government    in   the  administration   of   an 

banks.  ° 

important  branch  of  the  public  service.  Being  such 
means  and  brought  into  existence  for  that  purpose,  the  states 
can  exercise  no  control  over  them,  nor  in  any  way  affect  their 
operations,  except  in  so  far  as  Congress  may  permit.2  To  what 
extent  national  banking  interests  may  be  taxed  by  the  states, 
Congress  has  provided  as  follows  : — 

"  Nothing  herein  shall  prevent  all  the  shares  in  any  asso- 
ciation from  being  included  in  the  valuation  of  the  personal 
property  of  the  owner  or  holder  of  such  shares,  in  assessing 
taxes  imposed  by  authority  of  the  state  within  which  the  asso- 
ciation is  located  ;  but  the  legislature  of  each  state  may  deter- 
mine and  direct  the  manner  and  place  of  taxing  all  the  shares 
of  national  banking  associations  located  within  the  state,  sub- 
ject only  to  the  two  restrictions,  that  the  taxation  shall  not  be 
at  a  greater  rate  than  is  assessed  upon  other  moneyed  capital 
in  the  hands  of  individual  citizens  of  such  state,  and  that  the 
shares  of  any  national  banking  association  owned  by  non- 
residents of  any  state  shall  be  taxed  in  the  city  or  town  where 
the  bank  is  located,  and  not  elsewhere.  Nothing  herein  shall 
be  construed  to  exempt  the  real  property  of  associations  from 
either  state,  county,  or  municipal  taxes,  to  the  same  extent, 
according  to  its  value,  as  other  real  property  is  taxed."3 


i  Thompson  v.  Pac.  R.  R.,  9  Wall. 
579. 

-  Fanner's,  etc.,  National  Bank  v. 
Dearing,  91  U.  S.  29;  Pollard  v.  State, 
65  Ala.  628;  City  of  Carthage  v.  First 
National  Bank,  71  Mo.  508;  Maguire 
v.  Board  of  Revenue,  71  Ala.  401; 
Peo.  v.  Nat.  B'k  of  D.  O.  Mills  &  Co., 
123  Cal.  53;  First  Nat.  B'k  v.  San 
Francisco,  129  Cal.  96.  See  Linton 
v.  Childs,  109  Ga.  567,  where  a  tax 
upon  bank  presidents  was  held  not 
to  apply  to  presidents  of  national 
banks. 

486 


It  is  within  the  constitutional 
power  of  Congress  to  establish  a  na- 
tional bank  in  any  state,  and  provide 
that  its  sbares  shall  be  exempt  from 
taxation  by  other  states.  Flint  v. 
Board  of  Aldermen,  99  Mass.  141. 
See  McCulloch  v.  Maryland,  4  Wheat. 
405. 

3  U.  S.  Rev.  Stat.  §  5219.  See  Boyer 
v.  Boyer,  113  U.  S.  689. 

The  power  of  a  state  to  tax  national 
banks  comes  from  the  act  of  Con- 
gress, which  must  be  obeyed  in  thor- 
ough good  faith.  First  National  Bank 


CHAP.  VIII.]  CORPORATION  AND  STATE. 


[§  484. 


§  484.  With  reference  to  these  statutory  provisions,  it  was 
held  that  the  New  York  statute,  passed  March  9,  1865,  by 
which  it  was  enacted  that  shares  in  a  national  bank  held  by 
any  person  or  body  corporate  should  be  "  included  in  the  valu- 
ation of  the  personal  property  of  such  person  or  body  corporate 
in  the  assessment  of  taxes  in  the  town  or  ward  where  such  bank- 
ing association  is  located,  and  not  elsewhere,"  but  which  did 
not  provide  that  the  tax  imposed  should  not  exceed  the  rate 
imposed  on  the  shares  of  any  of  the  banks  organized  under 
state  authority,  is  unwarranted  and  void,  no  tax  having  been 
laid  by  the  state  on  shares  in  the  stock  of  state  banks,  though 
there  was  a  tax  on  the  capital  of  such  banks.1  It  was  held, 
however,  that,  within  the  limits  of  the  National  Banking  Act, 
a  state  mi^ht  tax  the  entire  interest  of  the  shareholder  in 
national  banking  shares ;  and  that,  too,  without  regard  to  the 
fact  that  a  part  or  the  whole  of  the  capital  of  the  bank  was 
invested  in  Federal  bonds  exempted  from  state  taxation  by 
act  of  Congress.  Such  a  tax  the  court  considered  but  a  tax 
on  the  new  uses  or  privileges  conferred  by  the  charters  of 
national  banks  in  respect  of  the  bonds,  and  a  valid  condition 
annexed  to  their  new  use.2  If  the  rate  of  taxation  by  a  state 
on  the  shares  in  national  banks  is  not  greater  than  the  rate 
upon  the  moneyed  capital  of  individuals  which  is  subject  to 
taxation ;  that  is,  if  no  greater  proportion  or  percentage  of 
tax  is  levied  on  the  valuation  of  such  shares  than  is  levied 
upon  other  taxable  moneyed  capital  in  the  hands  of  citizens 


v.  St.  Joseph,  46  Mich.  526.  The  ter- 
ritories possess  the  same  power  as 
the  states  to  tax  national  banks. 
Talbott  v.  Silver  Bow  County,  139 
U.  S,  438.  See,  Owensboro  Nat. 
Bank  o.  Owensboro,  173  U.  S.  664, 
holding  that  a  tax  on  the  franchise 
of  a  national  bank  is  invalid.  Third 
National  Bank  v.  Stone,  174  U.  S.  432. 
The  legislature  may  tax  the  prop- 
erty of  a  corporation  and  also  tax 
the  shareholders  separately  on  their 
shares.  Cook  v.  City  of  Burlington, 
59  Iowa,  251. 

1  Van  Allen  v.   The   Assessors,  3 
Wall.  573. 

2  Van   Allen   v.    The   Assessors,   3 


Wall.  573,  Chase,  C.  J.,  and  Wayne 
and  Swayne,  J  J.,  dissenting.  Ac- 
cord, Bradley  v.  People,  4  Wall.  459; 
Nat.  Bank  v.  Commonwealth,  9  Wall. 
353 ;  in  which  last  case  the  court  held 
that  a  tax  might,  properly  speaking, 
be  a  tax  on  shares,  though  it  was 
collected  from  the  bank  instead  of 
from  the  individual  shareholders. 
See,  also,  Mercantile  B'k  v.  New 
York,  121  U.  S.  128;  People  v.  Home 
Ins.  Co.,  92  N.  Y.  328;  Union  Bank 
v.  City  of  Richmond,  94  Va.  316; 
Cleveland  Trust  Co.  v.  Lander,  62 
Oh.  St.  266;  compare  Philadelphia 
Contributionship  v.  Commonwealth, 
98  Pa.  St.  48. 

487 


§  484.]       THF    LAW    OK    PRIVATE   CORPORATIONS.    [CHAP.  VIII. 

of  the  state,  the  tax  conforms  with  the  National  Banking 
Act.1  And  the  state  tax  law  will  be  valid  unless  an  inten- 
tion to  discriminate  against  national  banks  or  actual  and  ma- 
terial discrimination  against  them  be  shown.2  It  has  further 
been  held  under  the  act  of  Congress  of  February  10, 1868,3  per- 
mitting the  state  legislatures  to  direct  the  manner  of  taxing 
shares,  that  shares  in  national  banks  may  be  valued  for  taxa- 
tion at  an  amount  above  their  par  value.4 


1  People  v.  The  Commissioners,  4 
Wall.  244,  affirming  Van  Allen  v.  The 
Assessors,  supra.  The  fact  that  the 
state,  in  the  charters  of  two  state 
hanks,  has  disahled  itself  from  tax- 
ing them,  does  not  prevent  the  state 
from  taxing  shares  in  other  state 
banks  and  in  national  banks.  Lion- 
berger  v.  Rouse,  9  Wall.  468;  com- 
pare First  National  Bank  v.  Waters, 
19  Blatclif.  242.  A  grant  to  owners 
of  a  certain  class  of  property  called 
"credits"  (Ohio)  of  the  right  to 
deduct  certain  debts,  not  granted  to 
other  owners  of  moneyed  capital 
does  not  invalidate  a  tax  on  national 
bank  shares.  First  Nat'l  B'k  of  Wel- 
lington v.  Chapman,  173  U.  S.  205. 
See,  also,  Commercial  Bank  v. 
Chambers,  182  U.  S.  556. 

2  Davenport  B'k  v.  Davenport,  123 
U.  S.  83;  B'k  of  Redemption  v.  Boston, 
125  U.  S.  60.  Unless  there  is  an  in- 
tention to  discriminate,  the  mere  fact 
that  the  national  bank  is  not  allowed 
to  deduct  stock  in  other  corporations 
which  are  taxable  upon  their  capital 
stock  in  Washington,  does  not  violate 
§5219.  Pacific  Nat.  B'k  v.  Pierce 
County,  20  Wash.  675.  Money  in- 
vested in  railroad  and  manufactur- 
ing enterprises  which  do  not  com- 
pete with  the  banking  business  is 
not  within  the  meaning  of  §  5219,  for- 
bidding taxation  upon  shares  in 
national  banks  at  a  greater  rate  than 
"  upon  other  moneyed  capital  in  the 
hands  <>f   individual    citizens  of  the 

488 


state."  Aberdeen  Bank  v.  Chelialis 
Co.,  166  U.  S.  440;  nor  is  money  in- 
vested in  trust  companies  organized 
under  the  laws  of  New  York.  Jen- 
kins v.  Neff,  163  N.  Y.  320;  cf.  Me- 
chanics' Nat.  B'k  v.  Baker,  Rec'r,  65 
N.  J.  L.  113. 

3  Ante,  §5219,  U.  S.  Rev.  Stat. 

4  Hepburn  v.  The  School  Directors, 
23  Wall.  480;  see  People  v.  Commis- 
sioners of  Taxes,  94  U.  S.  415;  Staf- 
ford National  Bank  v.  Dover,  58  N. 
II.  316. 

But  the  provision  of  §  5219  of  the  U. 
S.  Rev.  Stat.,  that  state  taxation  on 
the  shares  of  any  national  banking 
association  shall  not  bo  at  a  greater 
rate  than  is  assessed  on  other  mon- 
eyed capital,  has  reference  to  the 
entire  process  of  assessment,  and  in- 
cludes the  valuation  of  the  shares  as 
well  as  the  rate  of  percentage  charged 
thereon.  A  New  York  statute  which 
permits  a  person  to  deduct  his  just 
debts  from  the  valuation  of  all  his 
personal  property,  except  from  so 
much  thereof  as  consists  of  national 
banking  shares,  taxes  them  at  a 
greater  rate  than  other  moneyed  capi- 
tal, and  is  void  as  to  them.  People  v. 
Weaver,  100  U.  S.  539;  Supervisors  v. 
Stanley,  105  U.  S.  305;  Whitbeck  v. 
Mercantile  National  Bank,  127  U.  S. 
193;  Newport  v.  Mudgett,  18  Wash. 
271.  See  Pelton  v.  National  Bank, 
101  U.  S.  143;  Cummings  v.  National 
Bank,  101  U.  S.  153. 

The  personal  property  of  an  insol- 


CHAP.  VIII.]  CORPORATION  AND  STATE. 


[§  485. 


§  485.  Of  great  interest  are  the  restrictions  on  the  power 
of  the  state  to  tax  corporations  which  arise  from  the   Restric- 
essentially  exclusive  power  or  Congress  to  regulate   Jgjg  JJ^ 
commerce   with    foreign    nations   and    among   the   tion  arising 

-it       from  the 

states.1     The  power  of  a  state  to  authorize  railroads   power  of 
and  other  highways  is  unrestricted,  and  the  dispo-   to°reguia!te 
sition  of  revenues  from  them  lies  in  its  discretion.2       commerce. 
A  state  may  license  and  tax  occupations   extending   beyond 
its  borders,  provided  it  does  not  discriminate  in  favor  of  simi- 
lar occupations  that  are  carried  on  entirely  within  its  borders.3 
But  a  state  cannot  impose  a  tax  on  the  movement  of  persons 
or  commodities  from  one  state  to  another.4     A  state  tax  on 
freight  transported  from  state  to  state  is  void,  as  amounting 
to  a  regulation  of  commerce  between  the  states  ;  for,  whenever 
a  subject,    over   which   a   power   regulative   of   commerce  is 
asserted,  is  in  its  nature  national  or  interstate,  it  may  be  said  to 
require  exclusive  regulation  by  Congress ;  and  the  transporta- 
tion of  passengers  or  merchandise  through  a  state  is  of  this 
nature.5     On  the  other  hand,  a  state  tax  on  the  gross  receipts 


vent  national  bank  in  the  hands  of  a 
receiver  is  exempt  from  state  tax- 
ation. Rosenblatt  v.  Johnston,  104 
U.  S.  462.  A  national  bank  may,  on 
behalf  of  its  shareholders,  maintain 
a  suit  to  enjoin  the  collection  of  a 
state  tax  unlawfully  assessed  on 
their  shares.  Hills  v.  Exchange 
Bank,  105  U.  S.  319;  Evansville 
Bank  v.  Britton,  105  U.  S.  322;  Cum- 
mings  v.  National  Bank,  101  U.  S. 
153;  National  Albany  Exchange 
Banku.  Wells,  18  Blatchf.  498;  City 
National  Bank  v.  Padncah,  2  Flip- 
pin,  61;  Citizens  Nat.  Bank  v.  Co- 
lumbia County,  23  Wash.  441.  But 
see  §  4926,  note. 

1  See  for  the  effect  of  these  exclu- 
sive powers  of  Congress  in  restrict- 
ing the  police  power  of  the  states, 
ante,  §§  4746-474d. 

2  Railroad  Co.  v.  Maryland,  21 
Wall.  456. 

8  Machine  Co.  v.  Gage,  100  U.  S. 
676;    Osborne   v.   Mobile,    16   Wall. 


479.  Compare  Ward  v.  Maryland, 
12  Wall.  418;  Erie  Ry.  Co.  ».  State, 
31  N.  J.  L.  531;  Jackson  Mining  Co. 
v.  Auditor-General,  32  Mich.  488; 
Chicago  &  E.  I.  R.  R.  Co.  v.  State, 
153  Ind.  134. 

4  Crandall  v.  State  of  Nevada,  6 
Wall.  35 ;  Railroad  Co.  v.  Maryland, 
21  Wall.  456.  Compare  Moran  v. 
New  Orleans,  112  U.  S.  69;  Coe  v. 
Errol,  116  U.  S.  517;  Pickard  v.  Pull- 
man Southern  Car  Co.,  117  U.  S.  34. 
A  state  cannot  tax  a  foreign  railroad 
corporation  upon  its  business  within 
the  state  when  that  is  exclusively  a 
business  of  interstate  commerce;  it 
cannot  tax  the  foreign  corporation 
for  the  privilege  of  carrying  on  in- 
terstate commerce  within  the  state 
borders.  People  v.  Wemple,  138  N. 
Y.  1.  Compare  Lehigh  Valley  R.  R. 
Co.  v.  Pennsylvania,  145  U.  S.  192; 
State  v.  Stephens,  146  Mo.  662. 

5  Case  of  the  State  Freight  Tax, 
15    Wall.   233.      But  the   court  said 

489 


§  485.]       THE    LAW    OF    PRIVATE   CORPORATIONS.    [CHAP.  VIII. 

of  a  railroad  company  is  not  such  a  regulation  of  interstate  com- 
merce as  to  be  repugnant  to  the  constitution,  even  though  the 
gross  receipts  are  made  up  in  part  from  freights  received  for  the 
transportation  of  merchandise  from  the  state  laying  the  tax  to 
another  state,  or  for  transportation  from  another  state  into  the 
state  laying  the  tax ;  nor  is  such  a  tax  a  tax  on  imports  or 
exports.1  And  it  is  further  held  a  state  may  tax  the  vehicles 
of  commerce  like  other  property  owned  by  its  citizens.2 

A  state  cannot  impose  a  tax  on  commodities  by  reason  of 
their  foreign  origin  ;  nor  in  any  way  discriminate  in  its  tax 
laws  against  the  products  of  other  states  brought  within  its 
boundaries.3  The  power  of  Congress  to  regulate  commerce 
"  continues  until  the  commodity  has  ceased  to  be  the  subject 
of  discriminating  legislation  by  reason  of  its  foreign  charac- 
ter. That  power  protects  it,  even  after  it  has  entered  into  the 
state,  from  any  burden  imposed  by  reason  of  its  foreign  ori- 


that  it  recognized  fully  the  power 
of  a  state  to  tax  its  own  internal 
commerce,  and  the  franchises,  prop- 
erty, and  business  of  its  own  corpo- 
rations, provided  interstate  trade 
and  commerce  were  not  thereby  em- 
barrassed or  restricted.  lb.  Com- 
pare Passenger  Cases,  7  How.  283; 
Delaware  Railroad  Tax,  18  Wall. 
206;  Fargo  v.  Michigan,  121  U.  S. 
230;  Philadelphia,  etc.,  S.  S.  Co.  v. 
Pennsylvania,  122  U.  S.  326. 

1  State  Tax  on  Railway  Gross  Re- 
ceipts, 15  Wall.  284.  See  Ohio  and 
Mississippi  R.  R.  Co.  v.  Weber,  96 
111.  443;  see  Maine  v.  Grand  Trunk 
Ry.  Co.,  142  U.  S.  217;  Cumberland 
&  Pa.  R.  R.  Co.  v.  State,  92  Md.  668. 

Maryland  granted  to  a  railroad 
company  a  franchise  to  build  a  road 
from  Baltimore  to  Washington,  stip- 
ulating that  the  company  should 
charge  not  more  than  two  and  a 
half  dollars  per  passenger,  and  that 
at  the  end  of  every  six  months  the 
company  should  pay  to  the  state 
one-fifth  of  the  amount  received  for 
the    transportation    of    passengers. 

490 


Held,  that  such  stipulation  was  not 
unconstitutional  as  being  a  restrict- 
ion on  free  intercourse  and  traffic 
between  the  states,  and  that  it  dif- 
fered from  a  tax  or  duty  on  the 
movements  or  operations  of  com- 
merce between  the  states.  Railroad 
Co.  v.  Maryland,  21  Wall.  456;  com- 
pare Osborne  v.  Mobile,  16  Wall. 
479. 

2  Wiggins  Ferry  Co.  v.  East  St. 
Louis,  107  U.  S.  365;  compare 
Transportation  Co.  v.  Wheeling,  99 
U.  S.  273;  Passenger  Cases,  opinion 
of  McLean,  J.,  7  How.  283,  402; 
Commonwealth  v.  Gloucester  Ferry 
Co.,  98  Pa.  St.  10.-) ;  Transit  Co.  v. 
Lynch,  18  Utah,  378.  The  fact  that 
a  bridge  over  a  river  is  used  for  in- 
terstate commerce  does  not  prevent 
a  state  from  taxing  so  much  of  it  as 
is  within  its  borders.  Pittsburg, 
etc.,  Ry.  Co.  v.  B'd  of  Public  Works, 
167  U.  S.  32;  see  Henderson  Bridge 
Co.  v.  Henderson  City,  173  U.  S.  592. 

3  Walling  u.  Michigan,  116  U.  S. 
446. 


CHAP.  VIII.]  CORPORATION  AND  STATE. 


[§  487. 


gin.  .  .  .  The  fact  that  Congress  has  not  seen  fit  to  prescribe 
any  specific  rules  to  govern  interstate  commerce  does  not  affect 
the  question.  Its  inaction  on  this  subject,  when  considered  with 
reference  to  its  legislation  with  respect  to  foreign  commerce,  is 
equivalent  to  a  declaration  that  interstate  commerce  shall  be 
free  and  untrammelled."1 

§  486.  In  respect  of  its  foreign  and  interstate  business  a 
telegraph  company  is,  as  an  instrument  of  commerce,  subject 
to  the  regulating  power  of  Congress,  and  if  it  ac-   _,  , 

°  ?  .  .  .  Telegraph 

cepts  the  provisions  of  title  sixty-five,  of  the  companies. 
Revised  Statutes  of  the  United  States,  it  becomes 
a  Federal  agent  in  so  far  as  the  business  of  the  Federal  gov- 
ernment is  concerned.  Accordingly,  when  such  a  company 
has  accepted  those  provisions,  state  laws,  in  so  far  as  they 
impose  a  specific  tax  on  each  message  which  the  company 
transmits  beyond  the-  state,  or  on  messages  sent  by  a  United 
States  officer  over  its  lines  on  public  business,  are  unconstitu- 
tional.2 Nor  can  a  state  impose  a  license  tax  on  such  a  corpo- 
ration.3 

§  487.  It  will  be  noticed  that  the  restrictions  so  far  dis- 
cussed on  the  power  of  a  state  to  tax  corporations,  depend  on 
the  relation  that  a  state  under  the  constitution  bears  to  the 
United  States  government,  rather  than  on  any  special  relations 
that  a  corporation  bears  to  the  state  incorporating  it,  or  to 


1  Welton  v.  State  of  Missouri,  91 
U.  S.  275,  282.  See,  also,  Weber  v. 
Virginia,  103  IT.  S.  344;  Guy  v. 
Baltimore,  100  U.  S.  434;  Tiernan  v. 
Rinker,  102  U.  S.  123;  Cook  v.  Penn- 
sylvania, 97  U.  S.  566;  Higgins  ». 
Three  Hundred  Casks  of  Lime,  130 
Mass.  1.  Compare  Turner  v.  Mary- 
land, 107  U.  S.  38. 

Congress  has  now  passed  an  inter- 
state commerce  bill,  in  the  construc- 
tion of  which  many  questions  are 
likely  to  arise;  see  §  474a-474tZ. 

2  Telegraph  Co.  v.  Texas,  105  U.  S. 
460;  Ratterman  v.  Western  Un.  Tel. 
Co.,  127  U.  S.  411;  Western  Un.  Tel. 
Co.  v.  Alabama,  132  U.  S.  472.  See 
American    Union   Telegraph  Co.   v. 


Western  Union  Telegraph  Co.,  67 
Ala.  26.  Such  a  law  would  be  un- 
constitutional, not  only  as  being  a 
regulation  of  interstate  commerce, 
but  also  as  interfering  with  a  Fed- 
eral agency. 

3  Leloup  v.  Port  of  Mobile,  127  U.  S. 
640.  See  Norfolk,  etc.,  R.  R.  Co.  v. 
Pennsylvania,  136  U.  S.  114;  Crutcher 
v.  Kentucky,  141  U.  S.  47.  But  a  city 
may  make  the  telegraph  company 
pay  for  the  use  of  its  streets.  St. 
Louis  o.  Western  Un.  Tel.  Co.,  148 
U.  S.  92;  ib.  149  U.  S.  465;  and  can 
impose  a  license  tax  on  business  done 
within  city  limits.  Postal  Tel.  Co. 
v.  Charleston,  153  U.  S.  692. 

491 


§  488.]        THE    LAW    OF    PRIVATE   CORPORATIONS.  [CHAP.  VIII. 


other  states.  These  restrictions  derive  their  importance  in 
regard  to  corporations  from  the  fact  that  enterprises  of  great 
magnitude,  like  the  building  and  working  of  railroads  and 
telegraphs  extending  through  several  states,  are  ordinarily- 
undertaken  by  corporations,  the  means  of  single  individuals 
rarely  sufficing  for  the  successful  carrying  out  of  such  enter- 
prises. On  the  other  hand,  the  restrictions  remaining  for 
discussion  on  the  power  of  a  state  to  tax  corporations,  arise 
from  special  contractual  relation  between  a  corporation  and 
the  state  incorporating  it,  and  from  the  application  of  the  rule 
that  no  man  shall  be  deprived  of  his  property  without  due 
process  of  law. 

§  488.  In  incorporating  a  corporation,  a  state  legislature 
may  exempt  from  taxation  the  corporate  property 
for  a  specified  time,  or  forever ;  and  this  exemption 
may  be  from  taxation  beyond  a  certain  amount,  or 
from  any  taxation  whatsoever.  Such  an  exemption, 
when  made  by  the  legislature  at  the  time  of  incorporating  the 
corporation,  and  when  expressed  in  clear  and  unmistakable 
terms,1  constitutes  a  contract  between  the  corporation  and  the 
state,  the  obligation  of  which  would  be  impaired  by  any 
subsequent  state  law  at  variance  with  its  terms.2    Thus,  in 


Chartered 
exemptions 
from  taxa- 
tion. 


1  To  sustain  against  a  state  a  con- 
tract not  to  tax  a  corporation,  the 
terms  must  be  clear  and  unequivocal. 
North  Missouri  Railroad  v.  Maguire, 
20  Wall.  46;  Memphis  Gas  Co.  v. 
Shelby  County,  109  U.  S.  398;  St. 
Louis  v.  Manufacturers1  Savings 
Bank,  49  Mo.  574.  That  a  state  has 
chartered  a  corporation  without 
reserving  the  right  to  alter  and  re- 
peal does  not  prevent  the  state  from 
taxing  the  franchises  and  property 
of  such  corporation.  Providence 
Bank  v.  Billings,  4  Pet.  519.  See 
Portland  Bank  v.  Apthorp,  12  Mass. 
252;  Commonwealth  v.  Lancaster 
Savings  Bank,  123  Mass.  493. 

2  When  a  state  in  chartering  a 
charitable  corporation  exempts  its 
property  from  taxation,  a  subsequent 
law    taxing    its    property    is    void. 

492 


Washington  University  v.  Rouse,  8 
Wall.  439;  Home  of  the  Friendless 
v.  Rouse,  ib.  430;  University  v. 
People,  99  U.  S.  309;  Asylum  ».  New 
Orleans,  105  U.  S.  362;  Mobile  and 
S.  H.  R.  R.  Co.  v.  Kennerly,  74  Ala. 
566.  The  same  is  true  of  a  railroad 
corporation.  Humphrey  v.  Pegues, 
1(>  Wall.  244;  Farrington  v.  Tennes- 
see, 95  U.  S.  679;  Pacific  Railroad 
Co.  v.  Maguire,  20  Wall.  36;  Stearns 
v.  Minn.,  179  U.  S.  223;  Duluth  & 
I.  R.  R.  Co.  v.  St.  Louis  County,  179 
U.  S.  302.  And  of  other  stock  cor- 
porations; Jefferson  Branch  Bank  v. 
Skelly,  1  Black,  436;  Franklin 
Branch  Bank  v.  Ohio,  1  Black,  474; 
ace.  Mobile  and  Ohio  R.  R.  Co.  v. 
Moseley,  52  Miss.  127;  Atlantic  and 
Gulf  R.  R.  Co.  v.  Allen,  15  Fla.  637; 
Bank   of  Commerce  v.  McGowan,  6 


CHAP.  VIII.]  CORPORATION  AND  STATE. 


[§  489. 


1845,  the  legislature  of  Ohio  chartered  a  bank,  stipulating  that 
the  bank  should  pay  a  certain  tax,  which  should  be  in  lieu  of 
all  other  taxes ;  in  1852  an  act  was  passed,  levying  taxes  on 
the  bank  to  a  greater  amount,  and  this  last  act  was  held  void 
as  impairing  the  obligation  of  a  contract.1 

§  489.  Exemptions  from  taxation  constituting  a  contract  on 
the  part  of  the  state  not  to  tax,  are  held  never  to  Never  arise 
arise  by  implication;2  and  are  construed  narrowly    byl1 


Lea  (Term.),  703;  Neustadt  v. 
Illinois  Central  R.  R.  Co.,  31  111.  484. 
But  these  doctrines  have  not  been 
universally  acquiesced  in  by  the 
state  courts,  or  even  by  all  the 
judges  of  the  Federal  Supreme 
Court.  That  a  state  cannot  bargain 
away  its  taxing  powers  was  held  in 
Mechauics  and  Traders'  Bank  v. 
Debolt,  1  Ohio  St.  591;  Toledo  Bank 
v.  Bond,  ib.  622;  Skelly  v.  Jefferson 
Branch  Bank,  9  Ohio  St.  606;  Mott 
v.  Pennsylvania  R.  R.  Co.,  30  Pa.  St. 
9.  See  Brewster  v.  Hough,  10  N.  H. 
138;  West  Wisconsin  R.  R.  Co.  v. 
Supervisors,  35  Wis.  257;  State  v. 
Nor.  Cen.  Ry.  Co.,  90  Md.  447: 
Washington  University  v.  Rouse,  8 
Wall.  439,  per  Chase,  C.  J.,  Miller 
and  Field,  JJ.,  dissenting.  Com- 
pare the  remarks  of  Marshall,  C.  J., 
in  Providence  Bank  v.  Billings,  4 
Pet.  519,  563,  and  the  strong  adverse 
criticism  of  this  case  in  Angell  and 
Ames  on  Corp.,  §§465-469. 

1  Dodge  v.  Woolsey,  18  How.  331; 
Accord,  State  Bank  of  Ohio  v. 
Kuoop,  16  How.  369.  See  Gordon  v. 
Appeal  Tax  Court,  3  How.  133; 
State  v.  Berry,  2  Harrison  (N.  J.), 
80.  A  charter  exempting  the  prop- 
erty of  a  railroad  company,  and  the 
shares  therein  from  taxation,  ex- 
empts not  only  the  rolling  stock  and 
real  estate,  but  also  the  franchise  of 
the  corporation  ;  and  a  subsequent 
law  taxing  the  franchise  impairs  the 
obligation  of  a  contract,  and  is  void. 


tion. 

Wilmington  Railroad  v.  Reid,  13 
Wall.  264  ;  Raleigh  and  Gaston 
R.  R.  Co.  v.  Reid,  13  Wall.  269; 
Worth  v.  Wilmington,  etc.,  R.  R. 
Co.,  89  N.  C.  291;  Worth  v.  Peters- 
burg R.  R.  Co.,  89  N.  C.  301.  In 
Tennessee  v.  Whitworth,  117  U.  S. 
129,  the  exemption  of  "  capital  stock  " 
from  taxation  was  construed  to  ex- 
empt the  shares  in  the  hands  of  share- 
holders. 

2  Wilmington,  etc.,  R.  R.  Co.  v. 
Alsbrook,  146  U.  S.  279.  A  provi- 
sion in  an  act  consolidating  two  rail- 
road companies,  requiring  the  con- 
solidated company  to  pay  a  tax  of 
one-quarter  per  cent,  on  its  stock, 
does  not  prevent  the  legislature  from 
imposing  further  and  different  taxes. 
Delaware  Railroad  Tax,  18  Wall.  206. 
See,  also,  People  v.  Commissioners  of 
Taxes,  82  N.  Y.  459;  Lincoln  St.  Ry. 
Co.  v.  Lincoln,  61  Neb.  109. 

The  charter  of  a  street  railroad 
company  provided  that  the  company 
should  pay  a  license  of  $30  for  each 
car  run  by  the  company  ;  subse- 
quently the  legislature  raised  the 
license  to  $50.  Held,  that  there 
was  no  contract  to  require  only  $30. 
Railway  Co.  v.  Philadelphia,  101 
U.  S.  528.  The  court  said  that  even 
if  this  provision  had  constituted  a 
contract,  under  its  constitutional 
power  reserved  to  alter  and  amend 
the  legislature  could  have  imposed 
the  additional  license.  Ib.  Ace.  John- 
son v.  Philadelphia,  60  Pa.  St.  445; 

493 


§  489.]       THE   LAW    OF    PRIVATE   CORPORATIONS.    [CHAP.  VIII. 

in  favor  of  the  state.1  Thus  a  clause  in  a  charter  requiring 
the  corporation  "to  pay  to  the  state  an  annual  tax  of  one- 
half  of  one  per  cent,  on  each  share  of  capital  stock  which 
shall  be  in  lieu  of  all  other  taxes,"  while  it  limits  the  tax 
on  each  share  of  stock  in  the  hands  of  shareholders,  does  not 
cover  the  capital  stock  of   the  corporation  or  its  surplus  or 


Frankford  &  P.  Pass'r  Ry.  Co.  v. 
Philadelphia,  5S  Pa.  St.  119.  The 
grant  to  a  corporation  of  a  privilege  to 
manufacture  and  vend  gas  in  a  city 
for  a  certain  term  of  years,  which 
places  restrictions  on  the  prices  that 
may  be  demanded  by  the  corporation, 
does  not  exempt  the  corporation  from 
the  imposition  of  a  license  tax.  Mem- 
phis Gas  Co.  v.  Shelby  County,  109 
U.  S.  398. 

When  a  corporation  is  chartered 
with  the  unconditional  right  to  in- 
crease its  capital  stock  (power  to 
alter,  etc.,  not  reserved),  the  state 
cannot  exact  a  bonus  (not  a  tax)  on 
the  corporation  increasing  its  stock. 
Commonwealth  v.  Erie,  etc.,  Trans. 
Co.,  107  Pa.  St.  112.  But  when  a 
charter,  which  is  subject  to  altera- 
tion and  repeal,  provides  that  the 
corporation  shall  not  be  taxed  until 
its  dividends  amount  to  a  certain  per 
cent.,  the  state  may  still  tax  the  cor- 
poration before  that  condition  of 
affairs  exists.  Commonwealth  v. 
Fayette  County  R.  R.  Co.,  55  Pa.  St. 
452.  See  Gulf  &  Ship.  I.  R.  R.  Co. 
v.  Hewes,  183  U.  S.  66.  Compare 
§  461,  ante,  and  §  497,  note.  See, 
also,  cases  in  the  following  note. 

1  Railroad  Cos.  v.  Gains,  97  U.  S. 
697;  Railroad  Co.  v.  Commissioners, 
103  U.  S.  1;  Hoge  v.  Railroad  Co., 
99  U.  S.  348;  Bailey  v.  Magnire,  22 
Wall.  215;  Morgan  v.  Louisiana,  93 
U.  S.  217;  Roosevelt  Hospital  v.  City 
of  New  York,  84  N.  Y.  108;  Academy 
v.  Exeter,  58  N.  H.  306;  Tucker  v. 

494 


Ferguson,  22  Wall.  527;  Memphis  & 
L.  R.  R.  R.  Co.  v.  Railroad  Commis- 
sioners, 112  U.  S.  609;  Yazoo  R.  R. 
Co.  v.  Thomas,  132  U.  S.  174;  Vicks- 
burg,  etc.,  Ry.  Co.  v.  Dennis,  116 
U.  S.  605;  New  Orleans  City,  etc., 
R.  R.  Co.  v.  New  Orleans,  143  U.  S. 
192;  R.  R.  v.  Harris,  99  Tenn.  684; 
Harkreader  v.  Turnpike  Co.,  101 
Tenn.  680.  A  general  statute  ex- 
empting charitable  corporations 
from  certain  taxes  held  to  apply 
only  to  domestic  corporations.  Es- 
tate of  Prime,  136  N.  Y.  347.  An 
exemption  from  taxation  exempts 
from  ordinary  taxes  ;  and  does  not 
exempt  from  special  assessments  for 
local  improvements.  Illinois  Cent. 
R.  R.  Co.  v.  Decatur,  147  U.  S.  190; 
Ford  v.  Laud  Co.,  164  U.  S.  662. 

Exempting  the  capital  stock  and 
dividends  from  taxation  does  not 
exempt  lauds  granted  to  the  corpo- 
ration by  the  state  creating  it.  Rail- 
road Co.  v.  Loftin,  98  U.  IS.  559;  see 
Railway  Co.  v.  Loftin,  105  U.  S.  258; 
Central  R.  R.  Co.  v.  Wright,  164  U. 
S.  327.  Where  the  purposes  for 
which  a  corporation  may  hold  prop- 
erty are  specified  in  connection  with 
an  exemption  of  its  property  from 
taxation,  the  exemption  applies  only 
to  property  acquired  for  such  pur- 
poses. Bank  v.  Tennessee,  104  U.  S. 
493.  Exemption  from  taxation  of 
the  stock  and  property  of  a  railroad 
company  applies  only  to  property 
used  for  its  business.  Ford  v.  Land 
Co.,  164  U.  S.  662. 


CHAP.  VIII.] 


CORPORATION  AND  STATE. 


[§  490. 


accumulated  profits;  and  the  state  may  tax  them  further.1 
Moreover,  to  give  rise  to  such  a  contract  there  must  be 
some  consideration  therefor  from  the  corporation  ;  as  a  statute 
passed  subsequently  to  the  creation  of  a  corporation,  providing 
that  the  corporation  shall  not  be  taxed  beyond  a  certain  rate, 
is  a  mere  gratuity,  and  may  be  repealed  b}r  the  state  at  any 
time.2  So  a  statute  of  one  state  permitting  a  corporation  of 
another  state  to  exercise  part  of  its  franchises  in  the  former 
state,  and  laying  a  tax  on  the  corporation  at  the  same  time, 
does  not  preclude  further  taxation  on  the  part  of  the  former 
state.3  And  an  exemption  from  taxation  in  the  nature  of  a 
"  bounty  "  has  been  held  repealable,  even  as  to  corporations 
formed  subsequently  to  its  passage  and  with  a  view  to  its  pro- 
visions.4 

§  490.  An  exemption  of  the  property  and  franchises  of  a  corpo- 
ration from  taxation  is  a  privilege  pertaining  to  the  corporation, 
which  does  not  follow  its  property  and  franchises  into 
the  hands  of  subsequent  owners ;    unless  subsequent   ^"^axa^ 
owners  succeed  to  the  property  and  franchises  of  the   tion  not 
corporation  under  special  authority  from  the  state  se-   able, 
curing  to  them  all  the  rights  and  privileges  of  the  cor- 
poration.5    Thus,  upon  the  sale  of  the  property  and  franchises 


1  Shelby  Co.  v.  Union,  etc.,  Bk., 
161  U.  S.  149.  Cf.  Bank  of  Com- 
merce v.  Tennessee,  ib.  134;  Farring- 
tun  v.  Tennessee,  95  U.  S.  679.  So 
exempting  the  capital  stock  does 
not  exempt  shares  in  hands  of  share- 
holders. New  Orleans  v.  Citizens' 
Bank,  167  U.  S.  371;  contra,  as  to 
same  bank,  Penrose  v.  Chaffraix, 
106  La.  250. 

2  Christ  Church  v.  County  of  Phila., 
24  How.  300.  An  act  of  the  legisla- 
ture exempting  property  from  tax- 
ation is  not  a  "contract"  unless 
there  is  a  consideration  for  it,  but  a 
nude  pact  and  revocable.  Tucker 
v.  Ferguson,  22  Wall.  527  ;  West  Wis- 
consin R.  R.  Co.  v.  Supervisors,  93 
U.  S.  595  ;  Penna.  R.  R.  Co.  v.  Bow- 
ers, 124  Pa.  St.  183.  But  if  the  ex- 
emption be  contained  in  an  amend- 


ment to  the  charter  accepted  by  the 
corporation,  the  exemption  consti- 
tutes a  contract  binding  on  the  state. 
University  v.  People,  99  U.  S.  309  ; 
Commonwealth  ».  Pottsville  Water 
Co.,  94  Pa  St.  516. 

3  Erie  Railway  Co.  v.  Pennsylvania, 
21  Wall.  492  ;  Home  insurance  Co.  v. 
City  Council,  93  U.  S.  116. 

4  Salt  Co.  v.  E.  Saginaw,  13  Wall. 
373. 

5  Railway  Co.  v.  Gill,  156  U.  S.  649. 
See  Tennessee  v.  Whitworth,  117  U.  S. 
139  ;  Nichols  v.  New  Haven  and  N. 
Co.,  42  Conn.  103  ;  State  Board  of  As- 
sessors v.  Morris  &  E.  R.  R.  Co.,  49 
N.  J.  L.  193.  A  mortgage  by  a  rail- 
road company  of  its  charter,  rights, 
privileges,  and  franchises,  made  in 
pursuance  of  authority  to  mortgage 
"its   charter  and  works,"  does  not 

495 


§  490.]       THE    LAW    OF   PRIVATE   CORPORATIONS.    [CHAP.  VIII. 

of  a  railroad  corporation  under  a  mortgage,  in  terms  covering  the 
franchises  of  the  corporation,  immunity  of  the  property  of 
the  corporation  from  taxation  does  not  accompany  the  prop- 
erty in  its  transfer  to  the  purchaser.  The  court  held  that  the 
franchises  of  a  railroad  corporation  are  positive  rights  and  priv- 
ileges without  which  the  road  could  not  be  successfully  worked, 
and  that  immunity  from  taxation  is  not  one  of  them.  Franchises 
may  pass  to  the  purchaser  as  part  of  the  property ;  immunity 
from  taxation  is  personal,  and  incapable  of  transfer,  without 
express  statutory  direction.1  When  a  railroad  comes  into  the 
possession  of  the  state,  whatever  immunity  from  taxation  may 
have  existed  in  respect  to  it  ceases ;  and  will  not  pass  to  the 
grantee  of  the  state,  if  the  state  at  the  time  of  taking  pos- 
session is  forbidden  by  the  state  constitution  to  grant  immunity 
from  taxation.2  And  when  by  reason  of  restrictions  in  a  state 
constitution  it  is  incompetent  for  the  legislature  to  make  an 
original  grant  of  exemption  from  taxation,  it  is  also  incompe- 
tent for  the  legislature  to  provide  that  the  assignee  of  a  rail- 
road company  which  had  enjoyed  a  personal  non-assignable 
immunity  from  taxation  shall  enjoy  the  immunity  possessed  by 


pass  an  exemption  from  taxation  to 
a  corporation  formed  out  of  the  bond- 
holders after  foreclosure.  Memphis 
&  L.  R.  R.  R.  Co.  v.  Railroad  Com- 
missioners, 112  U.  S.  609. 

1  Morgan  v.  Louisiana,  93  U.  S.  217; 
followed  in  Louisville  &  Nashville 
R.  R.  Co.  ».  Palmes,  109  U.  S.  244; 
Chesapeake  and  O.  Ry.  Co.  v.  Miller, 
114  U.  S.  176;  Picard  8.  Tennessee, 
etc.,  R.  R.  Co.,  130  U.  S.  637;  Rail- 
road v.  Pendleton,  156  U.  S.  667; 
Mercantile  Bank  v.  Tennessee,  161 
U.  S.  161 ;  B.  C.  &  A.  R'y  Co.  v.  Ocean 
City,  89  M'd  89;  B.  C.  &  A.  R'y  Co. 
v.  Wicomico  Co.,  93  M'd  113;  see 
Phoenix  Ins.  Co.  v.  Same,  ib.  174; 
Railroad  Cos.  v.  Gaines,  97  U.  S.  697; 
State  v.  Morgan,  28  La.  Ann.  482; 
Railroad  Co.  v.  County  of  Hamblen, 
102  U.  S.  273;  Humphrey  v.  Pegues^ 
16  Wall.  244;  Wilson  v.  Gaines,  103 
496 


U.  S.  417;  Memphis  &  L.  R.  R.  R. 
Co.  v.  Railroad  Commissioners,  112 
U.  S.  609;  compare  City  of  Bridge- 
port v.  New  York  &  N.  H.  R.  R.  Co., 
36  Conn.  255,  266;  and  Trnckee 
Turnpike  Co.  v.  Campbell,  44  Cal.  89. 
Compare  County  of  Traverse  v.  St. 
P.,  M.  &  M.  R'y  Co.,  73  Minn.  417. 

2  Trask  v.  Maguire,  18  Wall.  391. 
A  corporation  was  organized  to  do 
an  insurance  business,  with  a  partial 
exemption  from  taxation.  There- 
after the  state  constitution  was 
passed  prohibiting  such  exemptions. 
Still  later  the  state  by  legislation 
changed  the  business  of  the  corpora- 
tion from  insurance  to  banking. 
Held  that  the  exemption  ceased. 
Memphis  City  Bank  v.  Tennessee, 
161  U.  S.  186.  Under  the  same  cir- 
cumstances, the  immunity  was  held 
not  to  survive  a  change  of  name  and 


chap,  vm.] 


CORPORATION  AND  STATE. 


[§  491. 


his  assignor.1  This  reasoning  was  afterwards  followed  in  the 
case  of  a  consolidation  creating  a  new  corporation ;  and  it  was 
held  that  the  new  corporation  could  not  have  received  im- 
munity from  taxation  because  of  an  amendment  to  the  state 
constitution  in  force  at  the  time  of  the  consolidation  forbidding 
the  exemption  of  corporations  from  taxation.2 

§  491.  Some  of  the  most  interesting  questions  respecting 
chartered  immunity  from  taxation  have  arisen  upon  the  con- 
solidation of  corporations ;  and  in  solving  these  questions  the 
Supreme  Court  of  the  United  States  has  strongly  exempli- 
fied the  doctrine  that  the  intent  of  the  legislature  to  exempt 
the  property  of  a  corporation  from  taxation  must  be 
explicit.  An  early  case  is  Philadelphia  and  Wil-  consoiida- 
mington  Railroad  Co.  v.  Maryland,3  which  was  the 
case  of  a  railroad  company  formed  by  the  union  of  several  com- 
panies chartered  by  different  states.  One  of  the  original  com- 
panies had  been  chartered  by  Maryland,  and  its  charter  con- 
tained no  exemption  from  taxation.  The  court  held  that  the 
property  of  the  consolidated  company  in  Maryland  could  be 
taxed  by  that  state,  although  the  charter  of  another  of  the 
original  companies,  given  by  another  state,  contained  an 
exemption  from  taxation.4     So,  where   one  railroad   company 


domicile  and  an  authorized  increase 
of  stock.  Insurance  Co.  v.  Tennes- 
see, 161  U.  S.  193. 

1  Louisville  &  Nashville  R.  R.  Co. 
v.  Palmes,  109  U.  S.  244. 

2  St.  Louis,  I.  M.  and  S.  Ry.  Co.  v. 
Berry,  113  U.  S.  465;  Adams  ».  R.  R. 
Co.,  77  Miss.  194. 

3  10  How.  376. 

4  Two  acts  of  Delaware  and  Mary- 
land authorized  the  consolidation  of 
two  railroad  companies,  one  in  Del- 
aware and  one  in  Maryland.  Both 
acts  contained  a  provision  whereby 
the  shareholders  of  the  two  compa- 
nies should,  when  consolidated,  en- 
joy all  the  rights  and  privileges,  and 
exercise  all  the  powers  vested  in 
either  company.  It  was  held  that 
the  purpose  of  the  two  provisions  was 
to   vest    in  the   new    company  the 

32 


rights  and  privileges  which  the  orig- 
inal companies  had  previously  en- 
joyed under  their  respective  charters; 
the  rights  and  privileges  in  Maryland 
which  the  Maryland  company  had 
there  enjoyed,  and  in  Delaware  the 
rights  and  privileges  which  the  Del- 
aware company  had  there  enjoyed, 
and  that  it  was  not  the  purpose  to 
transfer  to  either  state  and  enforce 
therein  the  legislation  of  the  other. 
And,  therefore,  since  a  provision  in 
the  charter  of  the  original  Maryland 
corporation  exempting  its  shares 
from  taxation,  exempted  them  only 
in  Maryland,  the  privilege  of  the  new 
company  in  this  matter  only  extend- 
ed to  an  exemption  in  that  state  and 
did  not  exempt  its  shares  from  taxa- 
tion in  Delaware.  Delaware  Rail- 
road Tax,  18  Wall.  206.  Two  cor- 
497 


§  491. J        THE   LAW   OF   PRIVATE   CORPORATIONS.  [CHAP.  VIII. 

was  merged  in  another  created  by  the  same  state,  which  latter 
company  became  invested  with  all  the  property,  rights,  and 
privileges  of  the  former,  it  was  held  that  an  exemption  from 
taxation  in  the  charter  of  the  latter  company  did  not,  in  the 
absence  of  express  words  or  necessary  intendment,  extend  to 
the  property  of  the  former  railroad  acquired  through  the  con- 
solidation.1 A  consolidated  company  acquires  no  greater 
immunities  from  taxation  than  the  constituent  companies  had 
prior  to  the  consolidation,  and  holds  their  immunities  distrib- 
utive^ ;  that  is  to  say,  whatever  privileges  and  advantages 
either  of  the  former  companies  possessed,  inure  to  the  benefit 
of  the  new  company  to  the  extent  of  the  road  occupied  by  each 
of  the  former  companies  respectively  at  the  time  of  the  con- 
solidation.2 And  when  two  corporations  subjected  to  a  certain 
special  tax,  with  immunity  from  other  taxation,  are  consoli- 
dated into  a  new  corporation  under  such  conditions  as  to 
render  the  special  tax  impossible,  the  new  corporation  is  not 
entitled  to  immunity  from  general  taxation.3 


porations  enjoying  respectively  cer- 
tain immunities  from  taxation  were 
consolidated  by  a  statute  passed 
after  the  passage  of  a  general  law 
reserving  generally  the  right  to  the 
state  to  withdraw  corporate  fran- 
chises granted  by  subsequent  char- 
ters unless  expressly  negatived  in  the 
charter;  the  effect  of  the  consolida- 
tion was  to  dissolve  the  two  corpora- 
tions and  create  a  new  one;  it  was 
held  the  consolidated  corporation 
was  subject  to  taxation.  Railroad 
Co.  v.  Georgia,  98  U.  S.  3.">9.  Ace. 
Keokuk,  etc.,  R.  R.  Co.  v.  Missouri, 
152  U.  S.  301;  Yazoo  &  M.  V.  R'y 
Co.  o.  Adams,  180  U.  S.  1. 

1  Chesapeake,  etc.,  R.  R.  Co.  v. 
Virginia,  94  U.  S.  718. 

2  Tomlinson  v.  Branch,  15  Wall. 
460  ;  see  Central  Railroad,  etc.,  Co. 
v.  Georgia,  92  U.  S.  665  ;  State  v. 
Commissioners,    37    N.    J.    L.    240  ; 

498 


Tennessee  v.  Whitworth,  117  U.  S. 
139.  When  a  new  corporation  is 
formed  out  of  two  or  more  pre- 
viously existing  corporations,  and 
by  the  act  creating  it  is  to  have  the 
powers,  privileges,  and  immunities 
possessed  by  each  of  the  corporations 
whose  union  constitutes  the  new 
corporation,  the  new  corporation 
will  have  the  privileges,  powers,  and 
immunities  which  they  all  (i.  e. 
every  one  of  them)  had  ;  and  will 
not  have  those  powers,  privileges, 
and  immunities  which  some  had 
and  some  did  not.  This  construc- 
tion was  put  on  a  consolidating  act 
in  regard  to  exemption  from  taxa- 
tion ;  the  former  charters,  moreover, 
were  subject  to  alteration  and  re- 
peal. State  v.  Maine  Central  R.  R. 
Co.,  66  Maine,  488,  514. 

3  Railroad  Co.  v.   Maine,  96  IT.  S. 
499. 


CHAP.  VIII.]  CORPORATION  AND  STATE.  [§  492. 

§  492.  The  rule  that  no  man  shall  be  deprived  of  his  prop- 
erty without  due  process  of  law  applies  to  taxa-  Taxation, 
tion;  but  a  mode  of  procedure  may  be  "due  process  cessofPr°" 
of  law  "  in  matters  of  taxation,  which  would  not  be  law- " 
"due  process  of  law  "  in  other  proceedings.  "  Taxes  have  not, 
as  a  general  rule,  in  this  country  since  its  independence,  nor  in 
England  before  that  time,  been  collected  by  regular  judicial 
proceedings.  The  necessities  of  government,  the  nature  of 
the  dut}r  to  be  performed,  and  the  customary  usages  of  the 
people,  have  established  a  different  procedure,  which,  in  re- 
gard to  that  matter,  is,  and  always  has  been,  due  process  of 
law." *  Accordingly,  at  least  as  regards  taxation,  the  phrase 
does  not  necessarily  imply  a  regular  proceeding  in  a  court  of 
justice,  or  after  the  manner  of  courts  of  justice.2  In  deliver- 
ing the  opinion  of  the  court  in  Davidson  v.  New  Orleans,3 
Justice  Miller  said  in  regard  to  the  term :  "  Apart  from  the 
eminent  risk  of  a  failure  to  give  any  definition  which  would 
be  at  once  perspicuous,  comprehensive,  and  satisfactory,  there 
is  wisdom  we  think  in  the  ascertaining  of  the  intent  and  ap- 
plication of  such  an  important  phrase  in  the  Federal  con- 
stitution by  the  gradual  process  of  judicial  inclusion  and  ex- 
clusion, as  the  cases  presented  for  decision  shall  require,  with 
the  reasoning  on  which  such  decisions  may  be  founded.  This 
court  is,  after  an  experience  of  nearly  a  century,  still  engaged 
in  defining  the  obligation  of  contracts,  the  regulation  of  com- 
merce, and  other  powers  conferred  on  the  Federal  government, 
or  limitations  imposed  upon  the  states."  ....  As  contrib- 
utory to  this  process  we  hold  "  that  whenever  by  the  laws  of 
a  state,  or  by  state  authority,  a  tax,  assessment,  servitude,  or 
other  burden,  is  imposed  upon  property  for  the  public  use, 
wmether  it  be  for  the  whole  state,  or  for  some  more  limited 
portion  of  the  community,  and  these  laws  provide  for  a  mode 
of  confirming  or  contesting  the  charge  thus  imposed,  in  the 
ordinary  courts  of  justice,  with  such  notice  to  the  person,  or 
such  proceeding  in  regard  to  the  property  as  is  appropriate  to 
the  nature  of  the  case,  the  judgment  in  such  proceedings  can- 
not be  said  to  deprive  the  owner  of  his  property  without  due 


i  Kelly   v.    Pittsburgh,    104    U.  S. 

78,  80;  opinion  of  court  per  Miller,  J. 

2  Davidson  v.  New  Orleans,  9o'  U. 


S.  97,  citing  Murray's  Lessee  v.  Ho- 
boken  Land  Co.,  supra. 
3  96  U.  S.  97,  104. 

499 


§  492^.]    THE    LAW    OF    PRIVATE   CORPORATIONS.    [CHAP.  VIII. 

process  of  law,  however  obnoxious  it  may  be  to  other  objec- 
tions." ' 

§  492«.  Giving  the  opinion  of  the  court  in  Hagar  v.  Recla- 
mation District  (after  quoting  approvingly  from  Davidson  v. 
New  Orleans),  Justice  Field  said :  "  It  is  sufficient  to  observe 
here  that  by  '  due  process '  is  meant  one  which,  following  the 
forms  of  law,  is  appropriate  to  the  case,  and  just  to  the  parties 
to  be  affected.  It  must  be  pursued  in  the  ordinary  mode 
prescribed  by  the  law  ;  it  must  be  adapted  to  the  end  to  be 
attained  ;  and  wherever  it  is  necessary  for  the  protection  of 
the  parties,  it  must  give  them  an  opportunity  to  be  heard 
respecting  the  justice  of  the  judgment  sought.  The  clause 
in  question  means,  therefore,  there  can  be  no  proceeding 
against  life,  liberty,  or  property  which  may  result  in  the 
deprivation  of  either,  without  the  observance  of  those  general 
rules  established  in  our  system  of  jurisprudence  for  the  secu- 
rity of  private  rights.-  Unless  restrained  by  provisions  of  the 
Federal  constitution,  the  power  of  the  state,  as  to  the  mode, 
form,  and  extent  of  taxation,  is  unlimited,  where  the  subjects 
to  which  it  applies  are  within  her  jurisdiction."3 

"  Of  the  different  kinds  of  taxes  which  the  state  may  impose, 
there  is  a  vast  number  of  which,  from  their  nature,  no  notice 
can  be  given  the  taxpayer,  nor  would  notice  be  of  any  possible 
advantage  to  him,  such  as  poll  taxes,  license  taxes  (not  depend- 
ent upon  the  extent  of  his  business),  and  generally,  specific 
taxes  on  things,  or  persons,  or  occupations.  In  such  cases  the 
legislature,  in  authorizing  the  tax,  fixes  its  amount,  and  that 
is  the  end  of  the  matter.  If  the  tax  be  not  paid,  the  property 
of  the  delinquent  may  be  sold,  and  he  be  thus  deprived  of  his 
property.  Yet  there  can  be  no  question  that  the  proceeding 
is  due  process  of  law,  as  there  is  no  inquiry  into  the  weight  of 
evidence,  or  other  element  of  a  judicial  nature,  and  nothing 
could  be  changed  by  hearing  the  taxpayer.  No  right  of  his  is, 
therefore,  invaded.  .  .  . 

"  But  where  a  tax  is  levied  on  property,  not  specifically,  but 
according  to  its  value,  to  be  ascertained  by  assessors  appointed 


1  See,  also,  Kentucky  R.    R.  Tax 
Cases,  115  U.  S.  321. 

2  Citing     Hurtado    v.    California, 
110  U.  S.  516,  530. 

500 


3  Quoted  from  State  Tax  on  For. 
eigu  Held  Bonds,  15  Wall.  300,  319. 


CHAP.  VIII.] 


CORPORATION  AND  STATE. 


[§  492*. 


for  that  purpose  upon  such  evidence  as  they  may  obtain,  a  dif- 
ferent principle  comes  in.  The  officers  in  estimating  the  value 
act  judicially  ;  and  in  most  of  the  states  provision  is  made  for 
the  correction  of  errors  committed  by  them,  through  boards  of 
revision  or  equalization,  sitting  at  designated  periods  provided 
by  law  to  hear  complaints  respecting  the  justice  of  the  assess- 
ments. The  law  in  prescribing  the  time  when  such  complaints 
will  be  heard,  gives  all  the  notice  required,  and  the  proceeding 
by  which  the  valuation  is  determined,  though  it  may  be  fol- 
lowed, if  the  tax  be  not  paid,  by  a  sale  of  the  delinquent's  prop- 
erty, is  due  process  of  law."1 

§  4:92b.  In  order  to  obtain  the  aid  of  a  court  of  equity  to 
restrain   the  collection  of  a  tax,  the  case   must  be    T 

i  -i-  pi  -i«  i      ■  Junsdic- 

brought  within  some  or  the  recognized  foundations   tion  of 
of  equity  jurisdiction,  and  mere  error,  or  excess  in   restrain°the 
valuation,  or  hardship  or  injustice  of  the  law,  or  any   of^tax11 
grievance  which  can  be  remedied  by  a  court  of  law, 
either  before  or  after  payment  of  the  tax,  will  not  warrant  a 
court  of  equity  to  interpose  by  injunction  to  stay  the  collec- 
tion of  a  tax.2     And  as  a  general  rule,  the  owner  of  taxable 
property  who  would  enjoin  the  collection  of  a  tax   thereon, 
must  first  pay  or  tender  so  much  as  is  due.3 


1  Hagar  v.  Reclamation  District, 
111  U.  S.  701,  709,  710.  (There  is 
appended  at  the  end  of  this  case  a 
note  of  the  legislation  of  the  colouies 
before  the  Revolution,  and  of  the 
states  since,  giving  the  taxpayer  the 
right  to  be  heard  before  the  assess- 
ment becomes  final.)  See  Railway- 
Co.  v.  Backus,  154  U.  S.  421.  Com- 
pare Porter  v.  Rockford,  etc.,  R.  R. 
Co.,  76  111.  561;  Railroad  Tax  Cases, 
13  Fed.  Rep.  722. 

2  State  Railroad  Tax  Cases,  92  U. 
S.  575;  see  Union  Pacific  Ry.  Co.  v. 
Cheyenne,  113  U.  S.  516;  Allen  v. 
Baltimore  and  Ohio  R.  R.  Co.,  114 
U.  S.  311.  One  of  the  reasons  why  a 
court  should  not  thus  interfere,  as 
it  would  in  a  matter  between  individ- 
uals, is  that  it  has  no  power  to  ap- 
portion the  tax,  or  make  a  new  as- 


sessment, or  order  a  new  assessment 
to  be  made  by  the  proper  officers  of 
the  state.  The  levy  of  taxes  is  not  a 
judicial  function,  but  by  the  consti- 
tutions of  all  the  states,  and  by  the 
theory  of  our  English  origin,  is  ex- 
clusively legislative.  If  there  is  an 
overvaluation  of  the  franchise,  or 
of  the  capital  stock,  or  of  both,  it  is 
an  error  of  judgment  in  the  officers 
to  whose  judgment  the  law  confided 
that  matter  ;  and  it  does  not  lie  with 
a  court  to  substitute  its- own  judg- 
ment for  that  of  the  tribunal  ex- 
pressly created  for  that  purpose. 
lb.  Compare  Wright  v.  Southwest- 
ern R.  R.  Co.,  64  Ga.  783;  South- 
western R.  R.  Co.  ».  Wright,  68  Ga. 
811. 

3  National  Bank  i\  Kimball,  103  U. 
S.  732;  compare  Supervisors  r.  Stan- 

501 


§  493.]       THE   LAW   OF    PRIVATE  CORPORATIONS.  [CHAP.  VIII. 

§  493.  The  discussion  of  the  powers  which  a  state  has  over 
Distinction  corporations  by  virtue  of  its  police  power  (in  the 
between        broadest  sense),  would  be  incomplete  without  raen- 

"  rights"  .......  .  .         l  . 

and  "reme-  tioning  the  distinction  taken  in  many  cases  between 
"  rights  "  and  "  remedies."  It  has  been,  for  instance, 
decided  that  the  abolishment  of  imprisonment  for  debt,  or  dis- 
tress for  rent,  even  as  to  debts  already  contracted  or  leases 
already  in  force,  is  not  unconstitutional  as  impairing  the  obli- 
gation of  a  contract,  because  such  a  law  is  held  to  operate  only 
as  a  modification  of  the  remedy.1  These  cases  have  been  ques- 
tioned,2 and  indeed  the  distinction  between  a  right  and  a  rem- 
edy is  probably  of  comparatively  recent  growth.  Going  back 
to  early  periods  of  legal  history  we  find  that  what  are  now 
regarded  as  the  substantial  rights  of  persons  were  simple  and 
easy  of  determination,  while  the  more  difficult,  but  equally 
important,  questions  were  as  to  the  proper  means  of  enforcing 
these  rights.  This  is  illustrated  by  the  extraordinary  promi- 
nence of  the  law  of  distress  in  the  Brehon  (old  Irish)  and  Salic 
systems.3  At  Rome,  moreover,  the  right  to  bring  a  certain 
actio  was  not  distinguished,  as  at  present,  from  the  rights 
which  by  means  of  that  actio  were  sought  to  be  enforced.4  Still, 
the  law  of  procedure  is  in  most  respects  to-day  readily  distin- 
guishable from  the  law  regulating  material  rights,  and  with 
reference  to  our  present  legal  notions  the  distinction  on  prin- 
ciple may  be  sufficiently  justifiable,  if  not  so  historically.5    Be- 


ley,  105  U.  S.  305.  A  bank  cannot 
enjoin  a  tax  collector  from  selling 
the  shares  of  individual  sharehold- 
ers. Waseca  County  Bank  v.  Mc- 
Kenna,  32  Minn.  468.  But  see  §  484, 
note. 

1  Sturges  v.  Crowninshield,  4 
Wheat.  122  ;  Mason  v.  Haile,  12 
Wheat.  370;  Penniman's  Case,  103 
U.  S.  714;  Van  Rensselaer  v.  Snyder, 
13  N.  Y.  299  ;  Conkey  v.  Hart,  14 
N.  Y.  22. 

2  "Any  law  which  in  its  operation 
amounts  to  a  denial  or  obstruction 
to  the  rights  accruing  by  contract, 
though  professing  to  act  only  on 
the  remedy,  is  directly  obnoxious  to 

502 


the  provision  of  the  constitution.'1 
Pritchard  ».  Norton,  106  U.  S.  124, 
132;  see  McCracken  p.  Hayward,  2 
How.  608,  612  ;  Gunn  v.  Barry,  15 
Wall.  615  ;  Edwards  v.  Kerzey,  96 
U.  S.  595,  607.  The  last  two  cases 
held  that  increased  exemptions  un- 
der a  new  homestead  act  affecting 
the  remedy  under  contracts  already 
entered  into,  were  unconstitutional. 
See,  also,  Louisiana  v.  New  Orleans, 
102  U.  S.  206. 

8  See  Maine's  Early  History  of 
Institutions. 

4  See,  generally,  Windscheid,  Die 
Romische  Actio. 

6  See  United  States  v.  Union  Pa- 


CHAP.  VIII.] 


CORPORATION  AND  STATE. 


[§  495. 


sides,  the  power  to  regulate  procedure  may  perhaps  be  regarded 
as  a  portion  of  the  police  power  of  the  state,  of  which  a  sur- 
render could  never  be  presumed.1 

§  494.  A  late  statement  of  the  general  law  on  this  subject 
may  be  found  in  Penniman's  Case,2  where  Justice  Woods  said, 
giving  the  opinion  of  the  Supreme  Court  of  the  United  States  : 
"  The  general  doctrine  of  this  court  on  this  subject  may  be 
thus  stated  :  in  modes  of  proceediug  and  forms  to  enforce  the 
contract  the  legislature  has  the  control,  and  may  enlarge, 
limit,  or  alter  them,  provided  it  does  not  deny  a  remedy  or 
so  embarrass  it  with  conditions  or  restrictions  as  seriously  to 
impair  the  value  of  the  right."3  It  would  seem,  however, 
that  when  a  new  remedy  is  authorized  after  a  contract  has 
been  made,  such  remedy  may  be  wholly  taken  away  by  the 
legislature  before  any  vested  rights  have  been  acquired  under 
it ;  for  such  remedy  could  have  formed  no  part  of  the  contract 
as  made.  But  if  the  creditor  proceeds,  and  acquires  any  vested 
rights  under  the  new  remedy,  it  may  then  be  incompetent  for 
the  legislature  by  repealing  the  new  remedy  to  affect  his 
rights.4 

§  495.  In  creating  a  corporation  the  legislature  may  impose 
upon  it,  and  upon  parties  dealing  with  it,  such  restrictions  as 
the  legislature  may  deem  proper  in  regard  to  subjecting  its 
assets  to  the  discharge  of  its  obligations  ;  and,  further,  may 
provide  that  any  one  of  the  usual  remedies  of  creditors  shall 
in  certain  cases  be  withheld.5  And  after  a  corporation  has 
been  incorporated,  a  statute  which  prescribes  a  mode  of  judicial 
service  on  the  corporation  different  from  that  provided  for  in 


cific  R.  R.  Co.,  98  U.  S.  569,  G08.  A 
reduction  in  the  time  prescribed  by 
the  statute  of  limitations  in  force 
when  the  right  of  action  accrued  is 
not  unconstitutional,  provided  a 
reasonable  time  be  left  for  the  com- 
mencement of  a  suit  before  the  bar 
takes  effect.  Terry  v.  Anderson,  95 
U.  S.  628;  compare  Blount  v.  Wind- 
ley,  95  U.  S.  173. 

1  See    Railroad    Co.   v.   Hecht,   95 
U.  S.  168. 

2  103  U.  S.  714,  720. 


3  See,  also,  Tennessee  v.  Sneed,  96 
U.  S.  69;  Crawford  v.  Branch  Bank 
of  Mobile,  7  How.  279;  Antoni  v. 
Greenhow,  107  U.  S.  769;  Railroad  v. 
New  Orleans,  157  U.  S.  219.  Com- 
pare, generally,  Virginia  Coupon 
Cases,  114  U.  S.  270. 

*  Memphis  v.  United  States,  97 
U.  S.  293;  South  Carolina  v.  Gaillard, 
101  U.  S.  433. 

5  National  Shoe  and  Leather  Bank 
v.  Mechanics'  Nat.  Bank,  89  N.  Y. 
467. 

503 


§  490.]        THE   LAW    OF    PRIVATE   CORPORATIONS.   [CHAP.  VIII. 


its  charter  affects  only  the  remedy  and  is  constitutional.1  Like- 
wise provisions  in  the  charter  of  a  railroad  company  regulating 
the  manner  of  taking  land;'  or  a  summary  remedy  against 
defaulting  stockholders  given  to  a  corporation  by  its  enabling 
act,  may  be  changed  by  subsequent  legislation.3 

§  496.  Having  discussed  the  powers  which  a  state  has  over 

corporations  and  their  property  by  virtue  of  eminent 
reservedTo  domain,  police,  and  taxing  powers ;  by  virtue,  that 
repeai.nd       *s>  01°  Powers  inherent  in  the  state  as  the  political 

superior  of  the  corporation,  the  exercise  of  which  is 
not  incompatible  with  the  concurrent  legal  relations  between 
the  state  and  the  corporation  occasioned  by  the  implied  con- 
tract between  them ;  we  come  now  to  consider  the  further 
powers  of  the  state  over  corporations  when,  by  reserving  the 
right  to  alter  and  amend  or  repeal  the  charter  or  enabling  act 
of  the  corporation,  the  state  prevents  such  charter  or  enabling 
act  from  impliedly  creating  as  between  itself  and  the  corpora- 
tion a  contract  within  the  purview  of  the  Federal  constitu- 
tion.4    The  state  occupies  towards  the  corporation  the  position 


1  Railroad  Co.  v.  Hecht,  95  U.  S. 
168. 

2  Mississippi  R'y  Co.  v.  McDonald, 
12  Heisk.  (Tenn.)  54;  Gowen  v.  Pe- 
nobscot R,  R.  Co.,  44  Me.  140;  Chat- 
teroi  R'y  Co.  v.  Kinner,  81  Ky.  221; 
see  Baltimore  and  Susquehanna  R.  R. 
Co.  v.  Nesbit,  10  How.  395. 

3  Ex  parte  North  East  and  S.  W. 
Ala.  R.  R.  Co.,  37  Ala.  679.  The  leg- 
islature can  alter  the  mode  of  as- 
sessing banks.  Bank  of  Republic  v. 
County  of  Hamilton,  21  111.  53;  see 
Reapers'  Bank  v.  Willard,  24  111.  433. 
A  statute  authorizing  the  sale  of  its 
road  for  payment  of  the  debts  of  the 
corporation  is  constitutional,  even  if 
the  right  to  alter  and  repeal  is  not 
reserved.  Louisville,  etc.,  Turnpike 
Co.  v.  Ballard,  2  Mete.  (Ky.)  165. 

Even  when  the  power  to  alter  and 
repeal  the  charter  is  not  reserved,  a 
state  may  constitutionally  provide 
that  a  state  officer  may  file  a  peti- 
tion to  have  unsound  insurance  com- 

504 


panies  wound  up.  This  is  a  valid 
exercise  by  the  state  of  its  unalien- 
able police  power,  and  does  not  im- 
pair the  obligation  of  the  contract 
between  the  corporation  and  the 
state,  nor  deprive  shareholders  of 
their  vested  rights.  Ward  v.  Far- 
well,  97  111.  593;  Chicago  Life  Ins. 
Co.  v.  Auditor,  101  111.  82.  See  For- 
stall  v.  Consolidated  Association,  34 
La.  Ann.  770;  Rockover  v.  Life  Asso- 
ciation, 77  Va.  85. 

4  "  The  reserved  power  of  amend- 
ment and  repeal  is  not  anything  more 
than  the  legislature  would  have  had 
without  a  reservation,  if  statutes  of 
incorporation  had  been  held  to  be 
possessed  of  the  ordinary  amendable 
and  repealable  qualities  of  other 
statutes."  Ashuelot  R.  R.  Co.  v. 
Elliot,  58  N.  H.  451,  454.  The  right 
to  alter  and  repeal  may  be  reserved 
in  a  general  statute  so  as  to  apply 
to  charters  subsequently  granted. 
Thornton  v.   Marginal  Freight  Ry. 


CHAP,  vm.]      CORPORATION  AND  STATE. 


[§  497. 


of  lawgiver,  from  whom  emanate  most  of  the  rules  of  law  con- 
tained in  the  constitution  of  the  corporation.  It  is  held  to  con- 
tract with  the  corporation  not  to  alter  these  rules,  thus  agree- 
ing that  acts  in  respect  of  the  corporate  enterprise  shall  always 
have  a  certain  legal  effect.  This,  as  we  have  seen,1  is  the  only 
contract  ordinarily  existing  between  the  corporation  and  the 
state ;  and  if  the  state  reserves  the  right  to  alter  or  repeal  these 
rules  of  law,  that  reservation  prevents  the  existence  of  this  con- 
tract. 

§  497.  Accordingly,  when  the  state  reserves  this  power,  the 
charter  or  enabling   act  of   the  corporation,  as  be- 
tween  the  state  and  the  corporation,  subsists  simply   right  in  a 

.        „  ,  ,  ,  ,  .  rule  of  law. 

as  a  rule  for  conduct,  as  law  properly  speaking, 
which,  like  other  law,  may  be  altered  or  repealed  at  the  will 
of  the  legislature,  provided  the  obligation  of  no  contract  is 
thereby  impaired,  and  no  one  is  deprived  of  his  property  with- 
out due  process  of  law.  No  one  has  any  property  or  vested 
right  in  a  rule  of  law,  except  in  so  far  as  the  rule  has  mani- 
fested itself  in  legal  relations  between  himself  and  others  who 
are  within  the  scope  of  its  operation ;  and,  accordingly,  pro- 
vided le^al  relations  alreadv  existing  are  not  affected,  the  law 
may  be  changed  at  the  will  of  the  legislature.2  As  Chief  Jus- 
tice Waite  said,  in  Munn  v.  Illinois : 3  "  A  mere  common  law 
regulation  of  trade  or  business  may  be  changed  by  statute.  A 
person  has  no  property,  no  vested  interest,  in  any  rule  of  the 
common  law.  That  is  only  one  of  the  forms  of  municipal 
law,  and  is  no  more  sacred  than  any  other.  Rights  of  prop- 
erty which  have  been  created  by  the  common  law  cannot  be 
taken  away  without  due  process ;  but  the  law  itself,  as  a  rule 
of  conduct,  may  be  changed  at  the  will,  or  even  at  the  whim 


Co.,  123  Mass.  32;  Roxbury  v.  Bos- 
ton and  P.  R.  R.  Co.,  6  Cush.  (Mass.) 
424.  Where  a  corporation  receives 
its  charter  subject  to  the  generally- 
expressed  right  of  the  state  to  alter 
and  repeal  or  impose  further  legisla- 
tion, exemption  from  future  general 
legislation  will  not  exist  unless  ex- 
pressly given  or  by  necessary  impli- 
cation. Pennsylvania  R.  R.  Co.  v. 
Miller,  132  U.  S.  75. 


1  §  450. 

2  When  a  state  reserves  the  uncon- 
ditional right  to  alter  and  repeal,  the 
question  whether  an  amendment  is 
wise,  consistent  with  public  interests 
and  the  prosperity  of  the  company, 
is  for  the  legislature,  not  for  the 
courts.  American  Coal  Co.  v.  Con- 
solidation Coal  Co.,  46  Md.  15. 

3  94  U.  S.  113,  134,  affirming  S.  C, 
69  111.  80 

505 


§  497.]       THE   LAW    OF    PRIVATE   CORPORATIONS.    [CHAP.  VIII. 

of  the  legislature,  unless  prevented  by  constitutional  limita- 
tions. Indeed,  the  great  office  of  statutes  is  to  remedy  defects 
in  the  common  law  as  they  are  developed,  and  to  adapt  it  to 
the  changes  of  time  and  circumstances." 1 


1  A  railroad  company  was  incor- 
porated, its  charter  being  subject  to 
alteration  and  repeal.  Subsequently 
the  state  legislature  amended  the 
charter  by  exempting  the  property 
of  the  corporation  from  taxation. 
After  the  passage  of  this  amend- 
ment, the  people  of  the  state  adopted 
a  new  constitution,  one  of  the  pro- 
visions of  which  required  corpora- 
tions to  be  taxed;  and,  carrying  out 
this  provision,  the  legislature  levied 
a  tax  on  the  property  of  said  corpo- 
ration. The  tax  was  held  constitu- 
tional, the  Supreme  Court  saying  per 
Field,  J. :  "  The  original  corporators, 
or  subsequent  stockholders,  took 
their  interest  with  knowledge  of  the 
existence  of  this  power,  and  of  the 
possibility  of  its  exercise  at  any  time 
in  the  discretion  of  the  legislature. 
....  The  reservation  affects  the 
entire  relation  between  the  state  and 
the  corporation,  and  places  under 
legislative  control  all  rights,  privi- 
leges, and  immunities  derived  by 
its  charter  directly  from  the  state. 
Rights  acquired  by  third  parties,  and 
which  have  become  vested  under  the 
charter,  in  the  legitimate  exercise  of 
its  powers,  stand  upon  a  different 
footing;  but  of  such  rights  it  is  un- 
necessary to  speak  here.  The  state 
only  asserts  in  the  present  case  the 
power  under  the  reservation  to 
modify  its  own  contract  [?]  with  the 
corporators;  it  does  not  contend  for 
a  power  to  revoke  the  contracts  of 
the  corporation  with  other  parties, 
or  to  impair  any  vested  rights  thereby 
acquired."  Tomlinson  v.  Jessup,  15 
Wall.  454,  458.  Ace.  Louisville 
Water  Co.  v.  Clark,  143  U.  S.  1 ;  fol- 
506 


lowed  in  Louisville  Water  Co.  v. 
K'y,  170  U.  S.  127;  Hamilton  Gas 
Light  Co.  v.  Hamilton  City,  140  U.  S. 
258;  Union  Improvement  Co.  v.  Com- 
monwealth, 09  Pa.  St.  140;  Coving- 
ton o.  Kentucky,  173  U.  S.  231;  Citi- 
zens' Savings  Bank  p.  Oweusboro, 
173  U.  S.  0:30;  Kentucky  Bank  Tax 
Cases,  174  U.  S.  408. 

A  bridge  company  accepted  from 
Congress  the  right  to  build  a  bridge 
across  navigable  waters,  on  condition 
that  such  right  or  franchise  might  be 
revoked,  or  alterations  required  in 
the  bridge  at  any  time,  if  the  bridge 
should  be  found  detrimental  to  navi- 
gation. Held,  that  this  condition 
was  an  essential  element  of  the 
grant,  and  that  the  company,  in  ac- 
cepting the  privileges,  assumed  all 
risk  of  loss  from  the  exercise  of  the 
power  Congress  had  reserved;  and 
that  Congress  might  require  altera- 
tions in  the  bridge  without  incurring 
for  the  United  States  liability  to  pay 
for  them.  Bridge  Co.  v.  United 
States,  105  U.  S.  470. 

The  constitution  of  California  of 
1849  provided  that  corporations 
might  be  formed  under  general  laws, 
but  should  not  be  created  by  special 
act,  except  for  municipal  purposes; 
and  that  all  general  laws  and  special 
acts  passed  pursuant  to  this  provision 
might  be  altered  from  time  to  time 
or  repealed.  The  legislature  after- 
wards enacted  a  general  law  for  the 
formation  of  corporations  for  sup- 
plying cities  and  counties  with 
water,  which  provided  that  the  rates 
to  be  charged  for  water  should  be 
fixed  by  a  board  of  commissioners  to 
be  appointed  partly  by  the  corpora- 


CHAP.  VIII.]  CORPORATION  AND  STATE. 


[§  498. 


Effect  of 

reserva- 
tion  of  the 
right  to 
alter  and 
repeal  on 
the  con- 
tract be- 
tween the 
corpora- 
tors. 


§  498.  But  the  charter  of  a  corporation,  or  the  enabling 
statute  and  articles  of  association  filed  in  pursuance 
thereof,  embody  the  terms  of  a  contract  between  the  ^" 
corporators.  This  contract,  however,  is  subject  to 
the  reserved  power  in  the  state  to  alter  or  repeal 
it :  for  it  is  a  contract  which  is  not  only  sanctioned 
by,  but  embodied  in  laws  which  the  state  has  re- 
served the  right  to  alter  and  repeal.  Consequently, 
the  legal  relations  among  the  corporators,  in  so  far 
as  they  are  occasioned  solely  by  this  contract,  may  be  changed 
at  the  will  of  the  state,  without  thereby  impairing  the  obliga- 
tion of  the  contract  or  depriving  any  one  of  '.'  vested  rights." 
The  obligation  of  a  contract  consists  in  the  rules  of  law  which 
manifest  themselves  in  legal  relations  between  the  parties  to 
it ; x  and,  in  this  instance,  one  of  these  very  rules  would  be 
that  the  state  might  change  or  repeal  any  of  the  rules  of 
law  constituting  this  obligation  ;  might  change,  that  is,  any 
of  these  legal  relations.  It  is  accordingly  implied  in  the 
agreement  of  the  corporators  among  themselves,  that  in  so  far 
as  their  legal  relations  are  occasioned  solely  by  their  contract 
embodied  in  the  constitution  of  the  corporation,  they  may 
be  altered  at  the  will  of  the  state.  The  obligation  of  this 
contract,  then,  consists  either  in  the  rules  of  law  manifesting 
themselves  in  legal  relations  upon  the  execution  of  the  con- 


tions  and  partly  by  the  municipal 
authorities.  Subsequently  the  con- 
stitution and  laws  of  California  were 
changed  so  as  to  take  away  from 
water  companies  organized  under 
the  old  constitution  and  laws  the 
power  to  appoint  members  of  the 
boards  of  commissioners,  and  to  give 
the  municipal  authorities  the  sole 
power  to  fix  the  rates  for  water.  It 
was  held  that  these  changes  violated 
no  provision  of  the  Federal  consti- 
tution, and  that  to  vest  such  sole 
authority  in  the  municipal  author- 
ities was  within  the  legislative  power. 
Spring  Valley  Water  Works  v. 
Schottler,  110  U.  S.  347. 
ll'The   laws  which   exist   at  the 


time  and  place  of  the  making  of  a 
contract,  and  where  it  is  to  be  per- 
formed, enter  into  it  and  form  part 
of  it.  This  embraces  alike  those 
which  affect  its  validity,  construc- 
tion, discharge,  and  enforcement. 
.  .  .  .  The  obligation  of  a  con- 
tract is  the  law  which  binds  the 
parties  to  it  to  perform  their  agree- 
ment." Walker  v.  Whitehead.  16 
Wall.  314,  317,  318.  See  Von  Hoff- 
man v.  City  of  Quincy,  4  Wall.  550; 
Louisiana  v.  New  Orleans,  102  U.  S. 
20G.  Compare  Connecticut  Mutual 
Life  Ins.  Co.  v.  Cushman,  108  U.  S. 
51 ;  Smith  v.  Eastwood  Wire  Co.,  58 
N.  J.  Eq.  331. 

507 


§  499.]       THE   LAW    OF    PRIVATE   CORPORATIONS.    [CHAP.  VIII. 

tract,  or  in  those  rules  as  modified  by  subsequent  legislation 
and  such  other  rules  as  the  state  changing  the  constitution  of 
the  corporation  may  make.1  Consequently,  the  state  by  chang- 
ing the  corporate  constitution  does  not  impair  the  obligation 
of  this  contract.2 

§  499.  Although  the  state  may  change  the  legal  relations 

arising  solely  from  the  contract  of  the  corporators 
there!  embodied  in  the   corporate   constitution,  it   by  no 

power.  means  follows  that  the  state  may  change  any  and  all 

legal  relations  subsisting  in  respect  of  the  corporate 
enterprise.  The  contract  embodied  in  the  constitution  is  an 
act  which  itself  occasions  legal  relations  among  the  parties  to 
it ;  and  it  is  only  the  legal  relations  which  arise  solely  from 
this  contract  as  a  contract  that  the  state  may  change.  The 
constitution  of  a  corporation,  besides  embodying  a  contract 
between  the  corporators,  contains  rules  of  law  which  will  mani- 
fest themselves  in  legal  relations  upon  the  doing  of  other  and 
further  acts  in  respect  of  the  corporate  enterprise ;  and  the 
legal  relations  which  are  not  occasioned  solely  bv  the  contract 
embodied  in  the  constitution,  but  which  arise  only  upon  the 
doing  of  other  and  further  acts  which  bring  the  actors  within 
the  operation  of  that  constitution  regarded  as  law,  the  state 
cannot  change.  In  respect  of  such  acts,  the  state  may  only 
provide  what  legal  relations  they  shall  occasion  in  the  future  ; 
but  the  acts  having  been  done,  no  constitutional  legislation 
can  alter  the  legal  relations  which  they  have  occasioned.  As 
Strong,  J.,  said  in  the  Sinking  Fund  Cases,3  the  power  reserved 
by  a  legislature  to  alter  and  repeal  the  charter  of  a  corpora- 


1  Compare  Supreme  Commaudery 
v.  Ainsworth,  71  Ala.  436,  450. 

2  To  the  stock  of  a  railroad  corpo- 
ration, whose  charter  was  subject  to 
alteration  and  repeal,  the  city  sub- 
scribed, having  the  right  to  appoint 
a  certain  number  of  the  directors  of 
the  railroad.  Individuals  also  sub- 
scribed, but  did  not  pay  their  sub- 
scriptions. Some  years  later  the 
legislature  authorized  the  city  to 
appoint  a  greater  number  of  direc- 
tors; and  the  legislation  was  held 
constitutional    under    the    reserved 

508 


power  to  alter  and  amend.  Miller  v. 
State,  15  Wall.  478;  Bradley  and 
Field,  JJ.,  dissented  on  the  ground 
that  this  was  a  modification  of  a  con- 
tract outside  of  the  charter.  See 
also  Close  v.  Glenwood  Cemetery, 
107  U.  S.  466;  Spring  Valley  Water 
Works  v.  San  Francisco,  61  Cal.  3; 
Chincleclamouche  Lumber  Co.  v. 
Commonwealth,  100  Pa.  St.  438,  444. 
But,  see,  Enterprise  Ditch  Co.  v. 
Moffett,  58  Neb.  642. 
3  99  U.  S.  700,  740. 


CHAP.  VIII.]  CORPORATION  AND  STATE. 


[§  500. 


tion,  "  is  one  over  the  act  itself,  not  over  anything  that  may 
have  lawfully  been  done  under  the  act  before  its  repeal  or 
alteration.  It  is  only  by  great  confusion  of  things  essentially 
distinct,  that  this  power  can  be  construed  as  applicable  to  a 
contract  made  after  the  corporation  came  into  existence."1 
The  following  passage  from  the  opinion  of  Chief  Justice  Waite 
in  the  same  case,  may  also  be  quoted :  "  Whatever  rules  Con- 
gress might  have  prescribed  in  the  original  charter  for  the 
government  of  the  corporation  in  the  administration  of  its 
affairs,  it  retained  the  power  to  establish  by  amendment.2  In 
so  doing,  it  cannot  undo  what  has  already  been  done,  and  it 
cannot  unmake  contracts  that  have  already  been  made  ;  but  it 
may  provide  for  what  shall  be  done  in  the  future,  and  may 
direct  what  preparation  shall  be  made  for  the  due  performance 
of  contracts  already  entered  into.  It  might  originally  have 
prevented  the  borrowing  of  money,  or  it  might  have  said  that 
no  bonded  debt  should  be  created  without  ample  provision  by 
sinking  fund  to  meet  it  at  maturity.  Not  having  done  so  at 
first,  it  cannot  now  by  direct  legislation  vacate  mortgages  al- 
ready made  under  the  powers  originally  granted,  nor  release 
debts  already  contracted.  A  prohibition  now  against  contract- 
ing debts  will  not  avoid  debts  already  incurred.  .  .  .  All  such 
legislation  will  be  confined  in  its  operation  to  the  future."  3 

§  500.  For   further  illustration  of  the  application  of  these 
principles  let  us  suppose  a  corporation  formed  under 
a  general  enabling  act  (or  with  a  special  charter,  this   tion.  Reia- 
is  immaterial);    the   state    reserving    the  right    to   tween6" 
amend  or  appeal  the  enabling  act.     Let  us  suppose   errand015* 
that    the   shareholders  under   this  enabling  act  are   creditors. 


1  See  Oldtown,  etc.,  R.  R.  Co.  v. 
Veazie,  39  Me.  571. 

The  reservation  of  the  right  to 
alter  and  repeal  does  not  authorize 
the  legislature  to  do  a  judicial  act, 
such  as  foreclosing  a  mortgage  by 
legislation  cutting  off  the  mort- 
gagor's right  to  redeem  (the  mort- 
gagor being  a  corporation  with  a 
charter  subject  to  alteration  and 
repeal).  Asbuelot  R.  R.  Co.  v. 
Elliot,  58  N.  H.  451. 


2  Quoted  in  Spring  Valley  Water 
Works  v.  Schottler,  110  U.  S.  347, 
353.  See  St.  Louis,  I.  M.  R.,  etc.,  R'y 
Co.  v.  Paul,  173  U.  S.  404;  Johnson  v. 
Goodyear  M'g  Co.,  127  Cal.  4;  Lin- 
coln St.  R.  Co.  v.  Lincoln,  61  Neb. 
109. 

8  Sinking  Fund  Cases,  99  U.  S.  700, 
721.  See,  also,  Close  v.  Glenwood 
Cemetery,  107  U.  S.  466. 


509 


§  500.]       THE   LAW   OF   PRIVATE   CORPORATIONS.  [CHAP.  VIII. 

not  personally  liable  for  the  corporate  debts  after  they  have 
fully  paid  their  subscriptions.  Here  the  state  may  alter  the 
enabling  act  so  as  to  make  the  shareholders  liable  personally 
for  all  debts  contracted  by  the  corporation  after  such  amend- 
ment;1 but  not  so  as  to  make  them  liable  for  debts  contracted 
before  such  amendment,  as  such  retroactive  legislation  would 
(a)  impair  the  obligation  of  a  contract,  and  (b)  deprive  share- 
holders of  their  property  without  due  process  of  law.  To 
change  the  legal  effect  of  a  contract  so  as  to  impose  additional 
burdens  on  the  person  already  liable  thereunder,  impairs  its 
obligation,  for  constitutional  provisions  exist  as  much  for  the 
protection  of  debtors  as  of  creditors.2  The  contract  of  which 
the  obligation  is  impaired  by  making  shareholders  liable  for 
debts  already  contracted,  is  the  contract  by  which  the  indebt- 
edness was  incurred.  Upon  the  making  of  this  contract,  which 
was  not  embodied  in  the  charter  or  enabling  act  of  the  corpora- 
tion, and  so  subject  to  alteration,  legal  relations  arose  in  respect 
of  the  corporate  enterprise  between  shareholders  and  creditors ; 
and  one  of  the  rights  of  shareholders  occasioned  by  the  con- 
tract was  that  they  should  not  be  liable  thereunder  beyond  the 
extent  of  their  interest  in  the  corporate  funds.  Consequently, 
imposing  increased  liability  on  the  shareholders  in  respect  of 
this  contract  would  impair  (alter)  its  obligation.  In  the  second 
place,  it  is  clear  that  the  imposing  of  increased  liability  on  the 
shareholders  would  give  a  creditor  a  right  against  them  which 
he  had  not  when  the  contract  was  made ;  and  as  every  right 
implies  a  corresponding  liability  or  duty,  which  in  its  turn  (at 
least  in  a  case  of  this  nature)  implies  the  giving  up  of  a  right, 
such  amendment  would  deprive  a  person  of  a  right,  i.  e.,  of 
property  without  due  process  of  law.3 


1  Sherman  v.  Smith,  1  Black,  587. 

2  "  The  objection  to  a  law  on  the 
ground  of  its  impairing  the  obliga- 
tion  of  a  contract,  can  never  depend 
on  the  extent  of  the  change  which 
the  law  effects  in  it.  Any  deviation 
from  its  terms,  by  postponing  or  ac- 
celerating the  period  of  performance 
which  it  prescribes,  imposing  condi- 
tions not  expressed  in  the  contract, 
or  dispensing  with  the  performance 

510 


of  those  which  are,  however  minute 
or  apparently  immaterial  in  their 
effect  upon  the  contract  of  the  par- 
ties, impairs  its  obligation."  Wash- 
ington, J.,  in  Green  v.  Biddle,  8 
Wheat.  1,  84. 

3  "  Whatever  modification  of  the 
liability  of  stockholders  in  banks 
may  be  legally  made  that  shall  oper- 
ate upon  future  stockholders,  or 
upon  the  present  stockholders  pro- 


CHAP.  VIII.]  CORPORATION  AND  STATE. 


[§  501. 


§  501.  On  the  other  hand,  since  the  charter  or  enabling  act 
of  the  corporation,  when  the  right  to  alter  and  repeal  is  re- 
served, is  to  be  regarded  as  between  the  state  and  the  corpo- 
ration only  as  law,  it  is  clear  that  the  corporation  has  no  vested 
or  contract  right  to  have  the  charter  or  enabling  act  remain 
unchanged  so  that  in  the  future  the  corporation  may  continue 
to  acquire  by  similar  acts  the  same  rights.  The  state  may 
certainly  impose  individual  liability  on  the  shareholders  as  to 
future  debts  because  of  the  concurrence  of  three  reasons :  first, 
as  between  the  state  and  the  corporation  the  enabling  act  em- 
bodied no  contract ;  secondly,  in  so  far  as  the  enabling  act 
embodied  the  contract  among  the  corporators,  it  embodied  a 
contract  the  terms  of  which  by  the  implied  assent  of  the  par- 
ties thereto  could  be  changed  at  the  will  of  the  state  ;  thirdly, 
the  supposed  change  being  as  to  future  indebtedness  only,  ex 
hypothese  no  other  contract  had  been  entered  into,  the  obliga- 
tion of  which  would  be  impaired  by  the  supposed  legislation. 
It  seems  clear,  however,  that  even  as  to  future  indebtedness, 
the  state  cannot  impose  increased  liability  on  the  shareholders, 
if  the  state  has  not  reserved  the  right  to  alter  and  repeal ;  for 
such  change  would  {a)  impair  the  obligation  of  the  contract 
between  the  state  and  the  corporation,  and  (b)  that  of  the  con- 
tract among  the  corporators,  which,  in  this  instance,  was  not 
made  with  the  implied  consent  that  it  might  be  changed  at  the 
will  of  the  state.1 

On  the  other  hand,  when  by  the  enabling  act,  which  the 


epectively,  no  constitutional  legisla- 
tion can  operate  to  impose  retrospec- 
tively increased  personal  liabilities 
upon  the  stockholders."  Dewey,  J., 
in  Commonwealth  v.  Cochituate 
Bank,  3  Allen,  42,  44.  It  is  held, 
however,  that  a  general  banking 
law  is  not  unconstitutional  in  its 
application  to  corporations  already 
in  existence,  because  it  provides  that 
the  original  shareholders  shall  re- 
main liable  to  the  extent  of  their 
stock  until  it  has  been  fully  paid 
up,  notwithstanding  they  may  have 
transferred  it.  Such  a  provision  is 
merely  regulative  of    the  transfers, 


and  is  such  as  was  competent  for 
the  state  to  pass.  Marr  o.  Bank  of 
West  Tennessee,  4  Lea  (Tenn. ),  578. 
1  Ireland  v.  Palestine  Co.,  19  Ohio 
St.  369,  372;  limiting  Palestine  Co. 
v.  Wooden,  13  Ohio  St.  395.  Contra, 
Gray  v.  Coffin,  9  Cush.  192;  Coffin 
v.  Rich,  45  Me.  507  ;  Stanley  v. 
Stanley,  26  Me.  191.  Compare 
Longley  v.  Little,  26  Me.  162  ; 
Wheeler  v.  Frontier  Bank,  23  Me. 
308;  Commonwealth  v.  Cochituate 
Bank,  3  Allen,  42  ;  McGrowan  v. 
McDonald,  111  Cal.  57.  In  these 
Maine  cases  the  right  to  amend  seems 
to  have  been  reserved  to  the  state. 

511 


§  502.]       THE   LAW   OP   PRIVATE   CORPORATIONS.    [CHAP.  VIII. 


Further 
limits  oil 
the  re- 
served 
power. 


state  reserves  the  right  to  alter  and  amend,  the  shareholders 
are  individually  liable  for  corporate  debts,  it  is  clear  that  the 
state  cannot  repeal  this  personal  liability  so  as  to  affect  the 
security  of  existing  debts,  without  impairing  the  obligation  of 
the  contract  between  the  creditor  and  the  corporation;1  and  it 
hardly  requires  statement,  that  the  state  may  repeal  this  per- 
son;! 1  liability  as  to  debts  not  yet  contracted.2 

§  502.  The  question  arises  whether  there  are  no  limits  be- 
sides those  already  discussed  on  the  power  of  the 
state  to  change  the  constitution  of  a  corporation 
when  it  has  reserved  the  ri^ht  to  do  so.  It  has 
been  pointed  out,3  that  when  the  charter  of  a  cor- 
poration embodies  a  contract  between  the  corporation  and  the 
state,  the  state  through  such  contract  acquires  certain  rights 
and  powers  over  such  funds  of  the  corporators  as  become  cor- 
porate property,  powers  which  it  would  have  been  unconstitu- 
tional for  the  state  to  exercise,  had  the  corporators  not  accepted 
the  charter.  The  rights  thus  acquired  by  the  state  may  be 
summed  up,  as  the  right,  in  so  far  as  the  interests  of  the  public 
are  concerned,  either  to  compel  the  corporation  to  fulfill  the 
purposes  of  its  incorporation,  or,  if  the  state  sees  fit,  to  forfeit 
the  franchises  of  the  corporation.  When,  however,  a  corpora- 
tion is  formed  under  an  enabling  statute  or  accepts  a  charter, 
which  the  state  reserves  the  right  to  alter  or  repeal,  what  is 
the  limit  to  the  right  of  the  state  to  alter  such  statute,  and 
then  either  compel  the  corporation  to  fulfill  its  altered  objects 
of  incorporation,  or  forfeit  the  franchises  of  the  corporation  for 
its  failure  to  do  so  ?  As  we  have  seen,  there  is  no  contract  in 
such  a  case  between  the  state  and  the  corporation,  for  the  state 
agrees  to  nothing.  The  corporators,  however,  assume  the  duty 
towards  the  public  to  fulfill  the  purposes  of  their  incorporation, 
as  far  as  the  public  may  be  interested  in  the  fulfillment  of  such 


1  Hawthorne  v.  Calef,  2  Wall.  22; 
Corning  v.  McCullough,  1  N.  Y.  47; 
Provident  Savings  Institution  v. 
Jackson  Skating  Rink,  f>2  Mo.  552; 
St.  Louis  Railway  Supplies  Co.  v. 
Harbine,  2  Mo.  App.  134 ;  Grand 
Rapids  Sav'gs  Bank  r.  Warren,  52 
Mich.  557;  Nat.  Commercial  Bank  v. 

512 


McDonnell,  92  Ala.  388;  Barton  Nat. 
IV  k  v.  Atkins,  72  Vt.  33;  Woodworth 
v.  Bolles,  61  Kas.  569;  but  compare 
Woodliouse  v.  Commonwealth  Insur- 
ance Co.,  54  Pa.  St.  307. 

2  Compare  Curran  v.  Arkansas,  15 
How.  304,  §  507. 

3  §  456. 


CHAP.  VIII.]  CORPORATION    AND    STATE. 


[§  502. 


purposes,  and  this  duty  the  state  may  enforce,1  or,  at  its  option, 
forfeit  the  franchises  of  the  corporation.  But  in  these  respects, 
and  especially  in  respect  of  enforcing  the  fulfillment  of  the  pur- 
poses of  incorporation,  the  word  "  alter  "  must  be  reasonably 
construed,  and  the  power  of  the  state  held  restricted  to  legisla- 
tion fairly  amendatory  of  the  original  constitution.2  The  state 
may  at  any  time  repeal  the  constitution  of  the  corporation,  but 
the  state  cannot,  under  the  reserved  power  to  alter,  substitute 


1  The  assumption  by  the  corpora- 
tors of  a  duty  towards  the  public  does 
not  imply  any  contractual  relations 
between  the  corporation  and  the 
state.  Every  member  of  a  commu- 
nity is  affected  with  duties  towards 
it,  and  by  changing  his  occupation  he 
usually  assumes  duties  with  which 
he  was  not  affected  prior  to  the 
change.  Duties  to  the  public  are 
mostly  negative,  and  may  be  summed 
up  in  the  maxim,  Sic  utere  tuo  ut 
alienum  non  Icedas;  but  in  the  case 
of  a  (private)  corporation  incorpo- 
rated for  a  public  purpose  its  duties 
towards  the  public  may  be  positive. 
The  point  to  be  regarded  is  that  the 
state  does  not  contract,  but  simply 
passes  a  law,  expressly  reserving  the 
rightto  alter  or  appeal.  Davis,  P.  J., 
says  in  People  v.  New  York  Cent.  & 
H.  R.  R.  Co.,  28  Hun,  543:  "The 
power  of  the  state  to  compel  a  rail- 
road company  by  mandamus  to  per- 
form its  duties,  rests  as  firmly  on 
the  ground  that  that  duty  is  a  public 
trust,  which  having  been  conferred 
by  the  state,  and  accepted  by  the 
corporation,  may  be  enforced  for  the 
public  benefit,  as  upon  the  contract 
between  the  corporation  and  the 
state." 

2  The  right  of  the  legislature  under 
reservation  of  power  to  amend,  alter, 
or  repeal  the  charter  of  a  railroad 
company,  includes  authority  to  with- 
draw powers  already  granted,  and  to 
confer  new  powers  and  require  their 

33 


exercise,  and  is  independent  of  the 
assent  of  the  corporation.  A  statute 
requiring  certain  railroad  corpora- 
tions to  unite  in  a  passenger  station 
in  Worcester,  and  to  extend  their 
tracks  in  that  city  to  such  station, 
and  after  such  extension  to  discon- 
tinue certain  portions  of  their  pres- 
ent locations,  is  a  valid  exercise  of  the 
power  to  alter  and  amend.  Mayor, 
etc.,  of  Worcester  ».  Norwich  &  Wor- 
cester R.  R.  Co.,  109  Mass.  103.  See 
English  u.  New  Haven  &  Northamp- 
ton Co.,  32  Conn.  240;  Robinson  u. 
Gardiner,  18  Gratt.  (Va. )  509;  Sprigg 
v.  West.  Tel.  Co.,  46  Md.  67;  West 
End,  etc.,  R.  R.  Co.  u.  Atlanta,  etc., 
R.  R.  Co.,  49  Ga.  151 ;  compare  Yeaton 
v.  Bank  of  the  Old  Dominion,  21 
Gratt.  (Va.)  593;  Dow  i\  R.  R.  Co., 
67  N.  H.  1.  Under  such  reservation 
rates  of  toll  may  be  limited.  Parker 
o.  Metropolitan  R.  R.  Co.,  109  Mass. 
506;  see  Fitchburg  R.  R.  Co.  o.  Grand 
Junction  R.  R.  and  Depot  Co.,  4  Allen, 
198;  Amer.  Coal  Co.  o.  Consolidation 
Coal  Co.,  46  Md.  15;  see  §§  476a, 
4766.  Where  by  a  railway  charter, 
a  general  power  is  given  to  consoli- 
date with,  purchase,  lease,  or  acquire 
the  stock  of  other  roads,  which  power 
has  remained  unexecuted,  the  legis- 
lature may  declare,  by  subsequent 
acts,  that  this  power  shall  not  ex- 
tend to  the  purchase,  lease  or  con- 
solidation with  parallel  or  compet- 
ing lines.  Pearsall  o.  Railway,  161 
U,  S.  647.     See   Louisville,    etc.,    R. 

513 


§  503.]       THE  LAW   OF   PRIVATE   CORPORATIONS.  [CHAP.  VIII. 

entirely  different  purposes  of  incorporation,  and  compel  the 
fulfillment  of  them.  For  instance,  under  the  power  to  alter 
and  amend,  Congress  cannot  impose  upon  a  railroad  company 
duties  foreign  to  the  objects  for  which  it  was  created.1  Keither 
may  the  state,  under  the  power  to  alter  and  amend,  deprive 
the  corporation  of  its  property  ;  for  instance,  it  cannot,  by 
compelling  a  plank  road  company  to  remove  a  toll-gate,  prac- 
tically deprive  it  of  several  miles  of  the  most  valuable  portion 
of  its  road.2  As  Justice  Swayne  said,  giving  the  opinion  of 
the  court  in  Shields  v.  Ohio:3  "The  power  of  alteration  and 
amendment  is  not  without  limit.  The  alterations  must  be 
reasonable,  they  must  be  made  in  good  faith,  and  be  consistent 
with  the  scope  and  object  of  the  act  of  incorporation.  Sheer 
oppression  and  wrong  cannot  be  inflicted  under  the  guise  of 
amendment  or  alteration.  Beyond  the  sphere  of  the  reserved 
powers,  the  vested  rights  of  property  of  corporations  in  such 
cases  are  surrounded  by  the  same  sanctions,  and  are  as  inviola- 
ble as  in  other  cases."4 
§  503.  When  the  legislature  reserves  the  right  to  annul  the 


R.  v.  Kentucky,  ib.  677;  Galveston, 
etc.,  R'y  Co.  v.  Texas,  170  U.  S.  226, 
where  it  was  held  that  a  statute  au- 
thorizing grants  of  land  for  miles  of 
railroad  constructed  might  be  re- 
pealed as  to  lines  of  road  thereafter 
authorized;  but  not  as  to  lines  au- 
thorized at  the  time  the  companies 
were  incorporated.  Houston  & 
Texas  Central  R'y  Co.  i>.  Texas,  170 
U.  S.  243.  The  capacity  to  acquire 
lands,  unexecuted  is  not  a  vested 
right  and  may  be  withdrawn.  Adi- 
rondack Ry.  v.  New  York  State,  176 
U.  S.  345.  See  111.  Central  R.  R.  Co. 
v.  Chicago,  176  U.  S.  646. 

1  United  States  v.  U.  P.  Ry.  Co., 
160  U.  S.  1. 

2  Detroit  v.  Detroit,  etc.,  Plank 
Road  Co.,  43  Mich.  140;  cf.  111.  Cent. 
R.  R.  Co.  v.  Chicago,  176  U.  S.  64(i. 
In  Orr  v.  Bracken  County,  etc.,  81 
Ky.  593,  it  was  held  that  the  legis- 

514 


lature,  under  its  power  to  alter  and 
amend,  could  not  change  the  control 
of  corporate  affairs  by  giving  to  each 
shareholder  as  many  votes  as  he  held 
shares.  A  questionable  case,  com- 
pare Looker  v.  Maynard,  179  U.  S. 
46. 

8  95  U.  S.  319,  324. 

4  See,  also,  Commissioners  v.  Hol- 
yoke  Water  Power  Company,  104 
Mass.  446  (practically  overruling 
Commonwealth  v.  Essex  County,  13 
Gray,  239);  Holyoke  Co.  v.  Lyman, 
15  Wall.  500  (affirming  Commission- 
ers v.  Holyoke  Water  Power  Co., 
supra);  Zabriskie  v.  Hackensack, 
etc.,  R.  R.  Co.,  18  N.  J.  Eq.  178; 
Macon,  etc.,  R.  R.  Co.  v.  Gibson,  85 
Ga.  1;  see,  also,  §§  533-535,  and  com- 
pare the  New  Jersey  statute  permit- 
ting alteration  of  charter,  Laws  of 
1896,  ch.  185,  §  27,  and  Meredith  o. 
N.  J.  Zinc.  Co.,  44  Atl.  Rep.  55. 


chap,  vrn.] 


CORPORATION    AND   STATE. 


[§  504. 


charter  of  a  corporation  if  the  corporation  misuses 

its  powers  or  fails  to  begin  active  operations  within   ^Ich]1  a  ill~ 

a  certain  time,  it  has  been  held  that  the  legislature   ceediug 

.  .  .    .  ,,         prerequi- 

may  exercise  its  right  without  the  interposition  of  a  site  to  the 
judicial  tribunal.1  Undoubtedly,  if  the  legislature  iepea ' 
reserves  the  unconditional  right  to  alter  and  repeal,  it  may 
exercise  that  right  in  its  discretion;  but  when  that  right  is 
conditioned  on  an  abuse  of  corporate  powers,  it  would  seem 
to  be  little  more  than  the  ordinary  right  of  the  state  to  proceed 
by  quo  warranto.  Accordingly,  that  the  corporation  should 
have  an  opportunity  to  be  heard  in  its  defence,  and  that  some 
judicial  tribunal  should  pass  upon  the  question  whether  there 
has  been  an  abuse  of  corporate  powers,  or  a  failure  to  exercise 
them,  would  seem  prerequisite,2  for  the  legislature  is  not  the 
proper  body  to  construe  a  contract  between  itself  and  a  group 
of  citizens.3 

§  504.  The  repeal  of  a  general  enabling  act  does  not  affect 
the  capacitie  3  of  corporations  already  formed  under 
it,4  unless  the  legislative  intention  to  dissolve  exist-   ^peai  °fa 
ing  corporations  is  clearly  expressed  in  the  repealing 


1  Miners'  Bank  v.  United  States, 
1  Greene  (Iowa),  553.  The  power 
to  repeal  for  abuse  of  corporate 
privileges  is  a  different  right  from 
that  of  demanding  a  judicial  sen- 
tence of  forfeiture.  After  an  abuse 
has  occurred  the  legislature  is  in- 
vested with  full  power  to  repeal  the 
charter,  and  the  corporations  hold 
their  franchises  from  the  state 
merely  as  tenants  at  will,  in  the 
same  manner  as  if  there  had  been 
an  unconditional  reservation  of  the 
right  to  repeal.  Judicial  proceed- 
ings taken  against  the  corporation 
by  the  attorney-general,  under  which 
the  corporation  is  compelled  to  rem- 
edy certain  of  its  abuses,  do  not  de- 
prive the  state  of  its  power  of  repeal 
for  the  abuse.  A  repealing  statute 
will  be  presumed  to  have  been  passed 
on  the  existence  of  the  fact  on  which 
its  validity  depends.     Erie  and  N.  E. 


R.  R.  Co.  v.  Casey,  26  Pa.  St.  287 
(decided  by  a  bare  majority).  But 
the  legislature  is  not  the  final  judge 
as  to  whether  the  casus  judicis,  upon 
which  is  based  its  authority  to  re- 
peal, has  accrued.  Commonwealth 
v.  Pittsburgh  and  C.  R.  R.  Co.,  58 
Pa.  St.  26;  Erie  and  W.  E.  R.  R.  Co., 
v.  Casey,  26  Pa.  St.  287. 

2  Mayor  of  Baltimore  v.  Pitts- 
burgh and  Connellsville  R.  R.  Co., 
1  Abb.  U.  S.  9;  accord,  Flint,  etc., 
Plankroad  Co.  v.  Woodhull,  25  Mich. 
99;  compare  Grand  Gulf  R.  R.  Co. 
v.  State  of  Mississippi,  18  Miss.  428, 
and  §  458. 

3  Commonwealth  v.  Proprietors  of 
New  Bedford  Bridge,  2  Gray,  339; 
compare  City  of  London  v.  Wood, 
12  Mod.  669,  687. 

4  United  Hebrew  Association  v. 
Benshimol,  130  Mass.  325  ;  Don- 
worth  v.  Coolbaugh,  5  Iowa.  300. 

515 


§  504.]       THE   LAW   OF   PRIVATE   CORPORATIONS.  [CHAP.  VIII. 

statute.1  The  legal  effect  of  the  repeal  by  the  legislature  of 
a  charter  of  a  corporation  is  clearly  stated  in  the  following 
words  of  Justice  Miller,  giving  the  opinion  of  the  court  in 
Greenwood  v.  Freight  Company:2  "Whatever  force  the  law 
may  give  to  transactions  into  which  the  corporation  entered, 
and  which  were  authorized  by  its  charter  when  in  force,  [after 
the  repeal  of  its  charter]  it  can  originate  no  new  transactions 
dependent  on  the  power  conferred  by  the  charter.  If  the 
corporation  be  a  bank,  with  power  to  lend  money,  and  to  issue 
circulating  notes,  it  can  make  no  new  loan  nor  issue  any  new 
notes  designed  to  circulate  as  money.  If  the  essence  of  the 
grant  of  the  charter  be  to  operate  a  railroad,  and  to  use  the 
streets  of  a  city  for  that  purpose,  it  can  no  longer  so  use 
the  streets  of  the  city,  and  no  longer  exercise  the  franchise 
of  running  a  railroad  in  the  city.  In  short,  whatever  power 
is  dependent  solely  upon  the  grant  of  the  charter,  and  which 
could  not  be  exercised  by  unincorporated  private  persons  under 
the  general  laws  of  the  state,  is  abrogated  by  repeal  of  the  law, 
which  granted  these  special  rights.  Personal  and  real  property 
acquired  by  the  corporation  during  its  lawful  existence,  rights 
of  contract,  or  choses  in  action  so  acquired,  and  which  do  not 
in  their  nature  depend  upon  the  general  powers  conferred  by 
the  charter,  are  not  destroyed  by  such  repeal ;  and  the  courts 
may,  if  the  legislature  does  not  provide  some  special  remedy, 
enforce  such  rights  by  the  means  within  their  power.  The 
rights  of  the  shareholders  of  such  a  corporation  to  their  interest 
in  its  property  are  not  annihilated  by  such  a  repeal,  and  there 
must  remain  in  the  courts  the  power  to  protect  those  rights."3 


1  Freehold  Mutual  Loan  Associa- 
tion v.  Brown,  29  N.  J.  Eq.  121  ; 
Wilson  v.  Tesson,  12  Ind.  285. 

a  105  U.  S.  13,  18.  See,  also,  Peo- 
ple o.  O'Brien,  45   Hun  (N.  Y.)  519. 

3  "  Lawful  dissolution  of  a  cor- 
poration will  destroy  all  its  corpo- 
rate franchises  or  privileges  vested 
by  the  act  of  incorporation  ;  but  if 
it  holds  rights,  privileges,  or  fran- 
chises having  the  nature  of  prop- 
erty, secured  by  contract  based  on 
valuable  consideration,  these  will 
survive    the  dissolution  of  the    cor- 

516 


poration  for  the  benefit  of  those 
who  may  have  right  to  or  just 
claim  upon  its  assets."  Interna- 
tional &  G.  U.  R'y  Co.  v.  State,  75 
Tex.  356,  378.  Opinion  of  court, 
per  Staytou,  C.  J. 

In  the  case  of  the  Broadway  Sur- 
face Railroad  Co.,  which  was  dis- 
solved by  act  of  the  legislature,  it 
was  held  that  its  rights  derived 
from  grant  from  New  York  City, 
e.  g.,  its  street  rights  and  franchise 
to  run  a  railroad  in  Broadway,  sur- 
vived, as  did  also  its  mortgages  and 


CHAP.  VIII.] 


CORPORATION  AND  STATE. 


[§  505. 


§  505.  Having  considered  the    relations    between  the  state 
and  the  corporation,  a  few  words  may  be  said  as  to   Relations 
the  relations  more  particularly  subsisting  between   between 

1  •  °  the  state 

the  state  and  (a)  the  shareholders,  (b)  the  directors   and  the 
and  other  officers  and  agents  of  the  corporation,  and   interested8 
(c)  the  creditors  of  the  corporation.  pirate C°r" 

The  contract  with  the  state,  when  there  is  one,  is  enterprise, 
between  the  state  and  the  original  corporators,  who  incorporate 
themselves  by  accepting  the  constitution  of  the  corporation. 
Their  incorporation  enables  them,  within  the  scope  of  the  cor- 
porate powers,  to  act  as  a  body  corporate,  and  places  their 
rights  and  interests  in  the  hands  of  a  majority  of  their  own 
number  and  of  the  corporate  agents.  Accordingly,  it  is  the 
province  of  the  body  corporate  or  corporate  management,  to 
protect  the  interests  of  all  the  shareholders  against  the  conse- 
quences of  unconstitutional  action  on  the  part  of  the  state. 
Nevertheless,  when  the  corporation  fails  to  act  in  defence  of 
corporate  interests,  a  shareholder  may.1  As  the  corporation, 
however,  cannot  sue  the  state  directly  to  compel  it  to  repeal 
an  unconstitutional  law,  nor  to  obtain  damages  from  the  state 
for  the  effects  of  such  a  law,2  it  is  usually  in  the  legal  relations 
between  the  shareholders  and  other  persons  in  any  way  inter- 
ested in  the  corporate  enterprise,  that  the  consequences  of  un- 
constitutional legislation  show  themselves.3  As,  for  instance, 
questions  arising  under  a  law  imposing  increased  personal  lia- 
bility upon  shareholders  would  come  up  between  shareholders 
and  creditors  endeavoring  to  enforce  this  improperly  increased 


valid  contracts  ;  and  that  upon  its 
dissolution  its  property  vested  in  its 
trustees  (under  the  statutory  pro- 
visions for  winding  up).  People  v. 
O'Brien,  111  N.  Y.  1.  So  in  the 
case  of  forfeiture  of  franchises  for 
forming  an  illegal  trust,  the  cor- 
porate property  after  payment  of 
debts  belongs  to  the  shareholders. 
Havemeyer  v.  Superior  Court,  84 
Cal.  327.     See,  also,  §  437. 

1  Where  the  legislature  of  a  state 
has  repealed  the  charter  of  a  street 
railroad    company,  and    transferred 


its  franchises  and  track  to  another, 
and  the  corporation  refuses  to  seek 
a  remedy  in  the  courts,  a  stock- 
holder of  the  company  will  have  a 
standing  in  a  court  of  equity  to  ob- 
tain an  injunction  on  the  ground 
that  the  repealing  statute  impairs 
the  obligation  of  a  contract.  Green- 
wood v.  Freight  Company,  105  U.  S. 
13.     See  §§  138  et  seq. 

2  See  §  462. 

3  A  statute  to  the  effect  that  all 
dividends  not  claimed  within  five 
years  shall  be  paid  to  a  university, 

517 


§  507.]        THE    LAW   OF   PRIVATE   CORPORATIONS.  [CHAP.  VIII. 

liability  of  shareholders.1  It  would  seem  that  questions  directly 
between  the  state  and  shareholders  could  arise  only  when  a 
shareholder  is  defending  his  interests  against  the  action  of  gov- 
ernment agents  seeking  to  carry  into  effect  the  provisions  of 
some  unconstitutional  law.2  The  usual  object  and  principal  ef- 
fect of  laws  made  by  the  state  are  not  to  create  any  relations  be- 
tween the  state  and  its  citizens,  but  to  affect  relations  among 
its  citizens  ;  to  enable  them  to  acquire  rights  and  incur  liabilities 
in  a  manner  different  from  that  in  which  they  could  have,  be- 
fore the  passage  of  the  law.3 

§  506.  Likewise,  very  seldom  would  questions  arise  directly 
between  the  state  and  directors  of  a  corporation.  The  state 
may  compel  directors  to  perform  their  duties  in  so  far  as  a 
non-performance  of  them  in  any  way  prejudices  the  public 
interest ; 4  and  directors  could  resist  action  by  the  agents  of 
the  state  of  an  improper  nature,  and  in  so  doing  rest  their 
defence  on  the  nullity  of  the  authority  relied  on  by  such 
agents.  The  state  may  create  penalties  for  breaches  of  trust 
or  failure  to  fulfill  their  duties  on  the  part  of  directors ;  and 
here  again  if  the  penalties  were  enforceable  at  the  suit  of  those 
persons  for  whose  protection  they  were  created,  the  questions 
as  to  them  would  arise  between  those  persons  and  the  direct- 
ors. Penalties,  moreover,  cannot  be  constitutionally  imposed 
for  past  transactions.5 

§  507.  Finally,  in  regard  to  creditors  of  the  corporation, 
questions  as  to  the  constitutionality  of   legislation  in  respect 


impairs  the  obligation  of  a  contract. 
University  v.   North  Carolina  R.  R. 
Co.,  76  N.  C.  103. 
JSee  §§500,  501. 

2  E.  y.,  to  restrain  the  collection 
of  an  illegal  tax.  See  Delaware 
Railroad  Tax,  18  Wall.  200. 

When  a  stockholder  sues  to  re- 
strain the  collection  of  an  illegal  tax 
(when  the  corporation  refuses),  a 
demurrer  lies  to  his  complaint  un- 
less the  corporation  is  made  a  party. 
Davenport  u.  Dows.  IS  Wall.  626. 

3  But  a  question  might  arise  in  an 
entirely  different  way  between  the 
state  or  the  United    States,  and    a 

518 


corporation,  and  its  shareholders. 
Thus  a  shareholder  was  indebted  to 
his  bank,  and  also  to  the  United 
States.  By  its  charter  the  bank  had 
a  lien  on  its  stock  for  the  payment 
of  debts  due  it  by  shareholders,  and 
insisted  on  this  lien  against  the  claim 
for  priority  of  payment  asserted  on 
the  part  of  the  United  States.  The 
bank  was  sustained.  Brent  v.  Bank 
of  Washington,  10  Pet.  596. 

4  E.  g.,  by  making  given  acts  or 
omissions  criminal. 

5  Even  when  the  state  reserves  the 
right  to  alter  and  repeal.  White  v. 
How,  3  McLean,  111. 


CHAP.  VIII.] 


CORPORATION    AND   STATE. 


[§  507. 


of  the  corporate  enterprise,  would  usually  come  up  between 
creditors  and  the  corporation  ;j  or  between  creditors  and  share- 
holders or  directors;2  or  among  creditors.3  However,  when  a 
state,  that  has  provided  in  the  charter  of  a  bank  that  its  bills 
shall  be  receivable  for  state  taxes,  attempts  to  repeal  this  pro- 
vision, the  question  of  the  constitutionality  of  the  repeal  would 
arise  directly  between  the  state  officers  and  the  billholders. 
Such  a  provision  is  held  to  constitute  a  contract  between  the 
state  and  the  holders  of  the  bank  bills  in  circulation,  and  a 
contract  which  the  state  cannot  affect  by  subsequent  legisla- 
tion.4 


1  E.  g.,  where  the  legislature  of  a 
state  authorized  commissioners  to 
borrow  money  to  be  used  in  making 
a  canal,  and,  for  the  redemption  of 
the  loan,  pledged  the  canal,  with  its 
tolls  and  lands,  the  lien  of  a  lender 
under  the  act  cannot  be  divested  or 
postponed  by  subsequent  legislation. 
Trustees  of  the  Wabash  and  Erie 
Canal  Co.  v>.  Beers,  2  Black,  448; 
compare  Curran  v.  Arkansas,  15 
How.  304;  §  501. 

The  legislature  may  constitution- 
ally enact  a  law  providing  that,  un- 
less a  creditor  of  an  embarrassed 
corporation  expresses  his  dissent 
within  a  specified  time  from  meas- 
ures deemed  essential  to  the  com- 
mon welfare  of  the  corporation  and 
its  creditors,  he  shall  be  held  to  have 
assented  to  them.  Union  Canal  Co. 
v.  Gilfillin,  93  Pa.  St.  95;  S.  C,  aff'd, 
109  U.  S.  401. 

2  See  §§  500,  501.  When  the  state 
is  a  shareholder,  questions  may  arise 
between  the  creditors  of  the  corpo- 
ration and  the  state  as  shareholder 
in  the  corporation  or  contributor  of 
its  capital.  See  Curran  v.  Arkansas, 
15  How.  304. 

8  See  Barings  v.  Dabney,  19  Wall. 
1.  So  questions  as  to  the  compe- 
tency of  a  court  to  authorize  a  re- 
ceiver   to    issue  certificates  making 


them  liens  prior  to  the  lien  of  a 
mortgage,  would  arise  among  cred- 
itors. See,  e.  g.,  Fosdick  v.  Schall, 
99  U.  S.  235;  Wallace  v.  Loomis,  97 
U.  S.  146.     See  §§  821  et  seq. 

4  Woodruff  v.  Trapnall,  10  How. 
190.  In  this  case  the  state  was  the 
sole  shareholder.  See  Paup  v.  Drew, 
10  How.  218;  Furman  v.  Nichol,  8 
Wall.  44;  Wagner  v.  Stall,  2  S.  C. 
538.  Such  bank  bills  are  not  "  bills 
of  credit"  within  the  meaning  of  the 
Constitution.  Darrington  v.  Bank 
of  Alabama,  13  How.  12. 

In  1836  Maryland  passed  a  law  di- 
recting a  subscription  of  $3,000,000 
to  the  capital  stock  of  the  Baltimore 
and  Ohio  R.  R.  Co.,  with  the  follow- 
ing proviso:  "That  if  the  said  com- 
pany shall  not  locate  the  said  road 
in  the  manner  provided  for  in  this 
act,  they  shall  forfeit  $1,000,000  to 
the  state  of  Maryland  for  the  use  of 
Washington  County."  In  1841  the 
state  repealed  so  much  of  the  prior 
act  as  made  it  the  duty  of  the  rail- 
road company  to  locate  its  road  as 
prescribed,  and  released  the  penalty. 
Held,  that  the  above  proviso  was  a 
penalty,  and  measure  of  state  pol- 
icy, which  the  state  might  change; 
and  that  neither  the  county  nor  any 
of  its  citizens  acquired  any  separate 
or  private  interest   in  it.     Maryland 

519 


§  507.]       THE    LAW    OF    PRIVATE   CORPORATIONS.    [CHAP.  VIII. 

Similarly,  in  Curraii  v.  Arkansas1  litigation  arose  directly 
between  the  state  and  the  billholders  of  a  bank  of  which  the 
state  incorporating  the  bank  was  the  sole  shareholder.2  The 
state  had  withdrawn  the  funds  of  the  bank  by  means  of  stat- 
utes at  variance  with  the  provisions  of  its  charter ;  and  these 
statutes,  with  the  action  of  the  state  officers  in  accordance  with 
them,  the  Federal  Supreme  Court  held  to  impair  the  obligation 
of  the  contract  between  the  billholders  and  the  bank,  as  well 
as  that  of  the  contract  between  the  state  and  the  billholders. 
Giving  the  opinion  of  the  court,  Justice  Curtis  said :  "  It  is 
true  that  as  the  state  was  the  sole  stockholder  in  this  bank,  the 
charter  cannot  be  deemed  to  be  such  a  contract  between  the 
state  and  the  corporation  as  is  protected  by  the  constitution  of 
the  United  States.  But  it  is  a  very  different  question  whether 
that  charter  does  not  contain  provisions,  which,  when  acted 
upon  by  the  state  and  by  third  persons,  constitute  in  law  a 
binding  contract  between  them.  .  .  .  Now  the  charter  of 
this  bank  provides  that  it  shall  have  a  capital  stock  of  one 
million  dollars  to  be  raised  by  the  sale  of  the  bonds  of  the  state, 
and  also  that  certain  other  funds,  that  are  specifically  described, 
shall  be  deposited  therein  by  the  state,  and  constitute  a  part  of 
the  capital  stock  of  the  bank.  .  .  .  The  bank  received  this 
money  from  the  state  as  the  fund  to  meet  its  engagements  with 
third  persons  which  the  state,  by  the  charter,  expressly  author- 
ized it  to  make  for  the  profit  of  the  state.  Having  thus  set 
apart  this  fund  in  the  hands  of  the  bank,  and  invited  the  pub- 
lic to  give  credit  to  it,  under  an  assurance  that  it  had  been 
placed  there  for  the  purpose  of  paying  the  liabilities  of  the 
bank,  whenever  such  credit  was  given,  a  contract  between  the 
state  and  the  creditor  not  to  withdraw  that  fund  to  his  injury 
at  once  arose."  3 


v.  Baltimore  and  Ohio  R.  Co.,  3  R. 
How.  534;  compare  Chamberlain  v. 
St.  Paul,  etc.,  R.  R.  Co.,  92  U.  S.  299. 

1  15  How.  304. 

2  A     statute      authorizing     suits, 
against  the  state  existed. 

3 15    How.    313.     Catron,    Daniel, 
and    Nelson,  JJ.,    dissented.     Com- 

520 


pare  Forstall  v.  Consolidated  Asso- 
ciation, 34  La.  Ann.  770.  When  a 
state  is  a  stockholder  in  a  private 
corporation,  it  is  bound  by  the  pro- 
visions of  the  charter  as  an  indi- 
vidual. Marshall  v.  Western  N.  C. 
R.  It.  Co.,  92  N.  C.  322. 


CHAP.  IX.]      CORPORATION   AND   SHAREHOLDERS. 


CHAPTER  IX. 

LEGAL  RELATIONS  BETWEEN  THE  CORPORATION  AND 
ITS  SHAREHOLDERS. 


Legal  relations  discussed  in  this 
chapter,  §  508. 

Legal  relations  between  shareholders 
and  the  corporation,  how  occa- 
sioned, §  509. 

Contracts  to  take  shares,  §  510. 

Issue  of  certificate  not  essential,  § 
511. 

Legal  relations;  general  character, 
§512. 

Implied  promise  of  subscriber  to 
pay  for  the  shares,  §§  513,  514. 

Consideration,  §  515. 

Prescribed  forms.  Failure  to  pay 
preliminary  deposit,  §  516. 

Conditions.  Levy  of  assessment,  § 
517. 

Subscription  of  total  amount  named 
in  articles,  §  518. 

Waiver  of  condition.  Estoppel,  § 
519. 

Provisions  construed  not  to  be  con- 
ditions, §  520. 

Verbal  conditions  and  secret  agree- 
ments void,  §  521. 

"  Non-assessable,"  §  522. 

Issue  of  stock  below  par;  "  Bonus  " 
stock,  §§  522a,  5226. 

Issue  of  stock  for  property,  §  522c. 

Subscriptions  obtained  by  fraud 
voidable,  provided  subscriber  acts 
with  despatch,  §  523. 

English  and  American  views,  §  524. 

Rationale,  §§  525,  526. 

Effect  of  error,  §  527. 

Subscriptions,  how  affected  by  sub- 
sequent unauthorized  or  improper 


action  on  the  part  of  the  corpo- 
ration, §§  528,  529. 
Change  in  the  corporate  enterprise 

by  legislative  action,  §§  530-532. 
Power  reserved  to  the  state  to  alter 

and  repeal,  §§  533-535. 
Effect  of  consolidation,  §  536. 
When  subscriber   cannot   plead   nul 

tiel  corporation,  §  537. 
When  he  may,  §§  538,  539. 
Shareholders  may  plead  that  officers 

making  calls  not   legally  elected, 

§  540. 
Subscribers  to  shares  irregularly  or 

illegally  issued,  §  541. 
Insolvency  of  corporation  no  defence. 

Capacities  of  receiver,  §  542. 
Directors  cannot  delegate  authority 

to  make  calls.     When  calls  unnec- 
essary, §§  543,  544. 
Forfeiture  of  shares  for  non-payment 

of  calls,  §§  546,  547. 
Collusive  forfeiture,  §  548. 
Release  of  subscriber  void,  §§  549- 

551. 
Purchase  of  shares  by  the  corpora- 
tion, §  552. 
Right  of  the  corporation  to  control 

the  corporate  enterprise,  §  553. 
Courts  will  not  interfere  at  the  suit 

of  shareholders,  §  554. 
Unless   to   restrain   acts   which   are 

ultra  wires,  or  constitute  a  breach 

of  trust,  §§  555,  556. 
When  shareholders  may  enjoin  the 

acceptance   of    an    amendment,  § 

557. 

521 


§  508.]  THE   LAW    OF    PRIVATE   CORPORATIONS.   [CHA1\  IX. 


Corporate  affairs  must  be  managed 
in  the  interest  of  the  shareholders 

as  such,  §§  558,  559. 

Agreements  among  shareholders  as 
to  control,  §  559a. 

Right  of  shareholders  to  vote  in 
their  own  interest,  §  5596. 

Right  of  shareholders  to  sue  the  cor- 
poration and  its  officers  for  con- 
spiracy, §  500. 

Like  outsiders,  a  shareholder  may 
sue  the  corporation,  §  561. 

Shareholders  have  no  unconditional 
right  to  a  division  of  profits,  §  5G2. 

But  courts  will  sometimes  interfere, 
especially  in  favor  of  preferred 
shareholders,  §  563. 

Preferred  dividends  cumulative, 
§564. 

Dividends  can  be  paid  only  out  of 
profits,  §  565. 

Recovery  of  dividends  illegally  paid, 
§§  566,  567. 

Rights  of  shareholders  after  a  div- 
idend has  been  declared,  §  568. 

Right  to  subscribe  to  additional 
shares  on  an  increase  of  the  cap- 
ital stock,  §569. 

Rights  on  a  decrease  of  stock,  §  570. 

Power  to  issue  preferred  shares, 
§§571,572. 

Meetings  of  the  corporation.  No- 
tice, §§  573.  574. 

Who  may  call  meetings,  §575. 

Business  irregularly  transacted, 
§576. 

Voting;  cumulative  voting,  §  577. 

Election  of  officers,  §  577a. 

Transfer  books  evidence  of  right  to 
vote,  §  578. 


Voting  by  proxy,  §  579. 

Combinations  of  shareholders;  vot- 
ing trusts,  §  580. 

A  court  of  law  the  tribunal  to  de- 
termine the  validity  of  corporate 
elections.     Injunctions,  §581. 

Power  to  make  by-laws,  §§  582-584. 

Right  to  inspect  corporate  books, 
§585. 

Transfer  of  shares.  Effect.  When 
corporation  is  insolveut,  §  586. 

Liability  of  transferee,  §§  587,  588. 

Irregular  transfers,  §§589,  590. 

Liability  of  corporation  for  exces- 
sive issues,  §  591. 

Liability  of  corporation  in  register- 
ing transfers,  §  592. 

Registry  of  transfers  on  forged  or- 
ders, §  593. 

In  violation  of  by-laws,  §  594. 

In  disregard  of  rights  of  which  the 
corporation  has  no  notice,  §  595. 

Interpleader,  §  596. 

Registry  of  transfers  by  mistake, 
§597. 

Estoppel  of  corporation  by  its  cer- 
tificate, §598. 

Right  of  purchaser  to  a  transfer;  to 
damages,  §  599. 

Lien  of  a  corporation  on  its  shares, 
§§  000-602. 

Effect  of  lien,  §  603. 

Its  scope,  §§  604,  605. 

Waiver  of  lien,  §§  606,  607. 

Right  of  shareholders  in  respect  of 
winding  up,  §§608,  609. 

Power  of  majority  to  dissolve  ;  of 
minority,  §  610. 

Jurisdiction  of  equity,  §  611. 


§  508.  It  is  the  purpose  of  the  present  chapter  to  treat  of  the 
Legal  reia-  legal  relations  subsisting  between  individual  share- 
tionsdis-       holders,    or   a   minority    of    shareholders,    and   the 

cussed  in  '  J  * 

this  chapter,  corporation  or  body  corporate,  acting  as  such  and 
exercising    directly   or   though   its   constituted    agencies   the 
corporate  powers  in  the  management  of  the  corporate  enter- 
522 


CHAP.  IX.]       CORPORATION  AND  SHAREHOLDERS. 


[§  510. 


prise.  The  body  corporate,  acting  through  whatever  agency 
constitutes  the  corporate  management,  is  the  representative  of 
the  rights  of  all  persons  interested  in  the  corporate  enterprise. 
Therefore,  ordinarily,  to  an  action  brought  by  the  corporation 
against  a  shareholder,  for  instance  to  enforce  his  subscription, 
no  defence  can  be  pleaded  that  would  impair  the  rights  of  any 
persons  respecting  the  corporate  funds.  With  a  view,  however, 
to  a  proper  arrangement  of  topics,  discussion  of  legal  relations 
subsisting  directly  and  apparently  among  shareholders,  and 
between  shareholders  and  corporate  officers  and  creditors  will 
be  reserved  for  future  chapters. 

§509.  Legal  relations  between  shareholders 1  and  the  body 
corporate  are  occasioned  in  the  first  instance  by  pur- 
chasing,   subscribing    for,    or   contracting    to   take   latfonsbe- 
shares  of  stock.     The  shareholder  is  thus  brought   Sh^rehoid- 
within  the  operation  of  rules  of  law  entering  into   corporLthe 
the  constitution  of  the  corporation,  which  thereupon   tion ;  how 
manifest  themselves  in  legal  relations  not  only  be- 
tween the  shareholder  and  the  body  corporate,  but  also  between 
the  shareholder  and  all  other  persons  in  any  way  interested  in 
the  corporate  enterprise.     But  in  this  chapter,  as  before  re- 
marked,  we  are  concerned  only  with  the  relations  of  these 
persons  as  represented  by  the  corporation. 

§  510.  The  forms  of  contracts  to  take  shares  in  the  stock  of 
a  corporation  may  differ,2  but  the  legal  relations  occasioned  by 
them  are  similar.3     A  contract  of  this  kind  is  in  the  main  a 


1  "  The  type  ....  of  a  member 
or  shareholder  of  a  company  is  a 
person  who  has  agreed  to  become  a 
member,  and  with  regard  to  whom 
all  conditions  precedent  to  the  ac- 
quisition of  the  rights  of  a  member 
have  been  duly  observed.  Where 
all  these  circumstances  are  com- 
bined, there  is  membership  in  its 
fullest  and  most  accurate  sense." 
1  Lindley  on  Part,  (Am.  ed.)  127. 

2  A  stock  certificate,  although  con- 
taining an  agreement  to  pay  interest 
to  the  holder  until  the  happening  of 
a  certain  event,  may  still  constitute 
him  a  shareholder;  and  the   agree- 


ment to  pay  interest  is  a  contract 
between  the  holder  and  the  corpo- 
ration, which  cannot  be  varied  by 
the  vote  of  a  majority  of  share- 
holders to  pay  such  interest  in 
bonds.  McLaughlin  v.  Detroit,  etc., 
R.  R.  Co.,  8  Mich.  100.  See,  also, 
Richardson  v.  Vermont  and  Mass. 
R.  R.  Co.,  44  Vt.  613,  in  which  case 
the  interest  was  payable  out  of  sur- 
plus earnings. 

3  Mutual  insurance  companies,  in 
which  the  insured  becomes  a  mem- 
ber by  the  payment  of  the  cash  pre- 
mium, are  anomalous.  The  theory 
of  such  companies  is  that  the  pre- 

523 


§  511.]  THE  LAW  OF  PRIVATE  CORPORATIONS.     [CHAP.  IX. 

contract  to  subscribe  funds  for  the  accomplishment 
to  take  of  a  certain  purpose,  the  subscriber  to  surrender  his 
siares.  rights  as  owner  over  the  funds  subscribed,  but  to 

retain  some  of  his  rights  in  such  funds  (as  e.  g.}  to  have  them 
applied  to  no  other  purposes  than  the  objects  of  incorporation J) 
and  acquiring  through  his  contract  certain  other  rights  (as  e.  g., 
the  right  to  act  as  a  member  of  a  corporation),  which  other- 
wise he  would  not  have  had. 

§  511.  To  constitute  a  person  a  shareholder,  it  is  not  neces- 
issue  of  saiT  that  a  certificate  of  stock  should  have  been  issued 
no^essen-  ^°  him;2  though  it  seems  a  verbal  promise  to  take 
tiai.  and  pay  for  shares  will  not  be  binding,3  unless  a  stock 

certificate    has  been  tendered  and    accepted.4     Where  a  sub- 


miums  paid  by  the  members  for  the 
insurance  of  their  respective  prop- 
erties, constitute  a  common  fund 
devoted  to  the  payment  of  any 
losses  that  may  occur.  Union  Ins. 
Co.  v.  Hoge,  21  How.  35. 

'"When  any  person  takes  stock 
in  a  railroad  company,  he  has  en- 
tered into  a  contract  with  the  com- 
pany that  his  interest  shall  be  sub- 
ject to  the  direction  and  control  of 
the  proper  authorities  of  the  corpo- 
ration to  accomplish  the  object  for 
which  the  company  was  organized. 
He  does  not  agree  that  the  improve- 
ment to  which  he  subscribes  should 
be  changed  in  its  purposes  and  char- 
acter, at  the  will  and  pleasure  of  a 
majority  of  the  stockholders,  so  that 
new  responsibilities,  and  it  may  be 
new  hazards,  are  added  to  the  origi- 
nal undertaking."  Clearwater  v. 
Meredith,  1  Wall.  25,  40. 

2  Chaffin  ».  Cummings,  37  Me.  76; 
Cusick  o.  Bartlett,  01  Me.  153;  Beck- 
ett v.  Houston,  32  Ind.  393;  Slipher 
v.  Earhart,  83  Ind.  173;  Haynes  v. 
Brown,  36  N.  H.  545,  563;  Schaeffer 
v.  Missouri  Home  Ins.  Co.,  46  Mo. 
248;  Chester  Glass  Co.  v.  Dewey,  16 
Mass.  94;  Burr  v.  Wilcox,  22  X.  Y. 
551;  Chesley  v.  Pierce,  32  N.  H.  388, 
524 


402;  Mitchell  v.  Beckman,64  Cal.  117; 
Pacific  Nat.  Bk.  v.  Eaton,  141  U.  S. 
227;  Butler  Univ.  v.  Scoonover,  114 
Ind.  381;  Storage  Co.  ».  Assessors, 
56  N.  J.  L.  389;  see  Thorp  v.  Wood- 
hull,  1  Sandf.  Ch.  (N.  Y.)  411;  cf. 
Courtright  v.  Deeds,  37  Iowa,  503. 
But  see  Busey  v.  Hooper,  35  Md.  15; 
Mount  Sterling  Coal  Road  Co.  v. 
Little,  14  Bush  (Ky.),  429. 

3  Fanning  v.  Insurance  Co.,  37  Ohio 
St.  339 ;  Vreeland  o.  New  Jersey 
Stone  Co.,  29  N.  J.  Eq.  188.  (In 
these  cases  the  charters  indicated 
that  writing  was  essential.)  Pitts- 
burg and  Steubenville  R.  R.  Co.  v. 
Cazzam,  32  Pa.  St.  340.  A  transfer 
cannot  be  established  by  parol. 
Pittsburg,  etc.,  R.  R.  Co.  v.  Clarke, 
29  Pa.  St.  146.  But  in  the  cases  of 
Colfax  Hotel  Co.  v.  Lyon,  69  Iowa, 
683;  Bullock  v.  Turnpike  Co.,  85  Ky. 
184,  and  Des  Moines  Bank  v.  Hotel 
Company,  88  Iowa,  4,  a  verbal  sub- 
scription  contract  was  held  valid. 
See,  also,  Insurance  Co.  v.  Wall,  105 
La.  89.  Shares  are  choses  in  action, 
and,  therefore,  contracts  to  take 
shares  are  not  within  the  Statute  of 
Frauds.  Webb  v.  Baltimore,  etc., 
R.  R.  Co.,  77  Md.  92. 

4  Upton  v.  Tribilcock,  91  U.  S.  45. 


CHAP.  IX.]        CORPORATION  AND  SHAREHOLDERS. 


[§  513. 


Legal  rela- 
tions ;   gen- 


scriber  acknowledges  the  receipt  of  shares  which  he  agrees  to 
pay  for  in  instalments,  one  of  which  he  actually  pays,  he  will 
be  liable  on  his  subscription,  although  no  certificate  of  stock 
has  ever  been  issued  to  him  ;  *  and,  unless  a  subscription  is  ex- 
pressly made  payable  on  call,  no  notice  to  the  subscriber  is 
necessary  before  bringing  suit.2  "  A  certificate  of  the  shares 
of  stock  of  a  railway  company  is  merely  a  solemn  affirmation 
under  the  seal  of  the  company  that  a  certain  amount  of  shares 
of  stock  stands  in  the  name  of  the  individual  mentioned  in  the 
certificate."  3 

§  512.  Legal  relations  occasioned  by  a  contract  to  take 
shares,  just  as  legal  relations  occasioned  by  any  other 
contract,  are  the  manifestations  of  the  rules  of  law 
within  the  operation  of  which  the  parties  by  their  eraicharao- 
contract  have  brought  themselves.  If  the  contract 
to  take  shares  is  binding,  that  is,  if  the  desired  legal  relations 
are  occasioned,  the  rules  of  law  of  which  the  legal  relations  so 
occasioned  are  the  manifestation  will  be  those  composing  the 
constitution  of  the  corporation ;  or,  speaking  more  definitely, 
will  be  those  contained  in  the  charter  of  the  corporation,  or  in 
the  general  enabling  statute  and  articles  of  association  filed  in 
accordance  therewith,  supplemented  by  the  more  general  rules 
of  corporation  law.4  And  a  person  subscribing  for  shares  is 
affected  with  a  notice  of  the  obligations  which  he  incurs.5 

§  513.  It  is  the  settled  law  of  the  United  States    Supreme 
Court,  and  of  most  of  the  states,  that  a  subscription 

j:  i  •        t  i  •  /•     !  .-.  Implied 

tor  snares  implies  the  promise  or  the  subscriber  to   promise  of 


1  Hawley  v.  Upton,  102  U.  S.  314. 
In  these  cases  the  subscriber  had  not 
demanded  a  certificate.  Barron  v. 
Burrill,  80  Me.  00.  Compare  We m pie 
v.  St.  Louis,  etc.,  R.  R.  Co.,  120  111. 
190;  A.  &  S.  C.  R.  Co.  v.  Hill,  20 
Oregon,  177. 

2  Lake  Ontario,  etc.,  R.  R.  Co.  v. 
Naason,  10  N.  Y.  451;  Grubb  v. 
Mahoning  Nav.  Co.,  14  Pa.  St.  302; 
Wilson  v.  Wills  Valley  R.  R.  Co.,  33 
Ga.  400.  Personal  demand  before 
suit  for  calls  may  be  made  necessary 


by  statute.  Scarlett  u.  Academy  of 
Music,  43  Md.  203 ;  compare  Sheffield 
R'y  Co.  o.  Woodcock,  7  M.  &  W.  574; 
Newry  and  Enniskillen  R'y  Co.  v. 
Edmunds,  2  Exch.  118. 

3  Lord  Cairns  in  Shropshire  Union 
R'ys,  etc.,  Co.  v.  Queen,  L.  R.  7  H. 
L.  Cas.  490,  509. 

4  See  Hoagland  v.  Cincinnati  and 
Ft.  W.  R.  R.  Co.,  18  Ind.  452,  454. 

5  McKira  ».  Glenn,  00  Md.  479; 
Chesapeake  and  Ohio  Canal  Co.  v. 
Dulany,  4  Cranch,  Cir.  Ct.  85. 

525 


§  514.]  THE    LAW    OF   PRIVATE   CORPORATIONS.    [CHAP.  IX. 

subscriber     pa,y  for  them.1     And   this  implied    promise    arises, 

to  pay  for        l    J  ,  r  r 

the  shares,  although  a  power  to  forfeit  or  sell  the  shares  for  non- 
payment may  be  expressly  given  to  the  corporation.2  The 
courts  of  Massachusetts,  Maine,  and,  possibly,  Now  Hampshire, 
follow  a  contrary  doctrine,  holding  that  a  subscription  for 
shares  in  a  corporation  subjects  the  subscriber  only  to  the 
liabilities  imposed  by  the  statute  under  which  the  corporation 
was  organized ;  and  when  a  corporation  is  authorized  by 
statute  to  assess  the  shares,  and  sell  them  for  non-payment 
of  assessments,  and  a  subscriber  has  not  expressly  promised 
to  pay  assessments,  no  promise  can  be  implied  which  will  enable 
the  corporation  to  maintain  an  action  against  him  personally, 
even  though  the  sale  of  the  shares  under  the  statute  fails  to 
bring  enough  to  pay  the  assessment.3 

§  514.  The  following  statement  of  the  law  in  New  Hamp- 
shire is  at  least  lucid,  whatever  objection  may  be  taken  to  it : 


1  Upton  v.  Tribilcock,  91  U.  S.  45  ; 
Webster  v.  Upton,  ib.  65  ;  Lake  On- 
tario, etc.,  R.  R.  Co.  v.  Mason,  16 
N.  Y.  451  ;  Rensselaer,  etc.,  Plank- 
road  Co.  i).  Barton,  ib.  457,  note  ; 
Miller  v.  Wild  Cat  Gravel  Road  Co., 
52  Ind.  51  ;  Sagory  v.  Dubois,  3 
Sandf.  Ch.  (N.  Y.)  466;  Dayton  v. 
Borst,  31  N.  Y.  435  ;  Fry's  Ex'r  v. 
Lexington,  etc.,  R.  R.  Co.,  2  Mete. 
(Ky. )  314  ;  Beene  v.  Cabawba,  etc., 
R.  R.  Co.,  3  Ala.  660  ;  Gill's  Adm'r 
v.  Kentucky,  etc.,  Mining  Co.,  7 
Bush  (Ky.),  635  ;  Chase  v.  Railroad 
Co.,  5  Lea  (Tenn.),  415  ;  Waukon, 
etc.,  R.  R.  Co.  v.  Dwyer,  49  Iowa, 
121  ;  Nulton  v.  Clayton,  54  Iowa,  425  ; 
Mansfield,  etc.,  R.  R.  Co.  v.  Brown, 
26  Ohio  St.  223  ;  Electric  Co.  v. 
Tandy,  66  Vt.  248  ;  Walter  0.  Merced 
Academy  Ass'n,  126  Cal.  582.  See 
Small  v.  Herkimer  Mfg.  Co.,  2  N.  Y. 
330.  Cf.  N.  H.  Cent.  R.  R.  Co.  v. 
Johnson,  30  N.  H.  390  ;  Mount  Ster- 
ling Coal  Co.  v.  Little,  14  Bush  (Ky. ), 
429  ;  Russell  V.  Bristol,  49  Conn.  251. 

If  a  person  makes  a  valid  contract 
on    sufficient   consideration    with    a 

526 


corporation  to  take  stock  in  it  and 
refuses  to  comply  without  fault  on 
the  part  of  the  corporation,  it  may 
recover  such  damages  for  the  breach 
as  it  has  sustained.     Quick  v.  Lemon, 

105  111.  578. 

2  Dexter,  etc.,  Plankroad  Co.  v. 
Millerd,  3  Mich.  91  ;  Hughes  t>.  An- 
tietam  M'f'g  Co.,  34  Md.  316.  Con- 
tra, Odd  Fellows'  Hall  Co.  v.  Glazier, 
5  Harr.  (Del.)  172.     See  §  546. 

3  Mechanics'  Foundry,  etc.,  Co.  v. 
Hall,  121  Mass.  272.  See,  also,  Ken- 
nebec, etc.,  R.  R.  Co.  v.  Kendall,  31 
Me.  470  ;  Belfast,  etc.,  R.  R.  Co.  v. 
Moore,  60  Me.  561  ;  Penobscot,  etc., 
R.  R.  Co.  v.  Dunn,  39  Me.  587.  An 
amendment  to  a  charter  cannot  op- 
erate to  make  a  subscriber  person- 
ally liable  on  his  subscription  when 
he  was  not  so  liable  before.  Belfast, 
etc.,  R.  R.  Co.  v.  Moon,  60  Me.  561. 
But  by  charter-provisions  stocks  may 
be  liable  to  further  assessments  by 
the  corporation  after  the  full  par 
value  has  been  paid.     Price's  Appeal, 

106  Pa.  St.  421.  Compare  Dewey  v. 
St.  Albans  Trust  Co.,  57  Vt.  332. 


CHAP.  IX.]        CORPORATION  AND  SHAREHOLDERS. 


[§  515. 


"  "Where  a  party  makes  an  express  promise  to  pay  the  assess- 
ments, he  is  answerable  to  the  corporation  upon  such  promise 
for  all  legal  assessments,  and  may  be  compelled  to  its  perform- 
ance by  an  action  at  law,  before  resorting  to  a  sale  of  the 
shares.  It  is  a  personal  undertaking  beyond  the  terms  of  the 
charter.  Where,  on  the  other  hand,  he  only  agrees  to  take 
a  specified  number  of  shares,  without  promising  expressly  to 
pay  assessments,  then  resort  must  first  be  had  to  a  sale  of  the 
shares  to  pay  the  assessments  before  an  action  at  law  can  be 
maintained.  His  agreement  simply  to  take  the  shares  is  an 
agreement  upon  the  faith  of  the  charter,  and  by  it  alone  is  he 
to  be  governed,  so  far  as  his  shares  are  to  be  affected.  He  takes 
them  upon  the  conditions  and  law  of  the  charter.  They  exist 
only  by  virtue  of  the  charter,  and  are  to  be  governed  by  the 
provisions  therein  contained."  J 

§  515.  In  the  absence  of  express  provisions  in  the  charter 
or  enabling   act   regulating   subscription    contracts, 
whether  an  implied  or  express  promise  to  pay  for   £onSlderar 
shares  may  be  enforced  by  the  corporation,  is  to  be 
determined  in  accordance  with  the  rules  of  the  law  of  con- 
tracts.2    In  the  first  place,  and  principally,  was  there  a  con- 
sideration ? 3     When  no  consideration  is  expressed,  a  sufficient 
one  to  uphold  the  contract  ordinarily  exists  in  the   implied 
counter-promise  of  the  corporation,  in  accepting  the  subscrip- 
tion, to  admit  the  subscriber  to  all  the  rights  of  a  shareholder.4 


1  New  Hampshire  Central  R.  R. 
Co.  v.  Johnson,  30  N.  H.  390,  403. 

2  E.  g.,  to  an  action  ou  a  subscrip- 
tion contract,  the  infancy  of  the 
subscriber  may  be  pleaded.  Newry 
and  Enniskillen  R'y  Co.  v.  Combe, 
5  Eng.  R'y  Cas.  633;  Dublin,  etc., 
R'y  Co.  v.  Black,  7  Eng.  R'y  Cas. 
434.  Compare  Cork,  etc.,  R'y  Co. 
v.  Cazenove,  10  Q.  B.  935.  Writing 
one's  name  in  the  private  memoran- 
dum book  of  a  person  soliciting  sub- 
scriptions, does  not  give  that  person 
authority  to  sign  a  stock-subscrip- 
tion. McClelland  v.  Whiteley,  15 
Fed.  Rep.  322. 

3  An    agreement  by   a  person   to 


act  as  director  and  to  give  the  busi- 
ness of  his  firm  to  a  bank,  is  a  suf- 
ficient consideration  to  support  a 
contract  on  the  part  of  the  bank  to 
give  him  the  requisite  number  of 
shares  to  qualify  as  a  director.  Rich 
v.  State  Nat.  B'k,  7  Neb.  201.  There 
is  no  question  that  there  is  a  con- 
sideration for  notes  given  to  a  cor- 
poration by  a  subscriber  to  secure 
payments  on  his  shares.  Chetlain 
v.  Republic  Life  Ins.  Co.,  86  111.  220. 
4  Kennebec  and  Portland  R.  R.  Co. 
v.  Jarvis,  34  Me.  360;  Stokes  v.  Leba- 
non, etc.,  Turnpike  Co.,  6  Humph. 
(Tenn.)  241;  Thigpen  v.  Miss.  Cent. 
R.  R.  Co.,  32  Miss.  347;  East  Tennes- 
527 


§  516.]  THE   LAW    OF   PRIVATE   CORPORATIONS.   [CHAP.  IX. 


This  consideration,  however,  does  not  exist  unless  the  agree- 
ment to  subscribe  is  made  either  with  the  corporation  or  its 
agent,1  or  is  subsequently  accepted  by  the  corporation.2  If  at 
the  time  of  subscribing,  the  subscribers  make  a  part  payment 
or  deposit  on  account  of  their  subscriptions,  the  making  of 
these  deposits  by  the  different  subscribers  and  the  receiving  of 
them  by  the  corporation,  which  latter  must  be  held  by  so 
doing  impliedly  to  agree  to  apply  them  to  the  purposes  of  in- 
corporation, will  constitute  a  sufficient  consideration  to  pre- 
vent any  subscriber  from  withdrawing  his  deposit,  as  well  as 
a  sufficient  consideration  to  enable  the  corporation  to  compel 
the  subscribers  to  complete  the  full  account  of  their  subscrip- 
tions.3 

§  516.  When  in  the  constitution  of  a  corporation,  any  par- 
ticular form  for  a  contract  of  subscription  is  pre- 
scribed, it  may  be  inferred  that  that  form,  if  fol- 
lowed, will  constitute  a  binding  contract.4  But  the 
fact  that  the  form  prescribed  was  not  followed,  will 
not  necessarily  invalidate  a  subscription;5  nor  will 
a  subscriber  be  allowed  to  take  advantage  of  his  own  non-per- 

see,    etc.,   R.    R.   Co.  v.  Gammon,  5  I      2  Walker  v.  Mobile,  etc.,  It.  R.  Co., 
Sneed  (Term.),  567.     See  Starratt  v.    34  Miss.  245;  Northern  Central  Micl 
Rockland   Fire  Ins.   Co.,  65   Me.  374. 


Prescribed 
forms. 
Failure  to 
pay  pre- 
liminary- 
deposit. 


Compare  University  of   Des  Moines 


R.   R.    Co.  v.  Eslow,    40   Mich.   222; 

Stevens  v.  Corbitt,  33  Mich.  458; 
v.  Livingston,  57  Iowa,  307.  When  |  Michigan,  Midland,  etc.,  R.  R.  Co.  v. 
commissioners  are  appointed  to  re- j  Bacon,  ib.  466.  See  Mobile  and  Ohio 
ceive  subscriptions  under  a  statute  R.  R.  Co.  v.  Yandal,  5  Sueed  (Tenn. ), 
which  does  not  provide  for  the  event  I  294.  An  offer  to  subscribe  to  stock 
of  an  excess  of  subscriptions  over  the  !  of  a  railroad  company  in  case  of  a 
authorized  capital,  and  subscriptions  |  specified  extension  of  its  road  is  re- 
in excess  are  made,  every  subscriber  J  vocable  until  delivered  to  the  corn- 
acquires  the  right  to  some  stock,  pany;  and  the  death  of  the  offerer  is 
Meads  i\  Walker,  Hopk.  Ch.  (N.  Y.)    a  revocation.     Wallace  v.  Townsend, 


587.     See  Clarke  v.  Brooklyn   Bank, 
lEdw.  Ch.  (N.  Y.)361. 

1  Lake  Ontario  R.  It.  Co.  v.  Cur- 
tiss,  80  N.  Y.  219;  Essex  Turnpike 
Co.  v.  Collins,  8  Mass.  292;  Lowe  v. 
E.  and  K.  R.  R.  It.  Co.,  1  Head 
(Tenn.),  659;  Parker  v.  Northern 
Centr.  Mich.  R.  R.  Co.,  33  Mich.  23; 
Wallace  v.  Townsend,  43  O.  St.  537. 
Compare  Workman  v.  Campbell,  46 
Mo.  305. 

528 


43  O.  St.  537.     See  §  108. 

3  See  §  98,  and  generally  §§  91-98, 
for  a  discussion  of  the  consideration 
necessary  to  uphold  an  agreement  to 
subscribe. 

4  Parker  v.  Northern  Central  R.  R. 
Co.,  33  Mich.  23.     See  §  91. 

5  Still  the  omission  of  some  pre- 
scribed formality  may  render  a  sub- 
scription incomplete  and  therefore 
invalid.     See   Dutchess,   etc.,   R.  R. 


CHAP.  IX.]       CORPORATION   AND    SHAREHOLDERS. 


[§  51?- 


formance  of  conditions  precedent  prescribed  by  the  constitution, 
in  order  to  invalidate  his  subscription  agreement,  at  least  if  any 
one  who  has  acted  on  the  faith  of  such  agreement  would  be  in- 
jured by  its  non-fulfillment.  Thus,  where  the  constitution  of 
the  corporation  requires  a  preliminary  deposit  to  be  paid  by 
the  subscriber,  and  the  subscriber  fails  to  pay  it,  he  may  not 
plead  his  own  omission  in  answer  to  a  suit  for  calls.1  This  seems 
entirely  correct  on  principle,  though  there  are  decisions  to  the 
contrary.2 

§  517.  If  the  contract  of  subscription  is  to  be  held  bind- 
ing, then  must  be  considered  whether  it  is  so  abso-  Conditions 
lutely  or   conditionally.3     It   will   be  binding  abso-   Levy  of 

iii  t   •  •  i  i  assess- 

lutely  when  conditions  neither  exist  in  the  contract   merit. 
itself  nor  can  be  imported  into  it  from  the  constitution  of  the 
corporation.     Otherwise,  it  will  be  binding  conditionally  until 


Co.  v.  Mabbett,  58  N.  Y.  397;  Car- 
lisle v.  Saginaw  Valley  R.  R.  Co., 
27  Mich.  315;  Shurtz  v.  Schoolcraft, 
etc.,  R.  R.  Co.,  9  Mich.  269;  Coppage 
v.  Hutton,  124  Ind.  401. 

1  Lake  Ontario,  etc.,  R.  R.  Co.  v. 
Mason,  16  N.  Y.  451;  Rensselaer, 
etc.,  Plank  Road  Co.  v.  Barton,  ib. 
457,  note;  Illinois  River  R.  R.  Co. 
v.  Zimmer,  20  111.  654  ;  Ryder  v. 
Alton,  etc.,  R.  R.  Co.,  13  111.  516; 
Haywood,  etc.,  Plank  Road  Co.  v. 
Bryan,  6  Jones  (N.  C),  Law,  82; 
Home  Stock  Ins.  Co.  v.  Sherwood, 
72  Mo.  461;  Sedalia  W.  and  S.  Ry. 
Co.  v.  Abell,  17  Mo.  App.  645; 
Thorp  v.  Woodhull,  1  Sandf.  Ch. 
(N.  Y.)  411;  Vicksburg,  etc.,  R.  R. 
Co.  v.  McKean,  12  La.  Ann.  638; 
Mitchell  o.  Rome  R.  R.  Co.,  17  Ga. 
574;  Wight  v.  Shelby  R.  R.  Co.,  16 
B.  Mon.  (Ky. )  4;  Piscataqua  Ferry 
Co.  v.  Jones,  39  X.  H.  491;  Pittsburg 
W.  and  R.  R.  R.  Co.  v.  Applegate,  21 
W.  Va.  172;  Webb  v.  Baltimore,  etc., 
R.  R.  Co.,  77  Md.  92;  West  End  Co. 
v.  Claiborne,  97  Va.  734. 

2  Wood  v.  Coosa,  etc.,  R.  R.  Co., 
32  Ga.  273;  Jenkins  v.  Union  Turn- 
pike Co.,  1  Caincs  Cas.  in  Er.  (N.  Y.) 

34 


86;  Goshen,  etc.,  Turnpike  Co.  v. 
Hurtin,  9  Johns.  217;  Boyd  v.  Peach 
Bottom  R'y  Co.,  90  Pa.  St.  169.  See 
Excelsior  Grain  Binder  Co.  v.  Stay- 
ner,  25  Hun,  91;  Fiser  v.  Miss,  and 
Tenn.  R.  R.  Co.,  32  Miss.  359.  Com- 
pare Garrett  v.  Dillsburg,  etc.,  R.  R. 
Co.,  78  Pa.  St.  465. 

3  Subscribing  conditionally  to 
shares  does  not  make  the  subscriber 
a  shareholder  till  the  condition  is 
performed.  Evansville,  etc.,  R.  R. 
Co.  v.  Shearer,  10  Ind.  244.  It  is 
held  in  Pennsylvania  that  when  one 
subscribes  conditionally  to  the  stock 
of  a  railroad  company,  before  the 
procurement  of  its  charter,  the  con- 
dition is  void  and  the  subscription 
is  absolute.  Bedford  R.  R.  Co.  v. 
Bowser,  48  Pa.  St.  29  ;  Caley  ». 
Phila.,  etc.,  R.  R.  Co.,  80  Pa.  St. 
263;  Pittsburgh  and  S.  R.  R.  Co.  v. 
Biggar,  34  Pa.  St.  455.  The  writer 
fails  to  see  the  correctness  of  these 
decisions,  which  in  effect  make  for 
the  subscriber  a  contract  he  never 
entered  into.  They  did  not  turn  on 
any  question  of  the  condition  being 
verbal  or  written. 

529 


§  518.]  THE   LAW    OF    PRIVATE   CORPORATIONS.  [CHAP.  IX. 


the  performance  of  the  conditions,  provided  they  are  per- 
formed within  a  reasonable  time,1  whereupon  it  will  become 
binding  absolutely.2  Accordingly,  where,  by  the  terms  of 
the  subscription,  the  subscriber  agreed  to  take  shares  and 
pay  all  charges  and  assessments  regularly  levied  or  as- 
sessed by  the  board  of  directors,  it  was  held  that  the  cor- 
poration could  not  recover  until  an  assessment  had  been 
made ;  and,  further,  that  the  terms  of  the  subscription  could 
not  be  contradicted  by  parol  proof  of  an  understanding  that 
payment  should  be  made  without  calls.3  Likewise,  if  the 
charter  of  a  corporation  does  not  definitely  fix  the  number 
of  shares  of  which  the  capital  stock  is  to  be  composed,  this 
number  must  be  fixed  by  the  proper  authority  before  a  valid 
assessment  can  be  laid  on  subscribers.4 

§  518.  Again,  if  the  contract  to  subscribe  is  conditioned  on 


1  See  Fountain  Ferry  T.  R.  Co.  v. 
Jewell,  8  B.  Mon.  (Ky.)  141;  Cravens 
v.  Eagle  Mills  Co.,  120  Ind.  6.  If 
the  corporate  enterprise  is  not 
started  in  good  faith  within  the 
period  prescribed  by  the  charter,  a 
subscriber  is  released.  McCully  v. 
Pittsburgh  and  Connellsville  R.  R. 
Co.,  32  Pa.  St.  25.  See,  also,  Rams- 
gate  Victoria  Hotel  Co.  ».  Monte- 
fiore,  4  H.  &  C.  164. 

2  Chamberlain  v.  Painesville,  etc., 
R.  R.  Co.,  15  Ohio  St.  225;  Ashtabula, 
etc.,  R.  R.  Co.  v.  Smith,  ib.  328; 
Mansfield,  etc.,  R.  R.  Co.  v.  Brown, 
26  Ohio  St.  223;  Armstrong  v.  Karsh- 
ner,  47  Ohio  St.  276;  Racine  Co.  Bk. 
v.  Ayres,  12  Wis.  512;  Rutland,  etc., 
R.  R.  Co.  v.  Thrall,  35  Vt.  536,  543; 
Pittsburg  and  Connellsville  R.  R.  Co. 
v.  Stewart,  41  Pa.  St.  54;  Caley  v. 
Phila.  &  Chester  Co.  R.  R.  Co.,  80 
Pa.  St.  263;  Webb  v.  Baltimore,  etc., 
R.  R.  Co.,  77  Md.  92. 

A  corporation  suing  for  the  whole 
subscription  may  recover  what  is 
due  unconditionally,  though  it  fail 
to  establish  its  right  to  recover  the 
rest.  St.  Louis  and  Cedar  Rapids 
R.  R.  Co.  v.  Eakins,  30  Iowa,  279. 
530 


But  a  conditional  subscription  has 
been  held  a  mere  offer,  revocable 
until  the  condition  is  performed. 
Garret  v.  Dillsburg,  etc.,  R.  R.  Co., 
78  Pa.  St.  465. 

8  Grosse  Isle  Hotel  Co.  v.  I'Anson, 
43  N.  J.  L.  442;  North  Street  R.  R. 
Co.  v.  Spullock,  88  Ga.  283.  But 
the  subscriber  cannot  dispute  the 
necessity  of  the  assessment.  Chou- 
teau Ins.  Co.  v.  Floyd,  74  Mo.  286. 
Right  of  action  on  a  subscription 
made  subject  to  call  does  not  accrue 
till  the  call  is  made,  and  conse- 
quently not  till  then  does  the  statute 
of  limitations  begin  to  run.  Macon 
and  A.  R.  R.  Co.  v.  Vason,  52  Ga. 
326.  Compare  Braddock  v.  Phila. 
M.  &  M.  R.  R.  Co.,  45  N.  J.  L.  363. 

4  Somerset  R.  R.  Co.  v.  Clarke,  61 
Me.  379;  Same  v.  Cushing,  45  Me. 
524;  Worcester  &  Nashua  R.  R.  Co. 
v.  Hinds,  8  Cush.  110.  Compare 
Bucksport,  etc.,  R.  R.  Co.  v.  Buck, 
65  Me.  536  ;  Pike  v.  Bangor,  etc., 
Shore  Line  R.  R.  Co.,  68  Me.  445. 
A  call  upon  part  of  the  subscribers 
only  is  invalid.  Brockway  v.  Gads- 
den, etc.,  Co.,  102  Ala.  620. 


CHAP.  IX.]       CORPORATION  AND  SHAREHOLDERS. 


[§  518. 


the  subscription  of  a  certain  amount,  it  may  not  be   gub    . 
enforced  until  that  amount  is  subscribed  for;1  and   tion  of  total 

i  .  .     .  ,         amount 

if  a  certain  amount  or  stock  is  mentioned  in  the  named  in 
charter  or  articles  of  association,  a  contract  to  sub- 
scribe is  impliedly  conditioned  on  the  subscription  of  that 
amount,2  unless  the  terms  of  the  subscription  contract  or 
of  the  statute  under  which  the  corporation  is  organized3 
are  inconsistent  with  the  existence  of  such  implied  condi- 
tions.4 And  the  subscriptions,  to  fulfill  this  condition,  must 
be  valid  and  made  by  solvent  persons  apparently  able  to  pay 
for  the  shares  subscribed  for  by  them.5  It  may  be  added  gen- 
erally, that  whatever  conditions  are  imposed  on  the  corporation 
by  the  subscription  contract  must  be  performed  before  the  con- 
tract can  be  enforced.6     But  the  rule  that,  when  the  capital 


1  Philadelphia  &  West  Chester  R.  R. 
Co.  o.  Hickman,  28  Pa.  St.  318;  Chase 
v.  Sycamore,  etc.,  R.  R.  Co.,  3S  111. 
215:  Morris  Canal,  etc.,  Co.  v.  Nathan, 
2  Hall  (N.  Y.),  239;  Belfast  &  M.  L. 
R.  R.  Co.  v.  Cothrell,  66  Me.  185; 
Monadnock  R.  R.  v.  Felt,  52  N.  H. 
379. 

2  Atlautic  Cotton  Mills  v.  Abbot,  9 
Cush.  423;  Katama  Land  Co.  v.  Jer- 
negan,  126  Mass.  155;  Read  v.  Mem- 
phis Gayoso  Gas  Co.,  9  Heisk. 
(Tenn.)  545;  Littleton  Mfg.  Co.  v. 
Parker,  14  N.  H.  543;  Contoocook 
Valley  R.  R.  v.  Barker,  32  N.  H.  363; 
Peoria  &  R.  I.  R.  R.  Co.  v.  Preston. 
35  Iowa,  115;  Memphis  Branch  R.  R. 
Co.  v.  Sullivan,  57  Ga.  240;  Allman 
v.  Havana,  etc.,  R.  R.  Co.,  88  111.  521; 
Hughes  v.  Antietam  Mfg.  Co.,  34 
Md.  316;  Hotel  Co.  v.  Schram,  6 
Wash.  134;  Elder  v.  New  Zealand 
Land  Improvement  Co.,  30  L.  T.  N. 
S.  285 ;  Hendrix  o.  Academy  of  Music, 
73  Ga.  437;  Hale  v.  Sanborn,  16  Neb. 
1;  Rockland,  etc.,  Steamboat  Co.  v. 
Sewall,  78  Me.  167;  Exposition  R.  R. 
Co.  v.  Railroad  Co.,  42  La.  Ann.  370; 
Haskell  o.  Worthington,  94  Mo.  560. 
See  People's  Ferry  Co.  v.  Balch,  8 
Gray,   303;    Pierce   v.   Jersey  Water 


Works  Co.,  L.  R.  5  Exch.  209;  New- 
port Cotton  Mill  Co.  v.  Minis,  103 
Tenn.  465.  Compare  McDougall  v. 
Jersey  Imperial  Hotel  Co.,  10  Jur. 
N.  S.  1043;  Warwick  R.  R.  Co.  v. 
Cady,  11  R.  I.  131;  Nutter  r,  Lexing- 
ton, etc.,  R.  R.  Co.,  6  Gray,  85;  Haw- 
kins v.  Citizens'  Inv.  Co.,  38  Or.  544. 
Contra,  Nelson  v.  Blakey,  54  Ind.  29. 
See,  also,  §  96. 

3  Lincoln  Mfg.  Co.  v.  Sheldon,  44 
Neb.  279. 

4  Iowa  &  Minn.  R.  R.  Co.  v.  Per- 
kins, 28  Iowa,  281;  see  Selma,  M.  & 
M.  R.  R.  Co.  o.  Anderson.  51  Miss. 
829;  Skowhegan  &  A.  R.  R.  Co.  v. 
Kinsman.  77  Me.  370;  Sedalia,  W.  & 
S.  Ry.  Co.  ».  Abell,  17  Mo.  App.  645; 
Arkadelphin  Cotton  Mills  v.  Trimble, 
54  Ark.  316. 

5  Lewey's  Island  R.  R.  Co.  v.  Bol- 
ton, 48  Me.  451;  Phillips  v.  Coving- 
ton, etc.,  Bridge  Co.,  2  Met.  (Ky.) 
219.  See  Holman  v.  State,  105  Ind. 
569,  571. 

6  Santa  Cruz  R.  R.  Co.  v.  Schwartz, 
53  Cal.  106;  Swartwout  v.  Mich.  Air 
Line  R.  R.  Co.,  24  Mich.  389;  Car- 
lisle v.  Cahawba,  etc.,  R.  R.  Co.,  4 
Ala.  70;  Trott  v.  Sarchett,  10  O.  St. 
241;  Thompson  u.   Oliver,    IS   Iowa, 

531 


§  519.]  THE   LAW   OF   PRIVATE   CORPORATIONS.  [CHAP.  IX. 


stock  is  fixed  by  the  charter,  an  action  does  not  lie  to  enforce 
a  subscription  until  all  the  stock  is  taken,  does  not  apply 
where,  from  the  face  of  the  charter,  it  is  obvious  that  the 
whole  of  the  capital  stock  was  not  necessary  to  the  organiza- 
tion of  the  company,  and  the  subscriber  knew,  or  had  reason 
to  know,  this  at  the  time  of  subscribing;  nor  does  it  apply 
where  a  subscriber  takes  part  in  carrying  on  the  business  of 
the  company,  and  votes  on  his  shares  ;  at  least,  when  the  suit 
is  brought  by  the  receiver  of  the  corporation  after  it  has  become 
insolvent.1 

§  519.  The  antecedent  obligation  of  the  corporation  to  per- 
form the  conditions  of  the  subscription  contract  wrill 
cease  if  the  subscribers  waive  performance,2  or  by 
acting  as  if  the  conditions  had  been  performed  es- 
top themselves  from  setting  up  the  non-performance  of  them. 
Thus,  if  a  commissioner  subscribes  for  shares  in  a  railroad  cor- 
poration to  be  organized  and  then  joins  in  a  certificate,  sent 
to  the  governor  of  the  state,  which  sets  forth  the  performance 
of  the  conditions  precedent,  he  will  be  estopped,  in  an  action 
brought  to  recover  his  subscription,  from  pleading  the  non-per- 
formance of  those  conditions.3     Similarly,  when  the  receiver  of 


"Waiver  of 
condition. 
Estoppel. 


417  ;  Burlington  and  M.  R.  R.  R.  Co. 
v.  Boestler,  15  Iowa,  555.  A  sub- 
scription may  be  received  by  a  rail- 
road company  conditioned  on  a  spec- 
ified location  of  its  road;  and  cannot 
be  enforced  unless  the  condition  is 
complied  with.  Nashville  and  N.  W. 
R.  R.  Co.  ».  Jones,  2  Cold.  (Tenn.) 
574;  Missouri  Pac.  Ry.  Co.  v.  Tygard, 
84  Mo.  263,  and  preceding  cases. 

When  on  subscribing  and  paying 
for  shares  the  subscriber  makes  a 
contract  with  the  company's  agent, 
under  a  mutual  mistake  as  to  the 
agent's  powers,  and  the  company  re- 
fuses to  perform,  the  subscriber  can 
recover  back  his  money;  the  con- 
tract having  been  part  of  the  sub- 
scription agreement.  Weeden  v. 
Lake  Erie  and  M.  R.  R.  Co.,  14  Ohio, 
563. 

1  Musgrave   v.   Morrison,    54    Md. 

532 


161.    Compare  Greenbriar  Industrial 
Expo.  v.  Ocheltree,  44  W.  Va.  626. 

2  Defendant  subscribed  for  shares, 
making  his  subscription  payable  on 
certain  conditions,  one  of  which  was 
that  the  road  should  be  built  to  a 
certain  place  by  a  certain  date.  Sub- 
sequently he  gave  notes  for  his  sub- 
scription payable  on  the  fulfillment 
of  the  conditions,  except  the  one 
above  mentioned.  It  was  held  that 
the  omitted  condition  was  thereby 
waived.  Slipher  v.  Earhart,  83  Ind. 
173.  See,  also,  Lee  v.  Imbrie,  13  Oreg. 
510;  California  Southern  Hotel  Co. 
v.  Callendar,  94  Cal.  120;  Macfar- 
land  v.  West  Side  Imp.  Ass'n,  53 
Neb.  417;  S.  C,  56  Neb.  277. 

3  Bavington  v.  Pittsburgh  and 
Steubenville  R.  R.  Co.,  34  Pa.  St. 
358. 


CHAP.  IX.]       CORPORATION  AND  SHAREHOLDERS. 


[§  520. 


Provisions 
construed 
not  to  be 
conditions. 


an  insolvent  corporation  sues  a  shareholder  on  his  subscription, 
it  is  no  defence  that  the  whole  amount  of  the  capital  stock  had 
never  been  subscribed  for,  if  the  shareholder,  knowing  this,  has 
participated  in  the  affairs  of  the  company  in  a  manner  which 
would  have  been  proper  only  on  the  assumption  that  the  share- 
holders intended  to  carry  on  business  with  the  stock  but  par- 
tially subscribed.1  The  obligation  on  the  part  of  the  corporation 
to  perform  the  conditions  of  a  subscription  contract  will  also 
cease,  if  the  subscriber  himself  prevents  the  performance.2 

§  520.  At  times  it  may  be  difficult  to  determine  whether  a 
given  provision  in  the  constitution  of  the  corpora- 
tion, or  in  the  subscription  contract,  constitutes  a 
condition  precedent  to  the  enforcement  of  the  sub- 
scription. The  non-fulfillment,  however,  of  that 
which  is  not  a  condition,  is  no  defence  to  an  action  for  calls. 
Thus,  to  a  petition  for  a  mandamus  to  compel  the  issue  of 
county  bonds  in  payment  for  railroad  shares,  it  is  no  defence 
that  the  road  had  not  been  completed  within  the  time  men- 
tioned in  the  subscription  contract,  time  not  appearing  to  have 
been  of  its  essence,  and  the  benefits  expected  from  the  road 
having  accrued.  The  court  said  that  if  injury  had  resulted, 
there  might  be  an  abatement  in  the  shape  of  damages,  but  not 
an  entire  release.3  In  another  case  where  a  corporation  in  its 
prospectus  set  forth  its  intention  to  purchase  ten  tracts  of 
land,  and  afterwards  failed  to  purchase  two  of  them,  on  ac- 
count of  a  defective  title,  it  was  held  that  the  plaintiff  could 
not  on  that  account  rescind  his  contract  to  purchase  shares,  as 
to  permit  that  would  be  a  great  hardship  on  the  other  share- 
holders.4 


1  Stillman  v.  Dougherty,  44  Md. 
380.  See,  also,  Erie,  etc.,  Plankroad 
Co.  v.  Brown,  25  Pa.  St.  15(i;  Craig 
v.  Cumberland  Valley  State  Normal 
School,  72  Pa.  St.  46;  May  v.  Mem- 
phis Branch  R.  R.  Co.,  48  Ga.  101), 
in  which  case  the  company  did  not 
appear  to  be  insolvent,  and  sued  in 
its  own  name.  Compare  Somerset 
and  K.  R.  R.  Co.  v.  Cushing,  45  Me. 
524,  533. 

2  See  Upton  v.  Hansbrough,  3  Biss. 


417,  423.  Compare  Gould  v.  Town 
of  Oneonta,  71  N.  Y.  21)8;  Perkins  v. 
Union  Button-Hole,  etc.,  Machine 
Co.,  12  Allen,  273. 

3  Kansas  City,  St.  Jo.,  etc.,  R.  R. 
Co.  v.  Alderman,  47  Mo.  349  ;  see 
San  Antonio  v.  Jones,  28  Tex.  19. 

4  Kelsey  v.  Northern  Light  Oil 
Co.,  45  N.  Y.  505.  A  tender  of  a 
stock  certificate  is  not  a  condition 
precedent  to  a  suit  on  a  subscrip- 
tion.    Fulgam  v.  Macon,  etc.,  R.  R. 

533 


§  521.]  THE    LAW    OF    PRIVATE   CORPORATIONS.  [CHAP.  IX. 


§  521.  It  is  the  better  and  almost  universally  accepted  view 
„  ,  ,         that  a  condition,  in  order  to  be  operative,  must  be 

\  erbal  con-  7  .  l 

ditionsand  expressed  in  the  subscription  contract  itself;  and 
agreements  that  any  verbal  condition  varying  the  terms  of  the 
void.  written  contract  is  void.1     It  may,  indeed,  be  laid 

down  as  a  general  rule,  that  all  parol  agreements  and  secret 
understandings  between  the  subscriber  and  the  agent  of  the 
corporation  who  procures  the  subscription,  in  any  way  contrary 
to  its  terms,  are  void ;  and  the  subscription  is  enforceable  as 
if  no  such  agreements  or  understandings  had  existed;2  unless 
a  fraud  imputable  to  the  corporation  be  shown.3  And  a  sub- 
scriber cannot  plead  that  his  subscription  was  feigned  and 
fraudulent,  and  that  the  company  was  party  to  the  fraud ; 
for  his  subscription  will  be  enforceable  for  the  benefit  of  other 
subscribers  and  creditors.4 


Co.,  44  Ga.  597.  Compare  Chelten- 
ham, etc.,  R'y  Co.  v.  Daniel,  2  Eng. 
R'y  Cas.  728.  But  see  St.  Paul, 
Stillwater,  etc.,  R.  R.  Co.  v.  Robhins, 
23  Minn.  439.  But  the  tender  of  a 
certificate  may  by  the  terms  of  the 
subscription  be  made  a  condition. 
Courtright  v.  Deeds,  37  Iowa,  503. 
See  §  511. 

1  Nippenose  M'f'g  Co.  v.  Stadon, 
68  Pa.  St.  256  ;  Miller  v.  Hanover 
Junction,  etc.,  R.  R.  Co.,  87  Pa.  St. 
95  ;  Baile  v.  Educational  Society,  47 
Md.  117  ;  see  Hendrix  v.  Academy 
of  Music,  73  Ga.  437  ;  Bell  v.  Ameri- 
cus,  etc.,  R.  R.  Co.,  76  Ga.  754 ; 
Masonic  Temple  Ass'n  v.  Channell, 
43  Minn.  353.  But  see  Rinesmith 
v.  People's  Freight  R'y  Co.,  90  Pa. 
St.  262. 

2  Galena  and  S.  W.  R.  R.  Co.  v. 
Ennor,  116  111.  55;  Piscataqua  Ferry 
Co.  p.  Jones,  39  N.  H.  491  ;  Thigpen 
v.  Miss.  Cent.  R.  R.  Co.,  32  Miss. 
347  ;  Smith  v.  Plankroad  Co.,  30 
Ala.  650  ;  La  Grange,  etc.,  Plank- 
road Co.  v.  Mays,  29  Mo.  64  ;  Con- 
necticut, etc.,  Rivers  R.  R.  Co.  v. 
Bailey,  24  Vt.  465  ;  Downie  v. 
White,    12    Wis.    176 ;     Mississippi, 

534 


etc.,  R.  R.  Co.  v.  Cross,  20  Ark. 
443  ;  New  Albany,  etc.,  R.  R.  Co.  v. 
Fields,  10  Ind.  187  ;  Evansville,  etc., 
R.  R.  Co.  v.  Posey,  12  Ind.  363  ; 
Cunningham??.  Edgefield,  etc.,  R.  R. 
Co.,  2  Head  (Tenn.),  23;  North 
Carolina  R.  R.  Co.  v.  Leach,  4  Jones 
L.  (N.  C.)  340  ;  Scarlett  v.  Academy 
of  Music,  46  Md.  132;  Vicksburg,  etc., 
R.  R.  Co.  u.  McLean,  12  La.  Ann.  638  ; 
Phila.,  etc.,  R.  R.  Co.  u.  Conway,  177 
Pa.  St.  364  ;  Whitehall,  etc.,  R.  R. 
Co.  v.  Myers,  16  Abb.  Pr.  N.  S. 
(N.  Y.)  34;  Chouteau  Ins.  Co.  v. 
Floyd,  74  Mo.  286  ;  Topeka  Mfg.  Co. 
o.  Hale,  39  Kan.  23. 

3  Martin  v.  Pensacola,  etc.,  R.  R. 
Co.,  8  Fla.  370;  Vicksburg,  etc.,  R.  R. 
Co.  v.  McKean,  supra;  Mississippi, 
etc.,  R.  R.  Co.  v.  Cross,  supra;  Scar- 
lett v.  Academy  of  Music,  supra.  See 
§§  523  et  seq.,  and  Union  Nat.  Bk.  v. 
Hunt,  76  Mo.  4:59. 

4  Graff  v.  Pittsburg  &  Steubenville 
R.  R.  Co.,  31  Pa.  St.  489;  Robinson 
v.  Pittsburg  &  Connellsville  R.  R. 
Co.,  32  Pa.  St.  334;  Barto  v.  Nix,  15 
Wash.  563;  Phcenix  Wareh'ing  Co.  v. 
Badger,  6  Hun,  293,  aff'd  67  N.  Y. 
294.     See  Bailey  v.  Pittsburg  &  Con- 


CHAP.  IX.]        CORPORATION  AND  SHAREHOLDERS. 


[§  522a. 


It  has,  however,  been  held  that  a  subscription,  made  on  a 
blank  paper  on  condition  that  the  paper  should  not  be  attached 
to  the  articles  of  association  until  they  should  have  been  pre- 
sented to  the  subscriber  for  approval,  does  not  bind  him,  if 
attached  without  his  consent.1 

§  522.  The  word  "  non-assessable "  upon  a  stock  certificate 
does  not  impair  the  obligation,  created  by  the  accept- 
ance and  holding  of  the  certificate,  to  pay  the  amount   g^bie!" 
due  upon  the  shares.     At  most,  it  is  in  legal  effect 
a  stipulation  against  liability  from  further  assessments  or  taxa- 
tion after  the  entire  subscription  of  one  hundred  per  cent,  shall 
have  been  paid.     And  representations  by    the  agent   of   the 
corporation  as  to  the  non-assessability  of  the  shares  beyond  a 
certain  percentage  of  their  value,  constitute  no  defence  to  an 
action  against  the  holder  when  he  has  himself  failed  to  use  due 
diligence  to  ascertain  the  truth  or  falsity  of  such  representa- 
tions.2 

§  522a.  Some  recent  cases  adhere  to  the  rule  that  a  cor- 
poration cannot  issue  its  shares  below  par,  and  con-  issue  0f 
elude  itself  and  its  creditors  from  suing  for  the  parck  ^i^ 
balance.  For  instance,  in  one  case  a  provision  that  nus"  stock. 
on  pa}Tment  of  forty  per  cent,  of  the  face  of  the  subscription 
the  stock  should  be  issued  to  the  subscriber  "  as  full  paid 
stock  "  was  held  not  to  prevent  the  corporation  from  recover- 
ing ; 3  and  in  another  case  a  stipulation  in  the  original  sub- 
scription contract  that  the  subscribers  in  addition  to  the  stock 
should  be  given  bonds  of  the  corporation  to  a  like  amount, 
was  held  void.4 


nellsville  GassCoal,  etc.,  Co.,  69  Pa. 
St.  334;  Hawkins  v.  Citizens  In  v.  Co., 
38  Or.  544. 

1  Bucher  v.  Dillsburg,  etc.,  R.  R. 
Co.,  76  Pa.  St.  306.  Ace.  Ottawa,  etc., 
R.  R.  Co.  v.  Hall,  1  111.  App.  012; 
Great  West.  Tel.  Co.  v.  Loewenthal, 
154  111.  261.  But  in  such  a  ense  it 
would  seem  that  the  subscriber 
would  be  bound,  unless  he  took  im- 
mediate steps  to  have  his  name  re- 
moved.    Compare  §§  523  et  seq. 

2  Upton  v.  Tribilcock,  91  U.  S.  45. 
See,  also,  Hall  v.  Selma,  etc.,  R.  R., 


Co.,  6  Ala.  741;  Great  Western  Tel. 
Co.  v.  Gray,  122  111.  630;  Martin  v. 
South  Salem  Land  Co.,  94  Va.  28. 

3  Great  West.  Tel.  Co.  v.  Gray,  122 
111.  630.  The  corporation  was  in  the 
hands  of  a  receiver.  A.cc.  Bates  v. 
Great  West.  Tel.  Co.,  134  111.  536; 
Coleman  v.  Howe,  154  111.  458.  See, 
also,  Garrett  v.  Kansas  City  C'l  Mg. 
Co.,  113  Mo.  330;  cf.  New  Haven 
Trust  Co.  v.  Gaffney,  73  Conn.  480. 
But  see,  Dickerman  v.  Northern 
Trust  Co.,  176  U.  S.  181. 

4  Morrow  v.  Iron  Co.,  87  Tenn.  262. 

535 


§  5226.]         Till:    LAW    OF    PRIVATE   CORPORATIONS.   [CHAP.  IX. 

§  5225.  On  the  other  hand,  the  courts  show  inclination  to 
recognize  as  valid  the  custom  of  corporations  to  discharge  cor- 
porate indebtedness  by  issuing  stock  at  its  market  value,  that 
is  to  say,  for  whatever  can  be  got  for  it.  In  the  case  of  Hand- 
ley  v.  Stutz 1  the  corporate  stock  was  validly  increased  by  reso- 
lution, and  an  even  amount  of  stock  was  issued  as  an  induce- 
ment to  subscribers  to  purchase  the  bonds  of  the  corporation, 
and  the  bonds  and  stock  were  sold  together  at  a  price  fairly 
equivalent  to  their  value.  It  was  held  that  the  recipients  of 
the  stock  could  not  be  compelled  to  pay  in  its  par  value  for  the 
benefit  of  creditors  of  the  corporation.  The  question,  said 
Justice  Brown,  giving  the  opinion  of  the  court,  is  whether  "  an 
active  corporation,  or,  as  it  is  called  in  some  cases,  a  'going 
concern,'  finding  its  original  capital  impaired  by  loss  or  misfor- 
tune, may  not,  for  the  purpose  of  recuperating  itself  and  pro- 
viding new  conditions  for  the  successful  prosecution  of  its  busi- 
ness, issue  new  stock,  put  it  upon  the  market  and  sell  it  for  the 
best  price  that  can  be  obtained.2  .... 

"  To  say  that  a  corporation  may  not,  under  the  circum- 
stances above  indicated,  put  its  stock  upon  the  market  and  sell 
it  to  the  highest  bidder,  is  practically  to  declare  that  a  corpo- 
ration can  never  increase  its  capital  by  a  sale  of  shares,  if  the 
original  stock  has  fallen  below  par ; " 3  and  the  court  further 
held  in  the  same  case,  that  even  as  to  persons  who  had 
received  some  of  the  same  shares  gratuitously  (i.  e.,  not  as  a 
direct  inducement  to  purchase  bonds),  it  was  only  subsequent 
creditors,  who  might  be  presumed  to  have  given  credit  to  the 
company  on  the  faith  of  the  increased  stock,  that  could  enforce 
any  claims  against  the  holders  of  such  stock.4 

The  Federal  Supreme  Court  held  in  another  case,  that  a 
corporation  might  issue  its  stock  below  par  to  a  creditor  in 


A  corporation  cannot  validly  agree 
with  a  shareholder  that  shares  issued 
to  him  for  a  nominal  consideration 
shall  be  treated  as  full  paid.  Ex 
parte  Damill,  1  De  G.  &  J.  372; 
Dent's  Case,  L.  R.  15  Eq.  407. 
Bailey  v.  Pittsburgh  and  Connells- 
ville  Gas,  etc.,  Co.,  69  Pa.  St.  334, 
Compare  Gamble  v.  Water  Co.,  122 
N.  Y.  91. 

536 


1  139  U.  S.  417. 

2  139  U.  S.  417,  429. 

3  lb.  p.  430. 

*  Handley  v.  Stutz,  139  U.  S.  417. 
Fuller,  C.  J.,  and  Lamar,  J.,  dissented. 
Accord,  Hospes  ».  Northwes'n  Mfg. 
Co.,  48  Minn.  174;  First  Nat.  Bk.  v. 
Mining  Co.,  42  Minn.  327.  See  Peter 
v.  Un.  M.  Co.,  56  Ohio  St.  181;  and 
§§  702a,  7026. 


CHAP.  IX.]        CORPORATION  AND  SHAREHOLDERS. 


[§  522c 


payment  of  the  debt,  and  that  the  creditor  thus  becoming  a  stock- 
holder, would  not  be  liable  on  the  insolvency  of  the  corpora- 
tion to  make  up  the  difference  between  the  par  value  of  the 
stock  and  the  price  at  which  he  received  it.1 

§  522<?.  Questions  similar  to  those  discussed  in  the  previous 
paragraphs  sometimes  arise  with  regard  to  shares   Igsue  o{ 
issued  for  property.     In  payment  for  its  shares  a  cor-    stock  for 

i  i  m.  •      ■•     i  o  •  property. 

poration,  unless   prohibited    by  statute,'1  may  receive 
any  property  which  it  is  authorized  to  purchase,  and  if  prop- 
erty (or  services)  so  received  is  fairly  equivalent  to  the  par 
value  of  the  shares  for  which  it  is  taken,  the  shares  will  have 
the  status  of  full-paid    stock.3      Such,    transactions    may  be 


1  Clark  v.  Bever,  139  U.  S.  96.  But 
it  seems  that  a  railroad  company 
cannot  issue  its  stock  to  contractors 
except  for  some  reasonable  equiva- 
lent— which  depends  on  the  actual 
value  of  the  stock  at  the  time.  Fogg 
v.  Blair,  139  U.  S.  118. 

For  a  further  consideration  of  these 
questions  with  reference  to  the  rights 
of  creditors,  see  §§  701  et  seq. 

2  See  Baile  v.  Educational  Society, 
47  Md.  117. 

3  Coffin  v.  Ransdell,  110  Ind.  417; 
Searight  v.  Payne,  6  Lea  (Tenn. ),  283 ; 
Boynton  v.  Hatch,  47  N.  Y.  225;  Peck 
v.  Coalfield  C'l  Co.,  11  111.  App.  88; 
Chouteau  v.  Dean,  7  Mo.  App.  210; 
Drummond's  Case,  L.  R.  4  Ch.  772; 
Arapahoe  Cattle  Co.  v.  Stevens,  13 
Col.  534;  Kelly  v.  Fletcher,  94  Tenn. 
1;  Bristol,  etc.,  Tr.  Co.  v.  Jonesboro, 
etc.,  Tr.  Co.,  101  Tenn.  545;  John  R. 
Proctor  Sons  Co.  v.  Cooke,  103  Ky.  96; 
Richardson  v.  Graham,  45  W.  Va. 
134.  Payment  of  stock  subscriptions 
"  may  be  in  whatever,  considering  the 
situation  of  the  corporation,  repre- 
sents to  that  corporation  a  fair, 
just,  lawful,  and  needed  equivalent 
for  the  money  subscribed."  Liebke 
v.  Knapp,  79  Mo.  22.  A  subscriber 
may  pay  for  stock  of  a  corporation 
organized  to  build  a  bridge  across  the 


Mississippi  River  by  publishing  its 
articles  and  favoring  the  project  in  his 
newspaper.  Liebke  v.  Knapp,  supra. 
Subsequent  facts  demonstrating  the 
small  value  of  property  received  for 
shares  do  not  throw  the  burden  of 
proof  on  members  to  show  that  the 
property  was  worth  what  it  was 
taken  at.  Iron  Co.  v.  Hays,  165  Pa. 
St.  489.  Van  Cott  v.  Van  Brunt.  82 
N.  Y.  535,  appears  to  hold  that  if  a 
person  pays  in  services  or  otherwise 
an  amount  equal  to  the  actual  value 
of  the  shares  received  by  him  in  re- 
turn, they  will  be  treated  as  fully 
paid  up,  without  regard  to  whether 
the  actual  value  was  equal  to  their 
par  value  or  not.  Now  by  statute  in 
New  York  "in  the  absence  of  fraud  in 
the  transaction  the  judgment  of  the 
directors  as  to  the  value  of  the  prop- 
erty purchased  shall  be  conclusive." 
Section  42  of  chapter  354  of  the  laws 
of  1901,  amending  chapter  688  of  the 
laws  of  1892.  Without  special  stat- 
utory authority  no  assessment  can  be 
imposed  on  the  fully  paid  up  stock. 
Atlantic  De  Laine  Co.  v.  Mason,  5 
R.  I.  463;  ace.  Enterprise  Ditch  Co. 
v.  Moffett,  58  Neb.  642.  See  §  541, 
notes. 

A  contract  by  a  corporation  to  sell 
its   stock   below  par   has   been  held 

537 


§  523.]  THE    LAW    OF    PRIVATE    CORPORATIONS.    [CHAP.  IX. 


opened  to  show  fraud,  and  if  the  property  received  is  grossly 
unequal  in  value  to  the  par  value  of  the  shares,  the  share- 
holder who  received  the  shares  originally,  or  his  subsequent 
transferee  with  notice  of  the  circumstances,  may  be  compelled 
to  make  up  the  difference  in  value  in  a  suit  brought  by  or  on 
behalf  of  persons  injured  thereby.1  But  the  equivalency  of  the 
property  taken  to  the  par  value  of  the  shares  cannot  (unless 
some  statute  warrants  a  contrary  doctrine2)  be  inquired  into 
when  the  shares  as  fully  paid  have  come  into  the  hands  of  a 
bona  fide  purchaser  who  has  no  notice  of  the  value  of  the  prop- 
erty originally  given  for  them,3  and  even  though  shares  be  is- 
sued for  property  worth  less  that  their  par  value,  it  is  only 
those  persons  who  are  injured  thereby,  and  have  not  waived 
their  rights,  that  can  impeach  the  transaction.4 

§  523.  A  shareholder,  however,  whose  subscription  has  been 
induced  by  a  fraud  which  may  be  treated  as  the 
fraud  of  the  corporation  can  annul  his  subscription 
and  thereby  free  himself  from  all  liability,  provided 
others  have  not  in  the  meanwhile  justifiably  acted  on 
the  faith  of  his  subscription  under  such  circumstances 
that  as  between  him  and  them  responsibility  for  the 


Subscrip- 
tions ob- 
tained by 
fraud  void- 
able, pro- 
vided sub- 
scriber acts 
with  de- 
spatch. 


valid  on  the  face  of  it ;  when  it  did 
not  appear  how  the  corporation  had 
acquired  the  stock,  and  could  not  be 
inferred  that  it  was  not  fully  paid 
stock  subsequently  acquired.  Otter 
v.  Brevoort  Petroleum  Co.,  50  Barb. 
247. 

1  Coleman  v.  Howe,  154  111.  458; 
Hastings  Malting  Co.  v.  Iron  Range 
Co.,  65  Minn.  28;  Gilkie,  etc.,  Co.  o. 
Gas  Co.,  46  Neb.  333;  Jones  v.  Whit- 
worth,  94  Tenn.  602;  Jackson  v. 
Traer,  64  Iowa,  469;  Boulton  Carbon 
Co.  v.  Mills,  78  Iowa.  460;  Bailey  v. 
Pittsburg  and  ConnellsvilleGas  Coal 
and  Coke  Co..  69  Pa.  St.  334;  Boynton 
v.  Hatch,  47  X.  Y.  225;  Tallmadge  r. 
Fishkill  Iron  Co.,  4  Barb.  382;  Gillin 
v.  Sawyer,  93  Me.  151;  see  Foreman 
v.  Bigelow,  4  Clifford,  508,543;  Pell's 
Case.  L.  R.  5  Ch.  11;  see  Pickering 

538 


n.  Townsend,  118  Ala.  351 ;  Roman  v. 
Dominick,  115  Ala.  233;  Gates,  Atlm., 
v.  Tippecanoe  Stove  Co.,  57  Oh.  St. 
GO.     See  especially  §§  700  et  seq. 

2  See  §  723. 

3Phelan  v.  Hazard,  5  Dillon,  45; 
Steacy  v.  Little  Rock,  etc.,  R.  R.  Co., 
ib.  348;  Foreman  v.  Bigelow,  4  Clif- 
ford, 508;  West  Nashville  Planing 
Mill  Co.  v.  Bank,  86  Tenn.  252;  Mc- 
Cracken  v.  Mclntyre,  1  Duv.  (Can- 
ada) 479.  See  Waterhouse  v.  Jamie- 
son,  L.  R.  2  H.  L.  Scotch,  29;  Roch- 
ester Laud  Co.  v.  Roe,  7  N.  Y.  App. 
Div.  366;  Troup  v.  Hornbach,  53 
Neb.  795.     And  see  §  702. 

4  See  St.  Louis,  etc.,  R.  R.  Co.  v. 
Tiernan,  37  Kan.  606;  Walburn  v. 
Chenault,  43  Kan.  352;  Wool  folk  v. 
January,  131  Mo.  620.  See  §§  5226, 
700  et  seq. 


CHAP.  IX.]        CORPORATION  AND  SHAREHOLDERS. 


[§  523. 


fraud  attaches  to  him.1  Accordingly,  when  the  receiver  of  an 
insolvent  corporation  sues  to  recover  the  amount  unpaid  on  a 
subscription,  it  is  then  too  late  to  plead  that  the  subscription 
was  induced  by  fraudulent  misrepresentations.2     And  in  Eng- 


1  Oakes  o.  Turquand,  L.  R.  2  H.  L. 
325;  Knox  v.  Hayuian,  07  L.  T.  Rep. 
137;  Scott  v.  Snyder,  etc.,  Co.,  ib.  104; 
Cunningham  v.  Edgefield,  etc.,  R.  R. 
Co.,  2  Head  (Tenn.),  23;  Grangers' 
Ins.  Co.  v.  Turner,  61  Ga.  561;  Davis 
v.  Dumont,  37  Iowa,  47;  Water  Valley 
Mfg.  Co.  v.  Seaman,  53  Miss.  655; 
Rivers  v.  Montgomery  Plank  Road 
Co.,  30  Ala.  92;  Montgomery  South- 
ern Ry.  Co.  ».  Matthews,  77  Ala.  357; 
City  Bk.  v.  Bartlett,  71  Ga.  797; 
Henderson  v.  Railroad  Co.,  17  Tex. 
560;  Savage  v.  Bartlett,  78  Md.  561; 
Fear  v.  Bartlett,  81  Md.  435;  Occi- 
dental Insurance  Co.  v.  Ganzhorn,  2 
Mo.  App.  205;  In  re  Etna  Ins.  Co., 
ex  parte  Shields,  7  Ir.  R.  Eq.  264. 
See  Walker  v.  Mobile  and  OhioR.  R. 
Co.,  34  Miss.  245;  Waldo  v.  Chicago, 
etc.,  R.  R.  Co.,  1  Wis.  575;  Bosher  v. 
Land  Co.,  89  Va.  455;  In  re  Madrid 
Bank,  Wilkinson's  Case,  36  L.  J.  Eq. 
489;  In  re  Russian  Iron  Works  Co., 
Kincaid's  Case,  ib.  499;  Anderson  v. 
Scott,  70  N.  H.  350;  McClanahan  v. 
Ivauhoe  Land  Co.,  96  Va.  124;  Ala- 
bama Foundry  &  Machine  Works  v. 
Dallas,  127  Ala.  513.  Compare  Rutz 
v.  Esler,  etc.,  M'f'g  Co.,  3  111.  App. 
83.  It  has  been  held  that  in  a  suit 
brought  by  a  corporation  against  a 
shareholder  on  a  note,  the  defendant 
may  set  off  money  paid  by  him  on  a 
stock  subscription  induced  by  fraud; 
unless  the  rights  of  creditors  inter- 
vene. Hamilton  r.  Grangers'  Life, 
etc.,  Ins.  Co.,  67  Ga.  145.  To  avoid 
a  subscription  on  the  ground  of  mis- 
representations of  the  agent  obtain- 
ing it,  the  misrepresentations  must 
be  of  a  fact,  and  not  an  expression  of 
opinion,  and  must  not  relate  to  mat- 


ters controlled  by  the  charter,  as  to 
which  the  subscriber  is  affected  with 
knowledge.  Selma  M.  and  M.  R.  R. 
Co.  p.  Anderson,  51  Miss.  829;  Jack- 
son v.  Stockbridge,  29  Tex.  394; 
Montgomery  Southern  Ry.  Co.  v.  Mat- 
thews, 77  Ala.  357;  Jefferson  v. 
Hewitt,  95  Cal.  535;  Wingetv.  Build- 
ing Ass'n,  128  111.  67.  Compare 
Haskell  v.  Worthington,  94  Mo.  561; 
Armstrong  v.  Karshner,  47  O.  St. 
276.  In  an  action  by  a  corporation 
on  a  subscription  which  after  its 
execution  had  been  raised  without 
knowledge  of  the  maker,  when  the 
execution  of  the  contract  as  set  out 
is  denied,  the  corporation  cannot 
recover  the  amount  due  on  the 
original  subscription  without  show- 
ing that  the  alteration  was  not  fraud- 
ulently made  by  it.  Bery  v.  Mariet- 
ta, P.  &  O.  Ry.  Co.,  26  Ohio  St.  673. 
2  Upton  v.  Tribilcock,  91  U.  S. 
45  ;  Ruggles  v.  Brock,  6  Hun,  164; 
Michener  v.  Payson,  13  Bankr.  Reg. 
49  ;  Burgess*s  Case,  15  Ch.  D.  507; 
Upton  v.  Englehart,  3  Dill.  496;  How- 
ard v.  Glenn,  85  Ga.  238.  Compare 
Farrar  v.  Walker,  ib.  82.  Subscriber 
must  annul  at  once  on  discovery  of 
fraud.  Weisiger  v.  Ice  Co.,  90  Va.  795. 
Cf.  Savage  v.  Bartlett,  78  Md.  561 
Tierney  v.  Parker,  58  N.  J.  Eq.  117 
Urner  v.  Sollenberger,  89  Md.  316 
Wilson  v.  Handley,  96  Va.  96.  But 
it  is  held  that  the  mere  insolvency 
of  the  corporation  is  no  bar  to  an 
action  to  annul  a  subscription  to 
shares,  where  the  subscriber  has  not 
been  guilty  of  laches  and  the  rights 
of  creditors  are  not  before  the  court. 
Ramsey  v.  Thompson  Mfg.  Co.,  116 
Mo.  313.     See,  also,  §  744. 

539 


§  525.]  THE    LAW    OF    PRIVATE   CORPORATIONS.    [CHAP.  IX. 

land,  at  least,  a  person  can  bring  no  action  for  damages  against 
a  corporation  for  fraudulent  misrepresentations,  which  induced 
him  to  purchase  shares,  as  long  as  he  remains  in  the  company, 
and  does  not  offer  to  rescind.1 

§  524.  In  regard  to  this  exceedingly  difficult  question  of  an- 
nulling subscriptions  on  the  ground  of  the  fraud  of 
English  and  corporate  agents,  there  may  be  a  shade  of  difference 
views.  '  between  the  English  and  American  views.  In  Eng- 
land a  tendency  has  been  shown  to  regard  a  contract 
of  subscription  as  a  contract  strictly  between  the  subscriber  and 
the  company.  For  instance,  in  Directors  v.  Kisch,2  the  court 
held  that  a  person  could  dissolve  a  contract  to  take  shares  in  a 
company  when  the  inducement  on  its  part  was  false,  and,  when 
not  himself  guilty  of  laches,  could  withdraw  without  regard  ap- 
parently to  the  subsequently  accruing  rights  of  creditors,  Lord 
Komilly  saying,  "  that  contracts  of  this  description  between  an 
individual  and  a  company,  so  far  as  misrepresentation  or  sup- 
pression of  the  truth  is  concerned,  are  to  be  treated  like  con- 
tracts between  any  two  individuals."3  The  American  cases, 
on  the  other  hand,  more  generally  recognize  that  a  subscription 
contract  is  one  on  which  persons  other  than  the  contracting 
parties  are  entitled  to  rely.4 

§  525.  It  is  submitted  that  to  questions  regarding  the  right 
to  rescind  a  subscription  contract  or  defend  in  a  suit 
Rationale,  for  calls,  a  course  of  reasoning  somewhat  like  the  fol- 
lowing is  applicable.  In  all  matters  within  the  ordi- 
nary scope  of  the  corporate  powers,  the  corporation  acting 
through  whatever  agency  may  constitute  the  corporate  manage- 
ment represents  all  persons  in  any  way  interested  in  the  corpo- 
rate enterprise.  Consequently,  the  interests  of  all  are  bound  by 
the  acts  of  the  corporate  management  (say,  for  simplicity,  by 
the  acts  of  the  board  of   directors)  within   the   scope  of  its 


1  Houldsworth  i\  City  of  Glasgow 
Bk.  5  App.  Cas.  317.  !See  Western 
Bk.  of  Scotland  v.  Addie,  1  II.  L.  Sc. 
App.  145,  157;  Nat.  Exchange  Co.  v. 
Drew,  2  Macq.  103.  Transferee  of 
shares  cannot  plead  fraud  upon  his 
transferror.  Lewis  v.  Land  Co.,  90 
Va.  603. 
540 


2  L.  R.  2  H.  L.  99. 

3See,  also,  Smith's  Case.  L.  R.  2  Ch. 
604  ;  and  compare  Houldsworth  v. 
City  of  Glasgow  Bk.,  5  App.  Cas.317, 
ante. 

*  See  §  521,  also  §§  701,  702. 


CHAP.  IX.]        CORPORATION  AND  SHAREHOLDERS.  [§  526. 

authority.  But  the  board  in  no  way  represents  persons  whose 
interests  in  respect  of  the  corporate  enterprise  have  not  yet 
arisen.  When  A.,  for  instance,  contracts  with  the  directors, 
the  latter  represent  the  persons  whose  interests  have  already 
accrued,  i.  e.,  shareholders  and  existing  creditors.  But  A., 
until  his  rights  have  arisen,  is  as  to  the  directors  an  outsider, 
whom  they  in  no  way  represent.  If,  in  contracting  with  A., 
the  directors  act  fraudulently,  then  on  account  of  the  fraud 
he  would  be  allowed  as  between  himself  and  those  whom  the 
directors  represent,  to  rescind  the  contract;  because  the  fraud 
of  the  agent  is  the  fraud  of  the  principal,  and  is  in  this  case, 
as  to  A.,  the  fraud  of  the  corporation,  and  of  the  persons 
already  interested  in  it,  whom  the  directors  represent.  More- 
over, within  the  scope  of  their  more  restricted  powers,  other 
agents,  as  well  as  directors,  represent  the  entire  mass  of  cor- 
porate interests.1 

§  526.  Applying  this  reasoning  to  the  right  of  a  subscriber 
to  annul  a  subscription  contract  induced  by  a  fraud  of  the 
agent  representing  the  corporation  in  the  matter,  it  would  seem 
that  the  contract  might  be  annulled  by  the  subscriber  acting 
swiftly,  unless,  after  his  subscription  and  before  he  has  taken 
steps  to  annul  it,  some  one  has  acted  relying  on  it  in  good  faith ; 
that  is,  unless  some  one  has  subscribed  subsequently,  seeing  on 
the  books  the  name  of  the  subscriber  whose  subscription  was 
induced  by  fraud,  or  some  one  has  contracted  with  the  corpo- 
ration on  the  credit  of  such  fraudulently  induced  subscription. 
As  to  such  latter  persons,  carrying  out  the  course  of  reasoning, 
it  would  seem  that  the  subscriber  could  not  rescind  so  as  to 
prejudice  their  rights  in  any  way,  for  the  corporate  agent  in 
his  fraudulent  contract  with  the  subscriber  in  no  way  repre- 
sented such  persons,  who  afterwards  acted  relying  on  the  acts 
of  the  subscriber.  And  if  the  subscription  was  induced  by 
fraud,  nevertheless  the  loss  should  fall  on  the  subscriber  rather 
than  on  persons  who  acted  subsequently  relying  on  his  sub- 
scription. For  the  directors,  when  they  afterwards  contract 
with  any  one,  represent  the  subscriber,  and  to  allow  him  to 
rescind  so  as  to  affect  the  rights  of  a  subsequently  contracting 

1  It  is  not  improper  to  regard  the  directors  as  representing  creditors; 
see  §  756. 

541 


§  529.]  THE    LAW    OF    PRIVATE   CORPORATIONS.    [CHAP.  IX. 

party  might  visit  on  an  innocent  head  the  results  of  a  fraud 
committed  by  the  corporate  agent  on  a  person  whom  at  the 
time  of  the  subsequent  contract  the  directors  represent,  and 
■who,  therefore,  should  bear  the  loss  rather  than  the  parties 
subsequently  contracting.1 

§  527.  To  subscriptions  induced  by  error  or  justifiable  igno- 
rance of  material  facts  a  rule  somewhat  similar  to 
error.*  °  the  one  above  stated  in  regard  to  fraudulently  in- 
duced subscriptions,  and  a  course  of  reasoning  some- 
what similar  to  the  above  would  apply.  "  Except  where  a 
person  has  induced  others  to  act  on  his  own  representations, 
ignorance  of  material  facts  on  his  part  affords  a  sufficient 
reason  for  not  holding  him  bound  by  what  in  such  ignorance 
he  may  have  said  or  done." 2 

§  528.  When  a  contract  between  two  individuals  is  violated 

by  one  of  them,  the  other  may  often  acquire  thereby 

tionfhow      ^he  rigbt  to  rescind  ;  but  in  such  case  either  of  the 

affected  by    contracting  parties  could  have  released   the  other. 

subsequent  °    [ 

unautuor-      With  regard  to  the  contract  between  the  subscriber 

ized  or  im-  .  .  .  .~ 

proper  and  the  corporation  the  case  is  manifestly  different. 

the'parTof  In  the  first  place,  the  corporation  has  ordinarily  no 
Dora°tion  power  to  release  the  subscriber,  for  numerous  per- 
sons, creditors,  and  shareholders,  have  in  regard  to 
the  contract  rights  which  a  release  would  infringe.3  If  the 
corporate  management  violates  the  contract  with  the  sub- 
scriber by  diverting  the  funds  of  the  corporation  to  unauthor- 
ized purposes,  it  does  an  act  which  may  violate  the  rights  of  all 
non-consenting  persons  in  respect  of  the  corporate  enterprise ; 
but  this  act  is  in  itself  clearly  no  ground  on  which  one  of  these 
injured  persons  may  claim  a  release  from  his  obligation  to  the 
other  injured  persons.4 

§  529.  Accordingly,  after  a  person  has  subscribed  for  shares 
in  the  stock  of  a  corporation  he  will  not  be  released  from  his 


1  This  reasoning  is  sustained  by 
Howard  o.  Turner,  155  Pa.  St.  349. 
See,  also,  Savage  v.  Bartlett,  78  Md. 
561;  Fear  v.  Bartlett,  81  Md.  435; 
Cardwell  v.  Kelly,  95  Va.  570. 

Lindley  on  Part.,  135.    See  Salem 
Mill   Dam   Co.  v.  Ropes,  9  Pick.  187;  j  443,  and  the  following  pages 
Payson  r.  Withers,  5  Biss.  269;  Four  ' 

542 


Mile  Val.  R.  R.  Co.  v.  Bailey,  18  Ohio 

St.  208. 

3  See  §§  549-551  .     * 

*  The  shareholder's  remedy  is  to 
enjoin  unauthorized  acts.  See  Mis- 
sissippi, etc.,  R.  R.  Co.  v.  Cross,  20  Ark. 


CHAP.  IX.]        CORPORATION  AND  SHAREHOLDERS. 


[§  530. 


contract  by  the  mismanagement  of  the  corporate  affairs,1  even 
though  the  mismanagement  amount  to  such  non-user  or  mis- 
user  of  the  corporate  franchises  as  would  be  a  ground  for  the 
state  to  forfeit  them.2  Thus,  an  illegal  election  of  directors 
will  not  release  a  subscriber;3  nor  a  release  of  other  share- 
holders by  the  directors ;  for  if  the  release  was  made  in  pur- 
suance of  competent  authority  it  was  valid,  and,  if  not,  it  was 
simply  void.4  Similarly,  a  plea  to  an  action  to  collect  a  sub- 
scription to  the  stock  of  a  railroad  company,  that  the  company 
has  sold  or  leased  its  road,  is  bad  on  demurrer ;  for,  if  the  cor- 
poration had  authority  to  sell  or  lease,  a  subscriber  would  not 
be  discharged ;  and  if  it  had  not,  the  transaction  was  void  and 
would  not  affect  his  rights.5 

§  530.  When  a  radical  change  is  effected,  or  is  sought  to  be 
effected,  in  a  corporate  enterprise,  through  a  legisla- 
tive amendment  to  the  constitution,  applied  for  and   tueacorpc£ 
accepted  by  the  corporation,6  whether  or  not  a  dis-   r^see|Jter" 
senting   shareholder  is  released   from  his  subscrip-    legislative 

,  .  .  ....  .  ,  action. 

tion  contract  is  a  question  involving  many  considera- 
tions, and  in  regard  to  it  there  is  some  conflict  of  authority. 
If  the  change  is  immaterial,  or  is  an  alteration  or  amendment 


1  Chetlain  v.  Republic  Life  Ins. 
Co.,  86  111.  220;  Southern  Life  Ins. 
Co.  v.  Lanier,  5  Fla.  110.  See  Mer- 
rill v.  Reaver,  59  Iowa,  404;  Oler  v. 
Baltimore,  etc.,  R.  R.,  41  Md.  583; 
Oldham  v.  Mt.  Sterling  Imp.  Co.,  103 
Ky.  529. 

2  Hanover  Junction,  etc.,  R.  R.  Co. 
v.  Haldeman,  82  Pa.  St.  36;  Connec- 
ticut, etc.,  Rivers  R.  R.  Co.  v.  Bailey, 
24  Vt.  465;  Mississippi,  etc.,  R.  R.  Co. 
v.  Cross,  20  Ark.  443;  Hammett  v. 
Little  Rock,  etc.,  R.  R.  Co.,  20  Ark. 
204;  Hannibal,  etc.,  Plankroad  Co. 
v.  Menefee,  25  Mo.  547;  U.  S.  V.  Co. 
v.  Schlegel,  143  N.  T.  537;  Same  v. 
Foehrenbach,  148  N.  Y.  58.  See 
Cunningham  p.  Edgefield,  etc.,  R.  R. 
Co.,  2  Head  (Tenn.),  23;  Mechanics' 
Bhlg.  Ass'n  o.  Stevens,  5  Duer(N.Y.), 
676. 

8  Eakright  v.  Logansport,  etc.,  R. 


R.  Co.,  13  Ind.  404.  See  Western 
Plankroad  Co.  v.  Stockton,  7  Ind. 
500.     Compare  §  540. 

4  Hall  v.  Selma,  etc.,  R.  R.  Co.,  6 
Ala.  741;  Macon,  etc.,  R.  R.  Co.  v. 
Vason,  57  Ga.  314;  Bristol  Iron  Co.  v. 
Selliez,  175  Pa.  St.  18.  Contra,  Rutz 
v.  Esler,  etc.,  Mfg.  Co.,  3  111.  App.  83 
(a  more  than  questionable  case). 

5  Hays  v.  Ottawa,  etc.,  R.  R.  Co.,  61 
111.  422;  Ottawa,  etc.,  R.  R.  Co.  v. 
Black,  79  111.  262.  Compare  Nauga- 
tuck  Water  Co.  v.  Nichols,  58  Conn. 
403.  But  see  South  Georgia,  etc., 
R.  R.  Co.  v.  Ayres,  56  Ga.  230. 

6  In  order  to  be  valid,  a  vote  ac- 
cepting an  act  altering  the  charter, 
should  be  passed  at  a  meeting  of 
the  corporation  duly  convened,  after 
notice  to  all  the  members.  Com- 
monwealth v.  Cullen,  13  Pa.  St.  133. 
Directors  cannot  bind   shareholders 

543 


§  530.]      THU    LAW    OF    PBIVATK    CORPORATIONS.        [CHAP.  IX. 


that  is  conducive  in  the  main  to  the  successful  carrying  out  of 
the  originally  contemplated  enterprise,  a  shareholder  is  not  re- 
leased.1 It  is  evident  that  in  a  large  corporation  there  must  be 
some  surrender  of  opinion,  and  even  of  interest  by  a  minority 
to  the  majority.  This  courts  will  recognize,  and  will  not  per- 
mit one  shareholder  to  ruin  the  corporate  enterprise  by  insist- 
ing on  his  finically  strained  rights.  Thus,  a  subscriber  is  not 
discharged  by  an  amendment  to  the  charter  of  a  railroad  cor- 
poration, which  merely  enlarges  the  powers  of  the  corporation, 
as,  for  instance,  by  allowing  it  to  build  a  branch  road;2  nor  is 
a  subscriber  discharged  by  a  slight  alteration  in  the  route,3 
especially  if  the  location  of  the  road  had  not  been  definitely 
fixed  when  he  subscribed;4  nor  by  a  change  of  the  corporate 
name  by  the  legislature.5  So  subscribers  are  not  released  by 
an  amendment  extending  the  time  for  the  completion  of  the 
railroad,6  and  a  subscriber  cannot  avoid  payment  because  the 
charter  has  been  modified  so  as  to  authorize  the  corporation 
to  purchase  stock  in  other  railroads,  even  though  the  real  ter- 
minus of  the  road  is  thereby  changed.' 


by  accepting  a  substantial  altera- 
tion. Brown  v.  Fairmouut  M'f'g 
Co.,  10  Pbila.  (Pa.)  32;  Marlborough 
M'fg  Co.  y.  Smith,  2  Conn.  579;  see 
§227. 

1  Nugent  v.  Supervisors,  19  Wall. 
241;  New  Haven  aad  Derby  R.  R. 
Co.  v.  Chapman,  38  Conn.  5G;  Union 
Agriculture  Ass'n  v.  Neill,  31  L>wa, 
95;  Clark  v.  Monongahela  Nav'n  Co., 
10  Watts  (Pa.),  364;  Everhart  v. 
Phila.,  etc.,  R.  R.  Co., 28  Pa.  St.  339; 
Howard  v.  Glenn,  85  Ga.  238.  As  to 
what  is  a  substantial  amendment 
working  a  material  departure  from 
the  originally  contemplated  enter- 
prise no  rule  applicable  to  all  cases 
can  be  laid  down.  Witter  v.  Missis- 
sippi, etc.,  R.  R.  Co.,  20  Ark.  463,  493. 

2  Peoria,  etc.,  R.  R.  Co.  v.  Preston, 
35  Iowa,  115. 

:'  Wilson  v.  Wills  Valley  R.  R.  Co., 
33  Ga.  466;  see  Buffalo  and  Pitts- 
burgh R.  R.  Co.  v.  Hatch,  20  N.  Y. 
157;  Armstrong  p.  Karshner,  47  O. 

5U 


St.  276.  But  a  substantial  change  of 
the  route  was  held  to  discharge  a 
subscriber  in  Middlesex  Turnpike 
Co.  v.  Locke,  8  Mass.  268;  Same  v. 
Swan,  10  Mass.  384;  Buffalo,  Corn- 
ing, etc.,  K.  R.  Co.  v.  Pottle,  23  Barb. 
21;  Kenosha,  etc.,  R.  R.  Co.  v.  Marsh, 
17  Wis.  13.  Especially  if  the  sub- 
scription is  conditional  on  its  face. 
Moore  v.  Hanover  Junction  R.  R.  Co., 
94  Pa.  St.  324. 

4  Eppes  v.  Mississippi,  etc.,  R.  R. 
Co.,  35  Ala.  33. 

5  Bucksport,  etc.,  R.  R.  Co.  v. 
Buck,  68  Me.  81;  Commonwealth  v. 
Pittsburgh,  41  Pa.  St.  278,  munici- 
pal subscription. 

6  Agricultural  Branch  R.  R.  Co. 
v.  Winchester,  13  Allen,  29;  see 
Fry's  Ex'r  v.  Lexington,  etc.,  R.  K. 
Co.,  2  Mete.  (Ky.)  314;  Common- 
wealth v.  Pittsburgh,  41  Pa.  St.  278. 

7  Terre  Haute,  etc.,  R.  R.  Co.  v. 
Earp,  21  111.  291.  Compare  Pacific 
R.  R.  Co.  v.  Hughes,  22  Mo.  291. 


CHAP.  IX.]        CORPORATION  AND  SHAREHOLDERS. 


[§  532. 


§531.  On  the  other  hand,  a  great  number  of  cases  hold  that 
an  alteration  of  the  constitution  effecting  a  radical  change  in 
the  corporate  enterprise  releases  a  shareholder  from  his  sub- 
scription.1 These  cases  proceed  on  the  theory  that  the  corpo- 
ration cannot  enforce  the  subscription  of  a  dissenting  shareholder 
while  the  constitution  as  altered  remains  in  force  ;  since  that 
would  be  to  enforce  a  contract  which  the  shareholder  never 
made.2 

§  532.  Still  it  seems  quite  possible  that  many  of  these  de- 
cisions are  wrong  on  principle ;  at  least,  those  of  them  where 
the  charter  was  not  amended  in  pursuance  of  a  right  reserved 
to  the  state  to  alter  and  repeal.  For  it  is  surely  universally 
recognized  law  that  a  charter  imports  a  contract  between  the 
corporation  and  the  state ;  and  the  state  cannot  constitution- 
ally pass  a  law  radically  changing  it.3  Consequently,  any  such 
change  unaccepted  by  the  corporation  would  be  plainly  uncon- 
stitutional and  void.  But  the  corporation,  or  majority  of 
shareholders,  has  no  power  to  bind  the  minority  by  acts 
beyond  the  scope  of  the  original  chartered  powers,  and  a  for- 
tiori no  authority  to  bind  them  by  any  act  causing  a  radical 
change  in  the  corporate  enterprise,  as,  for  instance,  by  accept- 
ing a  radical  amendment  to  the  corporate  constitution.4  There- 
fore, the  state  having  no  power  to  amend  the  constitution 
against  the  consent  of  the  corporation,  and  the  corporation 
having  no  power  to  accept  an  amendment  against  the  consent 
of  any  shareholder,  it  would  seem  that  no  shareholder  should 


1  Manheim,  etc.,  Turnpike  Co.  v. 
Arndt,  31  Pa.  St.  317;  Ohartiers  R'y 
Co.  v.  Hodgens,  77  Pa.  St.  187;  Caley 
v.  Phila.  and  Chester  R.  R.  Co.,  80 
Pa.  St.  363  ;  Southern  Penn.  R.  R. 
Co.  v.  Stevens,  87  Pa.  St.  195;  Noesen 
v.  Town  of  Port  Washington,  37  Wis. 
168;  Ashton  v.  Burbank,  2  Dill.  435; 
Bank  v.  City  of  Charlotte,  85  N.  C. 
433;  Supervisors  v.  Mississippi,  etc., 
R.  R.  Co.,  21  111.  33S;  Union  Locks 
and  Canals  v.  Towne,  1  N.  H.  44; 
Marietta,  etc.,  R.  R.  Co.  v.  Elliott,  10 
Ohio  St.  57  ;  Thompson  v.  Guion,  5 
Jones,  Eq.  (N.  C. )  113;  Snook  v. 
Georgia   Imp.   Co.,  83  Ga.  61  ;    also 

35 


cases  in  next  note.  See  Fry's  Ex'r 
v.  Lexington,  etc.,  R.  R.  Co.,  2  Mete. 
(Ky.)  314;  Richmond  Street  R.  R. 
Co.  n.  Reed,  83  Ind.  9. 

2  Hartford  and  N.  H.  R.  R.  Co.  v. 
Croswell,  5  Hill  (X.  Y.),  383;  Mid- 
dlesex Turnpike  Co.  v.  Locke,  8 
Mass.  268;  Carlisle  v.  Terre  Haute, 
etc.,  R.  R.  Co.,  6  Ind.  316;  McCray 
v.  Junction  R.  R.  Co.,  9  Ind.  358; 
Booe  v.  Same,  10  Ind.  93;  Hoey  v. 
Henderson,  32  La.  Ann.  1069. 

3  See  §§  450  et  seq. 

4  See  Chapman  v.  Mad  River,  etc., 
R.  R.  Co.,  6  O.  St.  119,  137;  and 
§557. 

545 


§  533.]         THE  LAW   OF   PRIVATE   CORPORATIONS.     [CHAP.  IX. 


be  allowed  to  claim  a  release  as  long  as  there  are  other  non- 
consenting  shareholders  who  do  not  wish  to  be  released,  but 
desire  to  have  the  original  corporate  enterprise  adhered  to. 
The  plain  remedy  in  such  a  case  is  to  enjoin  the  acceptance  of 
the  amendment  ;*  a  step  which  should  be  immediately  taken, 
and  by  those  shareholders  who  wish  the  original  enterprise 
adhered  to,  and  wish  to  preserve  their  rights  against  other  sub- 
scribers who  may  dissent  from  the  change,  but,  rather  than 
enjoin  it,  prefer  a  release ;  as  under  such  circumstances  it 
would  certainly  be  unreasonable  to  look  to  subscribers,  who 
merely  desire  a  release,  to  take  the  initiative  in  expensive 
litigation  to  enjoin  a  change.2 

§  533.  If,  however,  under  a  power  reserved  to  itself,  the 
p  r  r  state  radically  changes  the  constitution  of  a  corpo- 
served  to       ration,  it  would  seem  that,  unless  the  change  could 

state  to 

alter  and  be  held  to  have  been  contemplated  by  the  subscriber 
repea .  ^n  su}3SCri|)ingj  sucn  altered  contract  could  not  be 

enforced  against  him;3  for  a  state  cannot  make  a  contract 
between  its  citizens.  Nevertheless,  in  order  that  a  right  to 
rescind  result,  the  amendment  must  radically  change  the 
nature  of  the  enterprise.  For  instance,  it  has  been  held  in 
New  York,  that  an  alteration  by  the  legislature  of  the  charter 
of  a  plank  road  or  railroad  corporation,  in  pursuance  of  powers 
reserved,  by  changing  its  name,  increasing  its  capital,  and 
extending  its  road,  does  not  discharge  a  subscriber  from  lia- 
bility on  his  subscription.4  These  were  changes,  however, 
which  the  shareholder  might  be  held  to  have  contemplated  on 
subscribing.     As  the  court  said  in  Buffalo  and  New  York  City 


1  Fry's  Ex'r  v.  Lexington,  etc., 
R.  R.  Co.,  2  Mete.  (Ky.^-314.  See, 
also,  Mississippi,  etc.,  R.  R  Co.  v. 
Cross,  20  Ark.  443;  Mississippi,  etc., 
R.  R.  Co.  v.  Caster,  24  Ark.  96.  But 
see  Thompson  v.  Guion,  5  Jones,  Eq- 
(N.  C.)  113. 

2  Where  an  amendment  to  a  char- 
ter is  passed  by  the  legislature,  but 
its  acceptance  is  enjoined  by  a  share- 
holder,   'subscribers    remain    liable; 

546 


not  having  been   injured.    Rutland, 
etc.,  R.  R.  Co.  v.  Thrall,  35  Vt.  536. 

3  But  a  shareholder  (see  §  502) 
will  be  estopped  from  objecting  if 
he  impliedly  assents  to  the  amend- 
ment by  acting  (as  a  director)  under 
the  amended  charter.  Ross  v.  Chi- 
cago, B.  and  Q.  R.  R.  Co.,  77  111.  134. 

4  Schenectady,  etc.,  Plank  Road 
Co.  v.  Thatcher,  11  N.  Y.  102;  Buffalo 
and  N.  Y.  City  R.  R.  Co.  v.  Dudley, 
14  N.  Y.  33G. 


CHAP.  IX.]        CORPORATION  AND  SHAREHOLDERS.  [§  534. 

R.  R.  Co.  v.  Dudley:1  "  The  change  is  not  fundamental.  The 
new  powers  conferred  are  identical  in  kind  with  those  origi- 
nally given.  They  are  enlarged  merely,  the  general  objects 
and  purposes  of  the  corporation  remaining  still  the  same.  It 
may  be  admitted  that  under  this  reserved  power  to  alter  and 
repeal,  the  legislature  would  have  no  right  to  change  the  fun- 
damental character  of  the  corporation  and  convert  it  into  a 
different  legal  being,  for  instance,  a  banking  corporation,  with- 
out absolving  those  who  did  not  choose  to  be  bound." 

§  531.  With  like  effect  Durfee  v.  Old  Colony,  etc.,  R.  R. 
Co.,3  holds  that  a  shareholder  in  a  corporation,  the  charter  of 
which  is  subject  to  alteration  and  repeal,  cannot  maintain  a 
bill  in  equity  to  restrain  the  corporation  from  engaging  in  a 
new  enterprise  in  addition  to  that  contemplated  in  the  charter, 
but  of  the  same  kind,  if  the  new  enterprise  is  sanctioned  by 
express  legislation,  and  by  a  vote  of  the  majority  of  share- 
holders. In  this  case  the  "new  enterprise"  was  a  consider- 
able extension  of  the  railroad.  Giving  the  opinion  of  the  court, 
Chief  Justice  Bigelow  said  : — 

"  Whatever  may  be  the  authority  which  is  [by  a  reservation 
of  the  right  to  alter,  amend,  or  repeal]  retained  by  the  legisla- 
ture to  modify  or  change  the  charters  of  corporations  without 
or  against  their  consent,  there  would  seem  to  be  no  reason  to 
doubt  that,  with  the  concurrence  of  the  corporation  manifested 
in  the  mode  pointed  out  by  law,  the  legislature  may  make  any 
alteration  in,  or  addition  to  the  power  and  authority  conferred 
by  the  original  act  of  incorporation,  and  not  foreign  to  the 
purposes  and  objects  for  which  it  was  enacted,  and  which  it 
was  designed  to  accomplish,  which  may  seem  to  be  expedient 
or  necessary.  No  breach  of  contract  would  be  thereby  occa- 
sioned. Such  action  would  be  in  precise  accordance  with  the 
terms  on  which  the  grant  of  the  franchise  was  made.  .  .  . 
The  stockholder  cannot  say  that  he  became  a  member  of  the 
corporation  on  the  faith  of  an  agreement  made  by  the  legisla- 
ture with  the  corporation,  that  the  original  act  of  incorporation 
should  undergo  no  change,  except  with  his  assent.  .  .  .  The 
real  contract  into  which  the  stockholder  enters  is,  that  he 
agrees  to  become  a  member  of  an  artificial  body,   which  is 

1 14  N.  Y.  348.  I      2  5  Aiien,  230. 

547 


§  536. J  THE   LAW    OF    PRIVATE   CORPORATIONS.  [CHAP.  IX. 

created  and  has  its  existence  by  virtue  of  a  contract  with  the 
legislature,  which  may  be  amended  or  changed  with  the  con- 
sent of  the  company,  ascertained  or  declared  in  the  mode 
pointed  out  by  law.  .  .  .  All  that  we  mean  to  determine  is 
that  the  obligation  of  the  contract  which  subsists  between  the 
corporation  and  a  stockholder,  by  virtue  of  his  being  a  pro- 
prietor of  shares  in  the  corporate  stock,  is  not  impaired  by  an 
act  of  the  legislature  which  amends  and  alters  the  charter,  and 
authorizes  the  corporation  to  undertake  new  and  additional 
enterprises  of  a  nature  similar  to  those  embraced  within  the 
original  grant  of  power,  if  such  act  is  accepted  by  a  majority 
of  the  stockholders  in  the  mode  provided  by  law." * 

§  535.  A  somewhat  different  view  was  taken  in  the  New 
Jersey  case  of  Zabriskie  v.  Hackensack,  etc.,  R.  R.  Co.,2  where 
Chancellor  Zabriskie  said : 3  "  There  is  no  other  alternative  to 
the  proposition  that  while  the  power  reserved  authorizes  the 
legislature,  within  certain  limits,  to  make  such  alterations  as 
they  choose  to  impose,  it  gives  no  authority  when  the  legis- 
lature does  not  impose  them,  for  the  majority  to  adopt  such 
alterations  or  enter  upon  such  enterprises  as  are  allowed  by  the 
legislature.  Again  the  power  of  the  legislature  has  its  limits. 
It  can  repeal  or  suspend  the  charter ;  it  can  alter  or  modify  it ; 
it  can  take  away  the  charter ;  but  it  cannot  impose  a  new  one, 
and  oblige  the  stockholders  to  accept  it.  It  can  alter  or  mod- 
ify the  old  one  ;  but  the  power  to  alter  or  modify  anything  can 
never  be  held  to  imply  a  power  to  substitute  a  thing  entirely 
different.  It  is  not  the  meaning  of  the  words  in  their  usually 
received  sense." 

Nevertheless,  it  is  hard  to  see  why  the  power  to  alter  and 
amend,  the  power  to  impose  new  terms,  does  not  include  the 
power  to  make  the  alteration  subject  to  the  will  of  a  majority 
of  the  shareholders.  What  the  legislature  could  do  without 
the  assent  of  this  majority  it  surely  could  do  with  it,  and  in 
this  respect  Durfee  v.  Old  Colony,  etc.,  R.  R.  Co.  is  more  satis- 
factory than  Zabriskie  v.  Hackensack,  etc.,  R.  R.  Co.4 

§  536.  Without  special  authority  a  corporation  cannot  con- 


Durfee  v.  Old  Colony,  etc.,  R.  R. 
Co.,  5  Allen,  230,  243  et  xeq.  See 
Atchison,  T.  and  S.  F.  R.  R.  Co.  v. 
Fletcher,  35  Kans.  236. 

548 


218N.  J.  Eq.  178. 
3  lb.  192. 

*  See,  also,  Bish».  Johnson,  21  Ind. 
299. 


CHAP.  IX.]       CORPORATION  AND  SHAREHOLDERS. 


[§  536. 


solidate  with  another;  and  an  attempted  wrongful 
consolidation  may  be  enjoined  by  a  shareholder,  like   eonsoiida- 
any  other  ultra  vires  act.1     Nevertheless,  that  an  un- 
authorized consolidation,  if  actually  effected,  will  release  a  dis- 
senting subscriber,  has  been  held  in  more  than  one  instance.2 
Every  subscription,  however,  must  be  regarded  as  made  with 
reference  to  any  statute  in  force  at  the  time  allowing  consoli- 
dation, and  therefore  by  a  consolidation  will  not  be  released ; 3 
and  if  the  original  subscriptions  were  conditional,  the  consoli- 
dated company  may  entitle  itself  to  sue  by  performing  the  con- 
dition.4    Further,  when  a  corporation  is  formed  under  a  law 
respecting  which  the  right  to  alter  and  repeal  is  reserved  to 
the  state,  a  consolidation  authorized  by  an  amendment  will  not 
release  a  subscriber,  when  the  consolidation  takes  place  with 


1  Mowrey  v.  Indianapolis,  etc.,  R. 
R.  Co.,  4  Biss.  78.  Though  it  be 
authorized  by  a  statute  subsequent 
to  the  charter.  Botts  v.  Turnpike 
Co.,  88  Ky.  54.  See  §§  419  et  seq. 
But  the  shareholder  may  be  estopped 
when  he  has  taken  part  in  the  con- 
solidation proceedings.  Bradford  v. 
Frankfort,  etc.,  R.  R.  Co.,  141  Ind. 
383. 

2  McCray  v.  Junction  R.  R.  Co.,  9 
Ind.  358  ;  State  v.  Bailey,  16  Ind. 
46  ;  Shelbyville,  etc.,  Turnpike  Co.  v. 
Barnes,  42  Ind.  498. 

A  railroad  company  authorized  to 
do  so,  may  transfer  its  property  to 
another  company  and  dissolve  ;  thus 
effecting  a  consolidation.  A  share- 
holder cannot  prevent  this,  as  he 
cannot  prevent  the  majority  from 
dissolving.  But  he  cannot  be  forced 
into  a  new  enterprise,  nor  can  he  be 
compelled  to  take  in  payment  for  his 
6tock  the  stock  of  the  consolidated 
company,  and  he  may  enjoin  the  pro- 
ceeding until  he  has  received  secu- 
rity. Lauman  v.  Lebanon  Valley  B. 
R.  Co.,  30  Pa.  St.  42.  See  Hamilton 
Mut.  Ins.  Co.  v.  Hobart,  2  Gray,  543  ; 
Gardner  v.  Hamilton  Mut.  Ins.  Co., 
33  N.  Y.  421. 


When  a  consolidation  is  effected 
wrongfully,  and  against  the  protest 
of  a  shareholder  who  has  partially 
paid  up  his  shares,  the  consolidated 
company  is  liable  to  him  for  the  value 
of  them.  International,  etc.,  Rail- 
road Co.  v.  Bremond,  53  Tex.  96. 
See  §§  323,  324. 

3  Bish  v.  Johnson,  21  Ind.  299  ; 
Sparrow  v.  Evansville,  etc.,  R.  R.  Co., 
7  Ind.  369  ;  Edwards  v.  People,  88111. 
340  ;  Mansfield,  etc.,  R.  R.  Co.  v. 
Brown,  26  Ohio  St.  233  ;  Compare 
Same  v.  Stout,  ib.  241.  Otherwise, 
if  the  consolidation  effects  a  radical 
change  in  the  nature  of  the  enter- 
prise, and  a  practical  abandonment 
of  the  original  scheme.  Illinois 
Grand  Trunk  R.  K.  Co.  v.  Cook,  29 
111.  237.  Where  a  corporation,  with- 
out authority,  issues  a  scrip  dividend 
in  fraud  of  another  corporation  with 
which  it  was  about  to  consolidate, 
the  scrip  may  be  declared  void  at  the 
suit  of  shareholders  in  the  latter 
corporation  ;  and  even  bona  fide  pur- 
chasers of  the  scrip  may  have  to  re- 
turn it.  Bailey  v.  Citizens'  Gas 
Light  Co.,  27  N.  J.  Eq.  196. 

4  Mansfield,  etc.,  R.  R.  Co.  v. 
Stout,  26  O.  St.  241. 

549 


§  538.]  THE    LAW    OF    PRIVATE   CORPORATIONS.  [CHAP.  IX. 


another  corporation  of  the  same  character,  and  does  not  work 
a  fundamental  change  in  the  nature  of  the  original  objects  of 
incorporation.1 

§  537.  When  a  person  has  subscribed  for  shares  in  a  de 
When  sub-  fac^°  existing  corporation,  he  cannot  plead  to  a  suit 
scriber  can-   brought  on  his  subscription  that  there  are  irregular- 

not  plead  °.  .       *  ° 

nuitiel  lties  in  the  organization  or  the  company  ;  even 
aorpor  .  ^^g^  ^ne  irregularities  are  such  as  would  be  fatal 
on  a  quo  warranto?  Thus,  it  is  no  defence  to  an  action  by  a 
railroad  corporation  to  recover  a  subscription  that  the  articles 
of  association  were  defective  in  not  stating  definitely  the  ter- 
mini of  the  road  and  the  counties  through  which  it  passed.3 
Moreover,  the  signature  of  the  defendant  to  a  subscription  to 
shares  in  the  stock  of  an  alleged  corporation  reciting  that  a  cor- 
poration had  been  formed  under  the  general  enabling  act,  and 
that  articles  of  association  with  the  necessary  affidavits  had 
been  filed,  is  conclusive  evidence  of  incorporation  as  against 
such  subscriber.4 

§  538.  When,  however,  a  person  signs  articles  of  association 


1  Sprague  v.  Illinois  River  R.  R. 
Co.,  19  111.  174;  Hanna  v.  Cincinnati, 
etc.,  R.  R.  Co.,  20  Ind.  30.  See  Bishop 
v.  Brainerd,  28  Conn.  289.  Compare 
Illinois  River  R.  R.  Co.  v.  Zimmer, 
20  111.  654. 

2  Chubb  v.  Upton,  Assignee,  95 
U.  S.  665;  Sanger  v.  Upton,  Assignee, 
91  U.  S.  56;  Home  Stock  Ins.  Co.  v. 
Sherwood,  72  Mo.  461;  Monroe  v. 
Fort  Wayne,  etc.,  R.  R.  Co.,  28 
Mich.  272;  Montpelier,  etc,  R.  R. 
Co.  v.  Langdon,  46  Vt.  284;  Mc- 
Carthy v.  Lavashe,  10  Chi.  Leg.  N. 
342;  Ossipee  Hosiery,  etc.,  Co.  v. 
Cauney,  54  N.  H.  295;  McHose  v. 
Wheeler,  45  Pa.  St.  32;  Freeland  v. 
Pennsylvania  Central  Ins.  Co.,  94  Pa. 
St.  504;  Buffalo,  etc.,  R.  R.  Co.  v. 
Cary,  26  N.  Y.  75;  Eaton  v.  Aspin- 
wall,  19  N.  Y.  120;  Mead  v.  Keeler, 
24  Barb.  20;  see  Oregon  Central  R.  R. 
Co.  v.  Scoggin,  3  Oreg.  161;  Hunt  v. 
Kansas,   etc.,    Bridge  Co.,   11  Kans. 

550 


412;  Weinman  v.  Passenger  Ry.  Co., 
118  Pa.  St.  192;  Cotton  Mills  Co.  v. 
Burns,  114  N.  C.  353;  Fish,  Rec'r,  v. 
Smith,  73  Conn.  377;  Anderson  v. 
Thompson,  51  La.  Ann.  727.  A  sub- 
scriber to  shares,  who  has  accepted 
the  charter  and  assisted  in  putting 
it  in  operation,  cannot  .plead  to  a 
suit  on  his  subscription  that  the 
charter  had  been  obtained  by  fraud. 
Smith  v.  Heidecker,  39  Mo.  157.  See 
Slocum  v.  Providence  Steam  and  Gas 
Pipe  Co.,  10  R.  I.  112;  Slocum  v. 
Warren,  ib.  116.  Compare  Occidental 
Ins.  Co.  v.  Ganzhorn,  2  Mo.  App.  205. 
See,  also,  §§  738,  and  145  et  seq. 

3  Cayuga  Lake  R.  R.  Co.  v.  Kyle, 
64  N.  Y.  185. 

4  Black  River,  etc.,  R.  R.  Co.  v. 
Clarke,  25  N.  Y.  208.  Compare 
Road  Co.  v.  Creeger,  5  Har.  &  J. 
(Md.)  122;  St.  Charles  M'f'g  Co.  v. 
Britton,  2  Mo.  App.  290. 


CHAP.  IX.]        CORPORATION  AND  SHAREHOLDERS. 


[§  539. 


and  subscribes  for  shares,  the  organization  of  the 
corporation  not  being  at  the  time  completed,  he  is   ^yenhe 
not  afterwards  estopped  thereby  from  pleading  to 
an  action  on  his  subscription,  that  the  steps  necessary  to  com- 
plete the  organization  of  the  corporation  have  not  been  taken.1 
"  The  ground  upon  which  a  party  who  has  contracted  with  a 
corporation  as  such  is  estopped  to  deny  its  existence  is,  that  by 
his  contract  he  has  recognized  the  existence  of  the  corporation. 
The  contract  in  question,  instead  of  purporting  to  be  made 
•with  an  existing  corporation,  utterly  excludes  the  idea  of  pres- 
ent existence,  but  contemplates  the  future  organization  of  the 
corporation  to  which  he  was  to  pay  the  amount  of  his  subscrip- 
tion." 2 

§  539.  On  not  dissimilar  principles  a  subscriber  to  the  stock 
of  a  railroad  corporation  may,  in  a  suit  brought  against  him 
for  assessments  by  a  new  corporation  formed  by  the  consolida- 
tion of  the  original  corporation  with  another,  question  the  con- 
solidation proceedings  in  which  he  has  taken  no  part,  although 
they  be  sufficient  to  constitute  the  consolidated  company  a 
corporation  de  facto?  For  in  an  action  brought  by  a  consoli- 
dated corporation  to  recover  subscriptions  to  the  stock  of  one 
of  the  original  corporations  based  on  -the  right  of  succession 
under  the  statute,  it  is  essential  that  a  consolidation  in  accord- 
ance with  the  statute  be  proved ;  and  it  is  not  enough  that  the 
consolidated  company  be  shown  to  be  a  corporation  de  facto} 


1  Rikhoff  ».  Brown's  Sewing  Mach- 
ine   Co.,    68   Ind.   388  ;  Indianapolis 

Furnace,  etc.,  Co.  v.  Herkimer,  46 
Ind.  142  ;  Schloss  v.  Montgomery 
Trade  Co.,  87  Ala.  411;  Caps  v.  Pro- 
specting Co.,  40  Neb.  470.  But  such 
subscriber  may  estop  himself  by  tak- 
ing part  in  corporate  proceedings. 
Minnesota  Gas  Light  Company  v. 
Denslow,  46  Minn.  171;  see  Knight 
v.  Flatrock,  etc.,  Turnpike  Co.,  45 
Ind.  134  ;  Jackson  v.  Crown  Point 
Mining  Co.,  21  Utah,  1. 

2  Indianapolis  Furnace,  etc.,  Co. 
v.  Herkimer,  46  Ind.  142,  149.  See 
Bushnell  v.  Consolidated  Ice  Co., 
138  111.  67. 


It  has  been  held  that  a  shareholder 
is  not  estopped  by  his  subscription 
to  deny  the  lawful  existence  of  a  cor- 
poration prohibited  by  the  state  con- 
stitution. St.  Louis  Colonization 
Ass'n  v.  Hennessy,  11  Mo.  App.  555. 
Contra,  McCarthy  v.  Lavashe,  10 
Chic.  Leg.  N.  342. 

3  Tuttle  v.  Michigan  Air  Line  R. 
R.  Co.,  35  Mich.  247.  See  Rodgers  v. 
Wells,  44  Mich.  411. 

4  Mansfield,  etc.,  R.  R.  Co.  v. 
Drinker,  30  Mich.  124;  Same  v. 
Brown,  26  Ohio  St.  223;  Same  v. 
Stout,  ib.  241. 


551 


§541.]  THE    LAW    OF    PRIVATE    CORPORATIONS.   [CHAP.  IX. 


Shareholder 
may  plead 
that  officers 
making 

calls  are 
not  legally- 
elected. 


§  540.  To  a  suit  for  calls,  unless  affected  with  some  special 
estoppel,  a  shareholder  may  plead  that  the  officers 
making  them  were  not  legally  officers  of  the  corpo- 
ration. Accordingly,  where  the  notice  of  a  meeting 
contained  nothing  about  electing  directors,  directors 
chosen  at  that  meeting  are  not  validly  elected,  and 
an  assessment  or  call  made  by  them  is  void.  These  facts  a 
shareholder  may  plead.1 

§  541.  When  a  corporation  increases  its  capital  stock  and 
issues  further  shares,  a  subscriber  to  them,  when 
sued  on  his  subscription,  cannot  avail  himself  of  any 
irregularities  in  their  issue,  if  he  has  acquiesced  or 
taken  part  in  the  proceedings  by  which  they  were 
issued,2  or  has  paid  voluntarily  an  assessment  on  his  new 
shares,3  or  has  subscribed  subsequently  to  their  issue  and  may 
be  presumed  to  have  waived  any  irregularities.4  But  when 
the  subscriber  has  done  nothing  by  which  he  may  be  held 
estopped,  he  may  decline  to  receive  stock  improperly  issued,5 


Subscribers 
to  shares 
irregularly 
or  illegally 
issued. 


1  People's  Mut.  Ins.  Co.  v.  West- 
cott,  14  Gray,  440.  Accord,  How- 
beach  Coal  Co.  v.  Teague,  5  II.  &  N. 
151.  Compare  Ginrich  v.  Patrons' 
Mill  Co.,  21  Kan.  Gl ;  and  §  529. 

In  a  suit  to  recover  a  subscription 
it  will  be  presumed,  in  the  absence 
of  proof  to  the  contrary,  that  the 
meeting  of  directors  authorizing  the 
assessment  was  legally  noticed. 
Chouteau  Ins.  Co.  v.  Holmes,  C8  Mo. 
601 ;  see,  also,  §  190. 

2  Clarke  v.  Thomas,  34  Ohio  St. 
46;  Kansas  City  Hotel  Co.  v.  Harris, 
51  Mo.  464;  Barrows  v.  Natchang 
Silk  Co.,  72  Conn.  658.  So  a  trans- 
feree, even  one  who  has  taken  the 
shares  as  collateral,  may  be  estopped. 
Pullman  v.  Upton,  96  U.  S.  328. 

8  Delano  v.  Butler,  118  U.  S.  634. 

4  Kansas  City  Hotel  Co.  v.  Hunt, 
57  Mo.  126. 

5  See  American  Tube  Works  v. 
Boston  Machine  Co.,  139  Mass.  5; 
Reed  v.  Boston  Machine  Co.,  141 
Mass.    454.      Holders    of    increased 

552 


shares  have  no  standing  in  court  to 
contest  the  validity  of  other  (pre- 
ferred) shares  issued  at  the  same 
time,  on  the  ground  that  formalities 
required  by  the  statute  authoriz- 
ing the  increase  had  not  been  com- 
plied with.  Columbia  National 
Bank's  Appeal,  16  Weekly  Notes  of 
Cases  (Pa.),  357.  A  sale  of  stock  in 
a  railroad  company  by  the  directors 
at  a  less  rate  than  that  fixed  by  the 
charter  is  a  fraud  in  law.  The  issu- 
ing of  a  bond  convertible  into  stock 
has  the  same  effect  as  issuing  stock; 
and  the  sale  of  such  a  bond  at  a  dis- 
count is  unlawful;  and  this  though 
the  charter  contain  no  prohibition 
against  taking  a  subscription  at  less 
than  the  charter  price.  These  facts 
constitute  a  defence  to  an  action  on 
an  executory  contract  to  take  such 
stock,  when  the  subscriber  has  acted 
in  good  faith  and  without  notice. 
Sturges  v.  Stetson,  1  Biss.  246.  Com- 
pare Fosdick  v.  Sturges,  1  Biss.  255. 
When    a  statute   exists    forbidding 


CHAP.  IX.]       CORPORATION  AND  SHAREHOLDERS. 


[§  542. 


and  may  be  in  a  position  to  defend  in  a  suit  brought  to  enforce 
his  subscription  to  it.1  Further,  when  the  capital  stock  is 
limited  by  the  charter,  all  stock  issued  in  excess  of  such  limit 
is  void,  and  a  holder  thereof  is  not  entitled  to  the  rights  of 
a  shareholder,2  nor  is  he  estopped  from  setting  up  its  invalidity 
as  a  defence  to  an  action  in  the  interest  of  creditors,  brought 
to  recover  the  balance  unpaid  thereon.3  But  when  the  corpo- 
ration has  become  bankrupt,  the  holder  of  void  stock  is  not 
entitled  to  have  money  paid  thereon  applied  as  a  credit  on  the 
unpaid  balance  due  on  authorized  stock  held  by  him.4  In  an 
action  by  a  corporation  to  recover  a  subscription,  the  fact  that 
it  has  taken  subscriptions  in  excess  of  its  limit  does  not  itself 
bar  a  recovery,  if  the  corporation  has  retained  a  sufficient 
amount  of  its  authorized  stock  which  it  is  ready  and  able 
to  issue.5 

§  542.   Insolvency  of   the    corporation  is   no   defence  to  a 
suit   brought  to  collect  a  subscription.6      And   the 

IdsoIvgkcv 

assignee  or  receiver  of  the  corporation  succeeds  to  of  corpora- 
all  its  rights  and  may  recover  unpaid  subscriptions  tence^G^ 
for  the  benefit  of  shareholders  and  creditors.7  But  Reiver °f 
a  receiver  cannot  enforce  the  payment  of  a  subscrip- 


the  issue  of  shares  below  par,  and 
declaring  void  shares  so  issued,  a 
subscriber  to  stock  at  less  than  par 
is  in  pari  delicto  with  the  corporation 
and  cannot  sue  on  the  contract  to 
force  it  to  issue  such  stock  to  him, 
nor  can  he  sue  to  recover  back 
moneys  paid  on  account.  Clarke  v. 
Lincoln  Lumber  Co.,  59  Wis.  655. 
Compare  §  522c. 

1  See  last  note. 

2N.  Y.  &  N.  H.  R.  R.  Co.  b. 
Schuyler,  34  N.  Y.  30;  Scoville  v. 
Thayer,  105  U.  S.  143;  Oler  v.  Balto. 
&  Randallstown  R.  R.  Co.,  41  Md. 
583;  Grangers'  L.,  etc.,  Ius.  Co.  v. 
Kamper,  73  Ala.  325. 

8  Scoville  v.  Thayer,  supra  ;  Clark 
v.  Turner,  73  Ga.  1  ;  Kampman  v. 
Tarver,  87  Tex.  491  ;  Railroad  v. 
Sneed,  99  Tenn.  1. 


4  Scoville  v.  Thayer,  supra. 

6  Oler  v.  Balto.  &  Randallstown 
R.  R.  Co.,  41  Md.  583.  That  the  cor- 
poration had  illegally  increased  its 
stock,  is  no  defence  to  a  note  given 
for  a  subscription,  when  it  is  not 
alleged  that  the  illegal  cannot  be 
distinguished  from  the  legal  stock. 
Merrill  v.  Reaver,  50  Iowa,  404.  But 
an  innocent  person  buying  void  stock 
from  a  corporation  may  recover  the 
price.  Lincoln  v.  Express  Co.,  45 
La.  Ann.  729. 

6  Dill  u.  Wabash  Valley  R.  R.  Co., 
21  111.  91 ;  Shuey  v.  Holmes,  22  Wash. 
193.  It  is  no  defence  to  a  suit  on  a 
subscription  to  its  stock,  brought  by 
a  railroad  company,  that  the  gov- 
ernor of  the  state  had  seized  the 
road.  Mull  ins  v.  North  and  South 
R.  R.  Co.,  54  Ga.  580.     The  fact  that 


7  For  note  7  see  p.  554. 


553 


§  543.]  THE    LAW    OF    PRIVATE   CORPORATIONS.   [CHAP.  IX. 

tiou  which  the  corporation  could  not  have  enforced  at  the 
time  of  his  appointment;1  for  the  corporation  or  corporate 
management,  just  as  much  as  a  receiver,  represents  the  inter- 
ests of  all  persons,  creditors  as  well  as  shareholders,  the  main 
difference  being  that,  as  a  receiver  is  ordinarily  appointed 
only  when  the  corporation  is  insolvent,  the  rights  of  creditors 
in  the  corporate  funds  are  then  especially  prominent ;  and  a 
receiver  is  more  apt  to  be  regarded  as  the  representative  of 
creditors.2  "A  receiver  is  appointed  upon  a  principle  of  jus- 
tice for  the  benefit  of  all  concerned.  Every  kind  of  property 
of  such  a  nature  that,  if  legal,  it  might  be  taken  on  execution, 
may,  if  equitable,  be  put  into  his  possession.  Hence  the 
appointment  has  been  said  to  be  an  equitable  execution.  He 
is  virtually  a  representative  of  the  court,  and  of  all  the  parties 
in  interest  in  the  litigation  wherein  he  is  appointed." 3 

It  has  been  held  that  to  a  suit  by  a  receiver  to  collect  an 
unpaid  subscription,  a  shareholder  may  aver  that  the  receiver 
was  improperly  appointed  by  a  decree  not  binding  on  the 
shareholder.4  But  this  doctrine  may  perhaps  be  of  question- 
able correctness,  or  at  least  application,  since  the  shareholder 
could  have  intervened  in  the  proceeding  by  which  the  receiver 
was  appointed.5 

§  543.  The  discretionary  authority    of   directors   to    make 


a  railroad  has  not  been  and  is  not 
likely  to  be  completed  is  no  defence 
to  an  action  on  an  unconditional  sub- 
scription. Smith  v.  Gower,  2  Duv. 
(Ky.)17. 

7  Sawyer  v.  Hoag,  17  Wall.  610; 
Upton  v.  Tribilcock,  91  U.  S.  45; 
Shockley  v.  Fisher,  75  Mo.  498; 
Lionberger  v.  Broadway  SVgs  B'k, 
10  Mo.  App.  49'.»;  Great  Western 
Tel.  Co.  v.  Gray,  122  111.  630;  Gainey 
v.  Gilson,  149  Ind.  58;  Belknap, 
Rec'r,  v.  Adams  &  Rice,  49  La.  Ann. 
1350;  Wyman  v.  Williams,  53  Neb. 
670. 

1  Cutting  v.  Damerel,  88  N.  Y. 
410;  Billings  v.  Robinson,  28  Hun, 
122. 

554 


2  A  receiver  represents  not  only 
the  corporation,  but  also  creditors 
and  shareholders,  and  in  his  char- 
acter of  trustee  for  the  latter,  may 
disaffirm  illegal  and  fraudulent 
transfers  of  corporate  property,  and 
recover  its  funds  and  securities  mis- 
applied. Attorney-General  v.  Guar- 
dian Mut.  Ins.  Co.,  77  N.  Y.  272. 
Compare  Ellis  v.  Little,  27  Kan.  707. 

3  Davis  v.  Gray,  16  Wall.  203,  218. 

*  Chandler  v.  Brown,  77  111.  333. 
Semble  contra,  Hemstad  v.  Hall,  64 
Minn.  133. 

5  Schoonoverv.  Hinckley,  48  Iowa, 
82;  Fish,  Rec'r,  v.  Smith,  73  Conn. 
377. 


CHAP.  IX.]       CORPORATION  AND  SHAREHOLDERS. 


[§  546. 


calls  cannot  be  delegated,  for  instance,  to  the  treas- 

Directors 

urer  of  the  corporation.1     And  there  is  also  a  case   cannot 
in  which  it  is  said  that  although  a  corporation  may   authority 
assign  a  call  already  due  on  a  stock  note,  it  cannot   canTwhen 
commit    to    the  assignee    the  discretion  of   making   calls  un- 
future    calls.2      But    the    scope   of    this   remark,  if 
sound  at  all,  is  very  limited,  for  after  a  corporation  is  insol- 
vent, and  has  ceased  to  be  a  going  concern,  that  a  call  should 
be  made  by  the  corporate  authorities  is  no  longer  prerequisite 
to  the  collection  of  a  subscription  ; 3  and  an  insolvent  corpora- 
tion can  include  in  an  assignment  for  the  benefit  of  creditors 
its  right  to  the  unpaid  balance  of  subscriptions  for  which  no 
call  has  been  made.4 

§  544.  [545.]  It  has  also  been  held  that  in  the  absence  of 
special  authorization,  a  railroad  company  cannot  purchase  sub- 
scription notes  given  by  shareholders  in  another  corporation, 
and  enforce  them  against  the  subscribers  ;  and  the  fact  that  one 
railroad  company  has  bought  the  road-bed  of  another,  intend- 
ing to  complete  the  road,  gives  the  purchaser  no  right  to  buy 
and  enforce  the  vendor's  stock  subscriptions.5 

§  546.  The  corporation  or  the  corporate  management  may 
forfeit  shares  for  non-payment  of  calls,  when  power  to  do  so 
is  given  bj'  the  constitution  of  the  corporation.6     Since,  how- 
ever,  by  a  valid  forfeiture  of  shares  the  relations    Forfeiture 
between  the  shareholder  and  the  corporation  are  ter-   of  shares 

.        .  .  .         .  for  non- 

minated,   the   corporation   can    maintain   no   subse-   payment  of 
quent  action  for  calls.7    But  the  power  to  forfeit  as 


calls. 


1  Silver  Hook  Road  v.  Greene,  12 
R.  I.  164.     See  §§  233,  234. 

2  Schultz  v.  Sutter,  3  Mo.  App.  137. 
After  the  whole  amount  of  the  sub- 
scription has  been  called,  it  may  be 
assigned.  Wells  u.  Rogers,  50  Mich. 
294;  Schultz  v.  Sutter,  siqyra.  See 
Morris  v.  Cheney,  51  111.  451. 

3  See  §§  703. 

4  Eppright  v.  Nickerson,  78  Mo. 
482.  Compare  Wooldridge  v. 
Holmes,  78  Ala.  508. 

5  West  End  R.  R.  Co.  v.  Dameron, 


4  Mo.  App.  414.  See,  also,  Minne- 
apolis Harvester  Works  v.  Libbey, 
24  Minn.  327.  Compare  Wells  v. 
Rodgers,  50  Mich.  294. 

6  A  corporation  cannot  by  a  by- 
law subject  shares  to  forfeiture,  un- 
less the  power  is  expressly  granted. 
Matter  of  Long  Island  R.  R.  Co.,  19 
Wend.  37;  compare  Bergman  v.  St. 
Paul  Mutual  Building  Association, 
29  Minn.  275;  Gorman  v.  Guardian 
Savings  Bank,  4  Mo.  App.  180.  See 
Budd  v.  Street  R'y  Co.,  15  Oregon, 


7  For  note  7  see  p.  556. 


555 


§  547.]  THE    LAW    OF    PRIVATE   CORPORATIONS.  [CHAP.  IX. 


long  as  unexercised  does  not  impliedly  preclude  the  corpora- 
tion from  suing  for  calls  instead  of  declaring  a  forfeiture.1 

§547.  To  the  validity  of  a  forfeiture  of  shares  it  is  essential 
that  all  the  conditions  precedent  should  have  been  strictly  com- 
plied with.2  A  reasonable  notice,  which  should  specify  the 
place  of  sale,3  must  first  be  given  to  the  delinquent  share- 
holder ; 4  and  all  statutory  provisions,  and  provisions  in  the  by- 


413;  Cartwright  v.  Dickinson,  88 
Tenn.  476.  But  it  lias  been  held 
that  a  stock  corporation  not  having 
express  power  to  declare  a  forfeiture 
of  shares  for  non-payment  of  calls, 
may  sue  for  the  amount  due,  and  on 
failure  to  collect  on  its  judgment  the 
whole  amount,  may  collect  the  res- 
idue by  a  sale  of  the  shares.  Chase 
u.  Railroad  Co.,  5  Lea  (Tenn.),  415. 

7  Small  v.  Herkimer  Mfg.  Co.,  2 
N.  Y.  330.  When  a  corporation  for- 
feits shares,  it  cannot  recover  on  a 
note  given  for  a  prior  unpaid  assess- 
ment. Ashton  v.  Burbank,  2  Dill. 
435.  The  power  to  sue  a  shareholder, 
after  a  forfeiture,  may  be  given  by 
statute.  Lexington,  etc.,  R.  R.  Co. 
v.  Chandler,  13  Mete.  (Mass.)  311; 
Troy,  etc.,  R.  R.  Co.  v.  Newton,  1 
Gray,  544;  Mandel  v.  Swan  Land  Co., 
154  111.  177;  Great  Northern  Ry.  Co. 
v.  Kennedy,  4  Exeh.  417;  or  by  by- 
law. Cotton  Mills  v.  Dunstan,  121 
N.  C.  12. 

1  Delaware,  etc.,  Navigation  Com- 
pany v.  Sansom,  1  Binn.  (Pa.)  70; 
Freeman  v.  Winchester,  18  Miss.  577; 
Goshen  Turnpike  Road  r.  Ilurlin,  9 
Johns.  217;  Dutchess  Cotton  Manu- 
factory v.  Davis,  14  Johns.  238;  New 
Hampshire  Central  R.  R.  Co.  v. 
Johnson,  30  N.  H.  300;  Rutland,  etc., 
R.  R.  Co.  v.  Thrall,  35  Vt,  536; 
Beene  v.  Cahawba,  etc.,  R.  Co.,  3 
Ala.  660;  Selma,  etc.,  R.  R.  Co.  v. 
Tipton,  5  Ala.  787;  Inst  one  v.  Frank- 
fort Bridge  Co.,  2  Bibb  (Ky.),  576; 
Mann  v.  Cooke,  20  Conn.  178;  Stokes 
v.    Lebanon,    etc.,    Turnpike   Co.,  6 

556 


Humph.  (Tenn.)  241;  Troy  Turn- 
pike and  R.  R.  Co.  v.  M'Chesney,  21 
Wend.  296;  Buffalo  and  N.  Y.  City 
R.  R.  Co.  v.  Dudley,  14  N.  Y.  336; 
Sagory  v.  Dubois,  3  Sandf.  Ch. 
(N.  Y.)  466. 

Contra,  semble,  Chester  Glass  Co. 
v.  Dewey,  16  Mass.  94;  though  the 
doctrine  of  this  case  is  rather  to  the 
effect  that  there  is  no  implied  prom- 
ise to  pay,  than  that  any  implied 
promise  is  excluded  by  an  express 
power  of  forfeiture.  See,  also, 
Franklin  Glass  Co.  v.  Alexander,  2 
N.  H.  380;  Giles  v.  Hutt,  3  Exch.  18; 
Richboro  Dairymen's  Association  v. 
Ryan,  16  Weekly  Notes  (Pa.),  383. 
Where  the  charter  of  a  railroad  com- 
pany provides  that  on  the  failure  of 
subscribers  to  pay  calls,  the  company 
may  sell  the  shares  at  public  auction, 
and  sue  the  subscriber  for  the  bal- 
ance, if  any,  the  company  may  sue 
the  subscriber  without  making  such 
sale.  Western  R.  R.  Co.  v.  Avery, 
64  N.  C.  491. 

2  Johnson  i\  Lyttle's  Iron  Agency, 
46  L.  J.  Eq.  786;  see  Germantown, 
etc.,  R.  R.  Co.  v.  Fitler,  60  Pa.  St. 
124;  Mitchell  v.  Vermont  M'g  Co., 
40  N.  Y.  Super.  Ct.  406;  Eastern 
Plank  Road  Co.  v.  Vaughan,  20  Barb. 
157;  Knight's  Case,  L.  R.  2  Ch.  321. 

3  Lexington,  etc.,  R.  R.  Co.  v.  Sta- 
ples, 5  Gray,  520. 

4  Lewey's  Island  R.  R.  Co.  v.  Bol- 
ton, 48  Me.  451 ;  Hughes  v.  Antietam 
M'f'g  Co.,  34  Md.  317;  Matter  of 
Long  Island  R.  R.  Co.,  19  Wend.  37. 


CHAP.  IX.]        CORPORATION  AND  SHAREHOLDERS. 


[§  549. 


laws,  that  may  apply  regulating  the  nature  and  contents  of  the 
notice1  and  the  manner  of  conducting  the  sale,  must  be  strictly 
followed.2  A  forfeiture  declared  by  illegally  chosen  directors 
may  be  set  aside ; 3  or  one  declared  by  a  board  composed  of  a 
less  number  of  directors  than  are  authorized  by  the  articles  of 
association  to  transact  business  for  the  company.4  And  a  sale 
of  shares  for  the  nonpayment  of  several  assessments,  one  of 
which  is  illegal,  is  void.5 

§  548.  The  option  to  declare  a  forfeiture  rests  with  the  cor- 
poration, and  cannot  be  exercised  by  the  delinquent 

i  i     i  i       a      ,,  mi  .      .  ,,    ,..         ,  Collusive 

shareholder.6  "  lhe  power  to  forfeit,  like  the  power  forfeitures. 
to  manage  all  the  affairs  of  the  corporation,  is  vested 
in  the  directors,  upon  the  assumption  that  they  will  exercise  it 
in  the  best  manner  practicable  for  the  promotion  of  the  inter- 
ests of  the  company  and  its  creditors ;  that  they  will  not  for- 
feit the  stock  unless  the  interest  of  all  will  be  promoted  thereby. 
Should  they  forfeit  it  for  the  purpose  of  defrauding  the  corpo- 
ration, or  any  creditor,  such  forfeiture  would,  for  that  reason, 
be  set  aside." 7 

§  549.  It  is  incompetent  for  the  directors,8  or  for  the  body 


1  Morris  v.  Land  Co.,  164  Pa.  St.  326; 
Watson  v.  Eales,  23  Beav.  294;  Van 
Diemen's  Land  Co.  ».  Cockerell,  1 
C.  B.  N.  S.  732. 

2 Portland,  etc.,  R.  R.  Co.  v.  Gra- 
ham, 11  Mete.  (Mass.)  1;  York,  etc., 
R.  R.  Co.  v.  Ritchie,  40  Me.  425. 

3  Garden  Gully  M'g  Co.  v.  Mc- 
Lister,  L.  R.  1  App.  Cas.  39.  A 
shareholder  may  enjoin  illegally 
chosen  directors  from  selling  his 
shares.  Moses  v.  Tompkins,  84  Ala. 
613. 

iIn  re  Alma  Spinning  Co.,  29 
W.  R.  133. 

6Stoneham  Branch  R.  R.  Co.  v. 
Gould,  2  Gray,  277;  Lewey's  Island 
R.  R.  Co.  v.  Bolton,  48  Me.  451. 

•  Klein  v.  Alton,  etc.,  R.  R.  Co., 
13  111.  514;  Railroad  Co.  ».  Rod- 
rigues,  10  Rich.  L.  (S.  C. )  278. 

7  Mills  v.  Stewart,    41  N.   Y.  384, 


390.  Collusive  forfeitures  may  be 
set  aside.  Richmond's  Case,  4  Kay 
&  J.  305,  323;  Gower's  Case,  L.  R. 
6  Eq.  77;  In  re  St.  Marylebone 
B'k'g  Co.,  Stanhope's  Case,  3  De  G. 
&  Sm.  198. 

8  Chouteau  Ins.  Co.  v.  Floyd,  74 
Mo.  286;  Hughes  v.  Antietam  M'f'g 
Co.,  34  Md.  316;  Bedford  R.  R.  Co. 
v.  Bowser,  48  Pa.  St.  29;  Cartwright 
v.  Dickinson,  88  Tenn.  476  ;  Hall's 
Case,  L.  R.  5  Cli.  707  See  Thomas's 
Case,  L.  R.  13  Eq.  437. 

A  plea  to  an  action  on  a  subscrip- 
tion that  the  directors  released  the 
defendant,  is  bad  on  demurrer,  un- 
less it  avers  a  consideration,  and  that 
there  were  no  creditors  of  the  corpo- 
ration at  the  time.  Zirkel  v.  Joilet 
Opera  House  Co.,  79  111.  334;  World's 
Fair  Ex.  Co.  v.  Gasch,  162  111.  402. 

557 


§  f)f)0.]  THE    LAW    OF    PRIVATE   CORPORATIONS.    [CHAP.  IX. 


corporate,1  to  permit  the  holder  of  partially  paid-up 
subscriber  shares,  or  shares  to  the  ownership  of  which  individ- 
ual liability  attaches,  to  withdraw  in  any  way  not 
authorized  by  the  constitution  of  the  corporation.  Such  per- 
mission is  plainly  ultra  vires,  and  will  ordinarily  affect  the  rights 
only  of  those  assenting  to  it.2  The  question,  whether  the  release 
or  withdrawal  of  a  shareholder  is  valid,  may  arise  between  the 
withdrawing  shareholder  and  the  corporation  ;  or  formally  be- 
tween such  shareholder  and  other  shareholders;3  or  between 
such  shareholder  and  creditors  of  the  corporation ; 4  or,  finally, 
as  is  frequently  the  case,  between  such  shareholder  and  a  re- 
ceiver or  assignee  of  the  corporation  when  insolvent,  who  rep- 
resents creditors  as  well  as  shareholders.5 

§  550.  A  leading  English  case  in  point  is  Spackman  v. 
Evans.6  There  the  directors  granted  to  a  dissenting  share- 
holder leave  to  retire  from  the  company  on  conditions  which 
they  deemed  prudent  and  advantageous  to  be  granted  in  his 
case,  but  which  were  not  in  accordance  with  the  deed  of  settle- 
ment. The  shareholder  performed  the  conditions,  his  name 
was  for  years  removed  from  the  list  of  shareholders,  the 
company  changed  its  business  without  his  knowledge,  and 
dividends  were  received,  in  which  he  did  not  participate. 
Nevertheless,  it  was  held  that  his  name  should  be  inserted  in 
the  list  of  contributories  on  the  final  winding  up  of  the  com- 
pany.7 

So  in  Tuckerman  v.  Brown,8  where  for  the  purpose  of  increas- 


1  See  Maun  v.  Cook,  20  Conn.  178, 
188. 

2  See  Whitaker  v.  Grummonrl,  68 
Mich.  249,  a  case  tending  towards 
recognizing  a  power  in  directors  to 
compromise  a  subscription.  The 
case  held  that  shareholders  who 
complained  were  under  the  circum- 
stances estopped. 

3  See  §  779. 

4  As  in  Slee  v.  Bloom,  19  Johns. 
(N.  Y.)  450;  Chicago  B'ld'g  &  M'f'g 
Co.  v.  Summerous,  101  Ga.  820. 

5  E.  gr.,  as  in  Upton  v.  Tribilcock, 
91    U.  S.    45. 

6  L.  R.  3  H.  L.  171. 

558 


7  The  decision  in  Spackman  v. 
Evans  is  perhaps  extreme,  and  Lords 
St.  Leonard  and  Rom  illy  dissented. 
In  this  case  the  real  rights  demand- 
ing the  insertion  of  defendant's 
name  as  a  contributory  were  those 
of  the  shareholders  who  had  not 
consented  to  his  withdrawal  (though 
they  might  have  been  estopped  by 
their  laches)  and  those  of  creditors. 
In  such  cases,  however,  the  rights 
of  creditors  seem  to  be  less  regarded 
in  England  than  with  us.  See  Dix- 
on's Case,  L.  R.  5  Ch.  79. 

8  33  N.  Y.  297. 


CHAP.  IX.]        CORPORATION  AND  SHAREHOLDERS. 


[§  552. 


ing  the  capital  stock  of  the  corporation  to  the  amount  required 
by  law,  in  order  that  the  corporation  might  pass  the  examina- 
tion of  the  commissioners  appointed  by  the  comptroller,  a  pre- 
mium note  was  given  upon  an  agreement  that  after  the  examina- 
tion the  note  might  be  withdrawn  and  a  lesser  one  substituted, 
it  was  held  that  the  agreement  was  a  fraud,  and  that  the  maker 
of  the  note  continued  liable  thereon,  although  it  had  been  with- 
drawn and  destroyed.1 

§  551.  A  person  who  has  subscribed  for  shares  cannot  annul 
his  subscription  by  giving  notice  to  the  agent  with  whom  he 
contracted.2  The  circumstances  of  a  late  Pennsylvania  case, 
which  may  be  regarded  as  authority  on  this  point,  were  note- 
worthy. A  person  was  active  in  soliciting  subscriptions  to  build 
a  railroad.  He  took  a  subscription  book  from  the  agent  of  the 
company,  subscribed  therein,  persuaded  others  to  do  so,  and 
kept  the  book  about  six  months.  Then,  because  of  a  difference 
with  the  company's  agent  in  regard  to  his  remuneration,  he  cut 
out  his  own  name,  and  returned  the  book  to  the  company.  The 
company  sued  him  on  his  subscription,  and  it  was  held,  that 
he  had  perfected  a  contract  with  the  company  and  was  bound 
as  much  as  if  he  had  left  his  name  in  the  book.3 

§  552.   If  the  corporation  is  in  failing  circumstances,  or  if 
for  any  other  reason  it  cannot  legally  acquire  its  own  shares,  a 
shareholder  will  not  avoid  any  liability  he  may  be 
subject  to,  by  surrendering  his  shares  to  it ;    even   o/Yhares9 
though  the  corporation  reissue  them  ;4  and  whatever   poration°r" 
money  or  property  he  receives  from  the  corporation 
in  payment  for  his  shares  transferred  to  it,  he  will  hold  subject 
to  the  claims  of  its  creditors.5 


1  It  was  held  in  Teasdale's  Case, 
L.  R.  9  Ch.  54,  that  a  company 
might  hy  special  resolution  vary  its 
articles  so  as  to  give  itself  the  power 
to  accept  surrenders  of  old  shares  in 
exchange  for  new. 

2  Lowe  v.  E.  and  K.  R.  R.  Co.,  1 
Head  (Tenn.),  659;  Rider  v.  Morri- 
son, 54  Md.  429;  Chicago  B'ldg  & 
Mfg.  Co.  v.  Lyon,  10  Okl.  704. 

3  Greer  v.  ChartiersR'y  Co.,  96  Pa. 
St.  391. 


4  Matter  of  Reciprocity  Bank,  22 
N.  Y.  9.  For  the  power  of  a  corpo- 
ration to  purchase  its  own  shares, 
see  §  134,  and  for  the  effect  of  such 
a  purchase  on  the  relations  between 
the  shareholder  and  creditors,  see 
§747. 

6  Crandall  v.  Lincoln,  52  Conn.  73, 
100.  Compare  Columbian  Bank's 
Estate,  147  Pa.  St.  422;  and  see  Hall 
v.  Henderson,  126  Ala.  449. 

559 


§  553.]  THE    LAW    OF    PRIVATE   CORPORATIONS.    [CHAP.  IX. 

§  553.  As  against  all  persons,  so  as  against  the  individual 

shareholders,  or  a  minority  of  shareholders,  the  cor- 
Rightof  ,      '  .    .  J 

thecorpo-  poration  has  the  right  to  carry  on  the  corporate  en- 
control  the  tei'prisc  in  the  manner  and  for  the  purposes  set  forth 
enterorise     m  lts  constitution  ;  and  within  the  scope  of    their 

powers  the  reasonable  and  fair  discretion  of  the 
board  of  directors  can  be  controlled,  if  at  all,  only  through 
action  of  a  majority  of  shareholders  taken  in  the  manner  indi- 
cated by  the  corporate  constitution.1  "  Each  and  every  share- 
holder contracts  that  the  will  of  the  majority  shall  govern  in 
all  matters  coming  within  the  limits  of  the  act  of  incorpora- 
tion ;  and  in  cases  involving  no  breach  of  trust,  but  only  error 
or  mistake  of  judgment  on  the  part  of  directors  who  represent 
the  company,  individual  stockholders  have  no  right  to  appeal 
to  the  courts  to  dictate  the  line  of  policy  to  be  pursued  by  the 
corporation." 2 

Or,  as  Chief  Justice  Bigelow  said  in  Durfee  v.  Old  Colony 
Railroad  Co.  :3  "We  suppose  it  may  be  stated  as  an  indisput- 
able proposition,  that  every  person  who  becomes  a  member  of 
a  corporation  aggregate  by  purchasing  and  holding  shares, 
agrees  by  necessary  implication  that  he  will  be  bound  by  all 
acts  and  proceedings  within  the  scope  of  the  powers  and 
authority  conferred  by  the  charter,  which  shall  be  adopted  and 
sanctioned  by  a  vote  of  the  majority  of  the  corporation  duly 
taken  and  ascertained  according  to  law,  This  is  the  unavoid- 
able result  of  the  fundamental  principle  that  the  majority  of 
shareholders  can  regulate  and  control  the  lawful  exercise  of 
the  powers  conferred  on  a  corporation  by  its  charter.  A 
holder  of  shares  in  an  incorporated  body,  so  far  as  his  individual 
rights  and  interests  may  be  involved  in  the  doings  of  the  cor- 
poration, acting  within  the  legitimate  sphere  of  its  corporate 
power,  has  no  legal  control  over  them  save  that  which  he  can 
exercise  by  his  single  vote  in  the  meetings  of  the  company."4 


1  Gravenstine's  Appeal,  49  Pa.  St. 
310;  Smith  v.  Prattville  M'f'g  Co., 
29  Ala.  503.     See  chap.  12. 

a  Dudley  v.  Kentucky  High  School, 
9  Bush  (Ky.),  576,  578. 

3  5  Allen,  230,  242.     See  §  534. 

4  See,  also,  New  hall  ».  Galena,  etc., 

560 


R.  R.  Co.,  14  111.  273;  Joslyn  i\  Pa- 
cific Mail  S.  S.  Co.,  12  Abh.  Pr.  N. 
S.  ( N.  Y. )  329;  Gifford  v.  New  Jersey 
R.  R.  Co.,  10  N.  J.  Eq.  171, 174;  New 
Orleans,  etc.,  R.  R.  Co.  v.  Harris,  27 
Miss.  517, 537;  Fluker  v.  Railway  Co., 
48  Kan.  577. 


CHAP.  IX.]        CORPORATION  AND  SHAREHOLDERS. 


[§  555. 


§  554.     Accordingly,  a  court  will   not  ordinarily  interfere 
with  the  corporate  management  in  matters  respect- 
ing the   internal    administration    of    the    corporate   not^ter^111 
affairs : 1  nor  examine  into  the  affairs  of  a  corpora-   ieT.e  a* the 

'  r  suit  of 

tion  to  determine  the  expediency  of  its  action,  or  its   share- 

holders 

motives,  as  long  as  the  action  itself  is  lawful.2     And 
a  shareholder  cannot  enjoin  the  corporation  from  doing  what 
is  in  direct  furtherance  of  the  objects  of  its  incorporation  and 
beneficial  to  shareholders  as  such,  because  the  contemplated 
action  will  injure  him  in  another  character.3 

§  555.  To  warrant  the  interference  of  a  court,  at  the  instance 
of  a  shareholder,  to  restrain  an  act  intended  by  the   Unless  to 
body  corporate  or  the  corporate  management,  the   acts  which 
act  should  be  beyond  the  corporate  powers ;  or,  if   ^res^m 
intended  by  the  corporate  management,  a  manifestly    constitute 

J  l  °  J     a  breach  of 

improper  act  which  the  body  corporate  is  not  in  a   trust. 
position  to  prevent,  owing  perhaps  to  the  fact  that  the  man- 
agement cannot  be  changed  in  time.4 

The  reasons  for  this  are  thus  stated  in  Foss  v.  Harbottle  : 5 
"  Whilst  the  court  may  be  declaring  the  acts  complained  of  to 
be  void  at  the  suit  of  the  present  plaintiffs,  wTho  in  fact  may 
be  the  only  proprietors  who  disapprove  of  them,  the  governing 
body  of  proprietors  may  defeat  the  decree,  by  lawfully  resolv- 
ing upon  the  confirmation  of  the  very  acts  which  are  the  sub- 
ject of  the  suit.  ...  In   order   then  that  the  suit  may    be 


1  Carlen  v.  Drury,  1  Ves.  &  B.  154; 
Foss  v.  Harbottle,  2  Hare,  461;  Moz- 
ley  v.  Alston,  1  Phil.  790;  Bailey  v. 
Birkenhead,  etc.,  R'y  Co.,  12  Beav. 
433;  Bach  v.  Pac.  Mail  S.  S.  Co.,  12 
Abb.  Pr.  N.  S.  (N.  Y.)  373;  Miller 
«.  Murray,  17  Col.  408.  See  2  Lind- 
ley  on  Part.,  895-902;  Hawes  v.  Oak- 
land, 104  U.  S.  450.  The  power  of  a 
shareholder  to  sue  on  a  right  of 
action  belonging  to  the  corporation 
is  discussed  in  §§  138  et  seq. 

2  Oglesby  v.  Attrill,  105  U.  S.  605; 
Shaw  v.  Davis,  78  Md.  308.  See 
Mayor,  etc.,  of  Baltimore  v.  Balto. 
&  O.  R.  R.  Co.,  21  Md.  50,  92;  Cates 
».   Sparkraau,  73  Tex.  619;  Lamar  v. 

36 


Lanier  House  Co.,  76  Ga.  641;  Bur- 
den v.  Burden,  159  N.  Y.  287. 

3  Baltimore  and  Ohio  R.  R.  Co.  v. 
Wheeling,  13  Gratt.  (Va.)  40.  See 
Thompson  v.  Erie  Ry.  Co.,  11  Abb. 
Pr.  N.  S.  (N.  Y.)  188. 

4  See  Hersey  v.  Veazie,  24  Me.  9; 
Cogswell  v.  Bull,  39  Cal.  324;  Leo  v. 
Union  Pac.  R'y  Co.,  19  Fed.  Rep. 
283.  A  shareholder  may  restrain  an 
act  which,  if  done,  would  be  a  ground 
of  forfeiture  of  the  charter.  Ren- 
dall  v.  Crystal  Palace  Co.,  4  Kay  and 
J.  326.  See  Ponca  Mills  Co.  v.  Mike- 
sell,  55  Neb.  98. 

5  2  Hare,  493,  494. 

561 


§  556.]  THE  LAW   OF   PRIVATE   CORPORATIONS.    [CHAP.  IX. 


sustained,  it  must  be  shown  either  that  there  is  no  such  power 
as  I  have  supposed  remaining  in  the  proprietors,  or  at  least 
that  all  means  have  been  resorted  to  and  found  ineffectual  to 
set  that  body  in  motion."  1 

§  556.  The  legal  effect  of  ultra  vires  acts  was  discussed  in  a 
previous  chapter.2  A  single  shareholder  has  ample  power  to 
restrain  the  corporation  from  diverting  the  corporate  funds 
from  the  purposes  for  which  they  were  subscribed,  and  ordi- 
narily can  prevent  the  doing  of  any  ultra  vires  act ; 3  provided, 
he  is  not  chargeable  with  acts  or  omissions  by  which  his  rights 
can  be  held  waived  or  forfeited.4  Thus,  a  shareholder  in  a 
railroad  corporation  may  enjoin  the  carrying  out  of  an  ultra 
vires  lease  of  the  road ; 5  or  the  performance  of  an  illegal  con- 
tract.6 

A  minority  or  a  single  shareholder  may  restrain  the  corpora- 
tion, or  the  corporate  management,  from  diverting  the  corporate 
funds  to  unauthorized  purposes.7  Accordingly,  a  shareholder 
may  enjoin  a  railroad  corporation  from  using  its  funds  or 
pledging  its  credit  in  order  to  extend  its  road  beyond  the 


1  See  Railway  Co.  v.  AHerton,  18 
Wall.  233;  Dimpfell  v.  Ohio,  etc.,  R. 
Co.,  110  U.  S.  209,  §  140. 

2  Chap.  7,  part  iii. 

3  Natusch  v.  Irving,  Gow  on  Part., 
ed.  3,  App.  576;  Const  v.  Harris, 
Turn.  &  R.  496;  Gifford  v.  New  Jer- 
sey R.  R.  Co.,  10  N.  J.  Eq.  171;  Dodge 
v.  Woolsey,  18  How.  331;  Stewart  v. 
Erie,  etc.,  Trans.  Co.,  17  Minn.  372, 
398;  Carson  v.  Gaslight  Co.,  80  Iowa, 
638.  See  Angell  and  Ames  on  Corp., 
§  398;  Coleman  v.  Eastern  Counties 
R'y  Co.,  10  Beav.  1;  March  v.  Eastern 
R.  R.  Co.,  40  N.  H.  548;  Schwarz- 
wehler  v.  German  Mut.  Ins.  Co.,  59 
N.  J.  Eq.  589;  Ely  ton  Fund  Co.  v. 
Dowdell,  113  Ala.  177  ;  Morris  v. 
Elyton  Fund  Co.,  125  Ala.  263. 

4  See  Dimpfell  v.  Ohio,  etc.,  R. 
Co.,  110  U.  S.  209;  Cozart  v.  Georgia 
R.  R.  etc.,  Co.,  54  Ga.  379;  Gray  v. 
Chaplin,  2  Russ.  126;  Graham  r.  Bir- 
kenhead  R'y  Co.,  2  Mac.  &  G.  140; 
e.  g.,    laches,  see   above  cases,  and 

562 


Alexander  ».  Searcy,  81  Ga.  536; 
Burgess  v.  St.  Louis  Ry.  Co.,  99  Mo. 
496;  Snow  v.  Boston  Blank  Book  Co., 
158  Mass.  325;  Rabe  v.  Dunlap,  25 
Atl.  Rep.  959  (N.  J.);  Willis  v.  Porter, 
132  Cal.  516.     Also,  §  213. 

6  Board,  etc.,  Tippecanoe  County 
v.  Lafayette,  etc.,  R.  R.  Co.,  50  Ind. 
85;  Mills  v.  Central  R.  R.  Co.,  41 
N.  J.  Eq.  1. 

6  Morrill  v.  Boston  and  Maine 
R.  R.,  55  N.  H.  531;  Sandford  v. 
Railroad  Co.,  24  Pa.  St.  378;  Cum- 
berland Valley  R.  R.  Co.'s  Appeal, 
62  Pa.  St.  218;  Charlton  v.  New- 
castle, etc.,  R'y  Co.,  5  Jur.  N.  S. 
1096. 

7  March  v.  Railroad,  43  N.  H.  515; 
Ashton  v.  Dashaway  Ass'n,  84  Cal. 
61;  Rothwell  v.  Robinson,  39  Minn. 
1;  Simpson  v.  Westminster  Palace 
Hotel  Co.,  8  H.  L.  Cas.  712;  Lyde 
o.  Eastern  Bengal  R'y  Co.,  36  Beav. 
10;  State  v.  Holmes,  60  Neb.  39. 


CHAP.  IX.]       CORPORATION  AND  SHAREHOLDERS. 


[§  557. 


termini  designated  by  the  charter ; J  or  from  purchasing,  with- 
out authority  to  do  so,  stock  in  another  railroad  company.2 
And  a  company,  incorporated  to  manufacture  pig  iron,  may  be 
enjoined  by  one  of  its  shareholders  from  erecting  a  corn  and 
flour  mill.3 

§  557.  Unless  the  right  to  alter  and  repeal  is  reserved  to  the 
state,4  or  some  express  provision  in  the  original  con- 

When 

stating  instrument  covers  the  matter,  the  charter  or   sharehoid- 
the  articles  of  association  cannot,  against  the  will  of   enjoTu  the 
a  single  shareholder,  be  substantially  altered  by  the   ^c^ta,nce 
legislature,5  even  with  the  consent  of  the  majority.6   amend- 
And  a  shareholder  has  his  remedy  by  injunction  to 
restrain  the  acceptance  of  a  radical  amendment.7     Accordingly, 
in  a  case  where  a  person  subscribed  for  shares  in  the  stock  of 
a  railroad  corporation,  which  afterwards,  by  a  vote  of  a  major- 
ity of  shareholders,  accepted  legislation  transferring  all  its  fran- 
chises and  rights  to  another  corporation,  the  legislation  and 
the  transfer  depending  on  it  were  alike  held  void,  and  the  latter 
corporation  failed  to  enforce  the  subscription.8     But  the  legis- 
lature may  confer  on  the  corporation  such  additional  powers 
as  tend  to  facilitate  the  accomplishment  of  the  original  pur- 
poses of  incorporation  ;  and  acts  done  in  pursuance  of  such 
powers  will  ordinarily  be  binding,  unless  they  conflict   with 
vested  rights  or  impair  the  obligation  of  some  contract." 


1  Stevens  v.  Rutland,  etc.,  R.  R. 
Co.,  29  Vt.  545.  Compare  Durfee 
v.  Old  Colony,  etc.,  R.  R.  Co.,  ante, 
§534. 

2  Central  R.  R.  Co.  v.  Collins,  40 
Ga.  582;  see  Pratt  v.  Pratt,  33  Conn. 
446. 

8  Cherokee  Iron  Co.  v.  Jones,  52 
Ga.  276. 

4  See  §§523,  534. 

s  See  §§  450  et  seq. 

6  New  Orleans,  etc.,  R.  R.  Co.  v. 
Harris,  27  Miss.  517;  Black  v.  Dela- 
ware and  Raritan  Canal  Co.,  24 
N.  J.  Eq.  455;  Mowrey  v.  Indianap- 
olis, etc.,  R.  R.  Co.,  4  Biss.  78.  See 
Hope  Mut.  Fire  Ins.  Co.  v.  Beck- 
mann,  47  Mo.  93,  97;  Alexander  ». 
Atl.  &  W.  P.  R.  R.  Co.,  108  Ga.  151. 


7  Mowrey  v.  Indianapolis,  etc.,  R. 
R.  Co.,  4  Biss.  78.  But  he  must  be 
guilty  of  no  laches.  Chapman  v. 
Mud  River  and  L.  E.  R.  R.  Co.,  6 
O.  St.  119. 

8  New  Orleans,  etc.,  R.  R.  Co.  v. 
Harris,  27  Miss.  517. 

9  Gifford  v.  New  Jersey  R.  R.  Co., 
ION.  J.  Eq.  171.  See  §227.  Mower 
v.  Staples,  32  Minn.  284,  holds  that 
a  majority  of  shareholders  can  ac- 
cept an  amendment  to  the  charter 
increasing  the  number  of  directors 
from  five  to  nine.  In  this  case  the 
charter  was  subject  to  alteration  and 
amendment;  see  Laws  of  Minn.  1851, 
p.  22. 

It  has  been  held  that  shareholders 
may  be  bound  by   provisions  not  ac- 

563 


§  559.]  THE    LAW    OF    PRIVATE   CORPORATIONS.    [CHAP.  IX. 


Corporate 
affairs  must 
be  man- 
aged in  in- 
terests of 
the  share- 
holders as 
such. 


§  558.  It  is  the  duty  of  the  corporate  management  to  con- 
duct the  affairs  of  the  corporation  in  the  interests  of 
the  shareholders  as  such ; l  and  the  management  is 
not  justified  in  promoting  the  outside  interests  of  a 
majority  of  shareholders  in  disregard  of  the  interests 
in  the  corporate  enterprise  of  a  minority.  A  court 
will  interfere  at  the  suit  of  a  minority  when  the  ma- 
jority seek  to  appropriate  the  assets  of  the  company,  or  to 
obtain  for  themselves  advantages  not  shared  by  the  minority.2 
§  559.  In  the  case  of  Goodin  v.  Cincinnati,  etc.,  Canal  Co.,3 
a  railroad  company,  having  purchased  a  majority  of  the  stock 
of  a  canal  company,  elected  for  the  latter  a  board  of  directors 
in  their  own  interest ;  and  then  with  the  assent  of  such  board 
appropriated  the  entire  property,  including  the  canal,  of  the 


tually  fouud  in  the  charter,  when  the 
charter  authorizes  the  directors  to 
make  by-laws,  not  contrary  to  the 
law  of  the  land,  for  the  general  ad- 
ministration of  the  corporate  affairs. 
Union  Bank  v.  Guice,  2  La.  Ann.  249. 

1  Compare  Baltimore  and  Ohio  R. 
R.  Co.  v.  Wheeling,  13  Gratt.  (Va.) 
40. 

2  Menier  v.  Hooper's  Telegraph 
Works,  L.  R.  9  Ch.  350.  See  Jones 
v.  Morrison,  31  Minn.  140;  Ervin  v. 
Oregon  R'y,  etc.,  Co.,  23  Blatchf. 
517;  Gamble  v.  Water  Co.,  122  N. 
Y.  91,  99;  Memphis,  etc.,  R.  R.  Co. 
v.  Woods,  88  Ala.  630;  Mack  o.  Coal 
Co.,  90  Ala.  396;  Port  Royal,  etc., 
Ry.  Co.  v.  Branch,  78  Ga.  113.  A 
complaint  alleged  that  the  officers  of 
a  corporation  were  members  of  one 
family,  owned  a  majority  of  the 
stock,  had  combined  to  appropriate 
the  profits  of  the  corporation  in  the 
shape  of  salaries,  and,  through  a 
contract  with  a  firm  in  which  some 
of  the  officers  were  partners,  had 
obliged  the  corporation  to  take  all 
its  contracts  in  the  firm's  name; 
that  the  plaintiff  did  not  know  the 
terms  of  this  contract,  and  was  ex- 
cluded from  inspecting  the  corporate 

564 


books,  and  that,  though  the  profits 
were  large,  the  dividends  were  small. 
The  complaint  was  held  to  have 
stated  a  sufficient  ground  for  equita- 
ble relief.  Sellers  v.  Phoenix  Iron 
Co.,  13  Fed.  Rep.  20.  See,  also,  Jones 
v.  Morrison,  31  Minn.  140,  and  §§608, 
609.  Compare  Metropolitan  Elevated 
R.  R.  Co.  v.  Manhattan  Elevated  R.  R. 
Co.,  11  Daly  (N.  Y.),  373,  516. 

In  dealing  with  the  relations  be- 
tween the  corporation  and  its  officers 
on  the  one  hand,  and  shareholders 
on  the  other,  courts  of  equity  will 
look  beyond  the  mere  observance  of 
the  forms  of  law.  At  the  instance 
of  shareholders  they  will  restrain 
acts  even  within  the  scope  of  corpo- 
rate powers,  if  such  acts,  when  done, 
would,  under  the  particular  circum- 
stances, amount  to  a  breach  of  the 
very  trust  upon  which  the  authority 
was  conferred.  And  a  court  will 
relieve  an  injured  shareholder  even 
after  the  act  is  done,  unless  the  su- 
perior equities  of  innocent  persons 
have,  in  the  meanwhile,  attached. 
Wright  v.  Oroville  M'g  Co.,  40  Cal. 
20. 

3 18  O.  St.  169. 


CHAP.  IX.]        CORPORATION  AND  SHAREHOLDERS.  [§  559. 

canal  company  as  a  railroad  track,  paying  a  price  agreed  on 
between  the  directors  of  the  two  companies,  which  was  far 
below  the  value  of  the  property.  It  was  held  that  the  share- 
holders and  creditors  of  the  canal  company  could  not,  after  the 
road  had  been  completed,  reclaim  the  property  or  enjoin  its 
use ;  but  could  compel  the  railroad  company  to  pay  them  the 
difference  between  the  value  of  the  property  and  the  price 
which  the  railroad  company  paid  for  it. 

Justice  Welsh  said,  giving  the  opinion  of  the  court :  "  To 
undertake  by  getting  control  of  the  company,  and  then,  under 
pretence  of  acting  as  agents  and  trustees  for  all  the  stock- 
holders and  creditors,  deliberately  to  trample  under  foot  the 
rights  of  the  minority,  is  rather  a  sharp  practice,  and  one  which 
a  court  of  equity  will  never  tolerate.  A  director  whose  per- 
sonal interests  are  adverse  to  those  of  the  corporation,  has  no 
right  to  act  as  a  director.  As  soon  as  he  finds  that  he  has 
interests  in  conflict  with  those  of  the  company,  he  ought  to 
resign,  no  matter  if  a  majority  of  stockholders,  as  well  as  him- 
self, have  personal  interests  in  conflict  with  the  company.  He 
does  not  represent  them  as  persons,  or  represent  their  personal 
interest.  He  represents  them  as  stockholders,  and  their  inter- 
ests as  such.  He  is  trustee  for  the  company,  and  whenever  he 
acts  against  its  interests — no  matter  how  much  he  thereby 
benefits  foreign  interests  of  the  individual  stockholders,  or  how 
many  of  the  individual  stockholders  act  with  him — he  is  guilty 
of  a  breach  of  trust,  and  a  court  of  equity  will  set  his  acts 
aside,  at  the  instance  of  stockholders  or  creditors  who  are  dam- 
nified thereby.  Any  act  of  the  directors  by  which  they  inten- 
tionally diminish  the  value  of  stock  or  property  of  the  company 
is  a  breach  of  trust,  for  which  any  of  the  stockholders  or  cred- 
itors may  justly  complain,  although  all  the  other  stockholders 
and  creditors  are  benefited  in  some  other  way  more  than  they 
are  injured  as  such.  " 1 


1  Goodin  v.  Cincinnati,  etc.,  Canal 
Co.,  18  Ohio  St.  169,  182.  See  Davis 
v.  U.  S.  Electric,  etc.,  Co.,  77  Md.  35. 
See,  also,  State  v.  Brown,  64  Md.  199, 
206  ;  Memphis,  etc.,  R.  R.  Co.  v. 
Woods,  88  Ala.  630.  One  corpora- 
tion cannot  purchase  majority  of 
stock  in  another,  obtain  control  of 


its  affairs,  and  so  divert  business 
from  it  as  to  cause  it  to  default  in 
the  payment  of  its  obligations,  and 
then  institute  an  action  in  equity  to 
enforce  those  obligations,  all  for  the 
purpose  of  obtaining  control  to  the 
injury  of  a  minority  of  shareholders. 
Farmers'  L.  &  T.  Co.  v.  N.  Y.,  etc., 
565 


§  559i.]        THE    LAW    OF    PRIVATE   CORPORATIONS.    [CHAP.  IX. 

§  559a.    Frequently  a  majority  of  shareholders  may  be  in 
accord  as  to  a  certain  corporate  policy  which  the 

Agreements         .         .  . .  n      1      •  i 

among  minority  may  disapprove,     feuch   is   a  not   unusual 

holders  as  state  of  affairs.  And  it  has  been  held  that  when  a 
to  control,  corporation  is  to  be  formed  according  to  statute  and 
with  lawful  objects,  there  is  no  reason  why  parties  starting  the 
enterprise  should  not  enter  into  an  agreement  as  to  its  future 
management  and  control,  provided  the  modes  of  corporate 
management  outlined  in  the  statute  are  not  to  be  thereby  con- 
travened.1 On  the  other  hand,  the  courts  will  not  sustain 
agreements  made  by  a  majority  of  shareholders,  who  either 
are  themselves  directors,  or  control  the  board,  that  the  corpo- 
rate enterprise  shall  be  managed  by  certain  persons.2 

§  5593.  Undoubtedly  it  is  the  duty  of  directors  to  manage 
Right  of  the  corporate  enterprise  for  the  benefit  of  the  cor- 
hoiders  to  poration,  and  with  equitable  regard  to  the  interests 
thefrown  °^  a^  ^ie  shareholders.3  But  as  for  shareholders, 
interests.  it  is  neither  to  be  expected  nor  required  that  they 
should  not  sometimes  vote  in  corporate  meetings  according  to 
individual  interests  of  their  own.4 

It  has  been  held  that  a  shareholder  may  vote  in  a  corporate 
meeting,  upon  a  measure  as  to  which  he  has  a  personal  interest, 
apart  from  the  other  shareholders ; 5  and  that  a  shareholder  in 
a  domestic  corporation  cannot  enjoin  a  foreign  coporation 
from  voting  a  majority  of  the  domestic  corporation's  stock, 
when  it  does  not  clearly  appear  that  the  interests  of  the  two 
corporations  are  antagonistic.6  The  question  would  seem  to 
be  whether  the  majority  have  fraudulently  or  inequitably 
disregarded  the  rights  and  interests  of  the  rest.  There  is  a 
border  line  of  cases  where  directors  have  made  contracts  with 
themselves.  Can  the  same  persons  by  their  votes  as  share- 
holders holding  a  majority  of  stock,  ratify  such  contracts  when 


R.  R.  Co.,  150  N.  Y.  410.     See  §§  627 
et  seq. 

1  King  v.  Barnes,  109  N.  Y.  267. 

2  Wilbur  v.  Stoepel,  82  Mich.  344. 
See  West  v.  Camden,  135  U.  S.  597  ; 
Fennersy  v.  Ross,  5  N.  Y.  A  pp.  Div. 
342  ;  Snow  v.  Church,  13  ib.  108  ;  but 
see  §  580. 

566 


8  See  §  692. 

*  See  Nye  v.  Storer,  168  Mass.  53. 

6  Gamble  v.  Water  Co.,  123  N.  Y. 
91.  Compare  Chicago  Hansom  Cab 
Co.  v.  Yerkes,  141  111.  320. 

6  American  Refrigerating  Co.  v. 
Linn,  93  Ala.  610. 


CHAP.  IX.]       CORPORATION  AND  SHAREHOLDERS. 


[§  561. 


otherwise  fair  and  unobjectionable  ?  The  better  view  is  that 
they  cannot ; l  but  there  are  cases  which  hold  that  they  may.2 
§  560.  A  minority  of  shareholders,  on  behalf  of  themselves 
and  other  shareholders,  may,  for  conspiracy  and 
fraud,  whereby  their  interests  have  been  sacrificed,  shire- ° 
maintain  a  bill  in  equity  against  the  corporation,  its  suedthe  e°r- 
offlcers   and   others  who   have   participated  in    the   Poration 

1  *  and  its 

wrongful  acts.3    But  a  bill   in   equitv  brought   by   officers  for 

iiii  •  i  .  ,  conspiracy. 

shareholders  against  the  corporation,  and  persons 
who  were  its  directors  in  former  years,  for  fraud  and  conspiracy 
whereby  the  interests  of  the  corporation  had  been  sacrificed, 
cannot  be  maintained  unless  the  bill  show  either  that  an  effort 
has  been  made  by  an  application  to  the  directors  in  office  at 
the  time  of  bringing  the  bill  to  set  the  corporation  in  motion 
to  redress  the  wrong,  or  that  such  application  would  have  been 
useless.  And  this  requirement  is  not  satisfied  by  an  allegation 
that  a  majority  of  directors  are  acting  in  the  interests  and 
under  the  control  of  persons  charged  with  the  fraud.4  A 
formal  application  and  refusal  need  not  be  alleged,  however,  if 
enough  appear  to  show  that  such  an  application  would  be  un- 
availing. And  allegations  that  individual  defendants  control 
the  majority  of  the  stock  and  the  proceedings  at  the  corporate 
meetings,  and  that  a  majority  of  the  directors  are  knowingly 
and  fraudulently  colluding  with  them  to  continue  to  them  the 
control  of  the  corporation  and  its  property,  sufficiently  show 
that  no  redress  can  be  obtained  through  the  corporation  or  its 
directors.5 

§  561.  A  shareholder,  in  matters  outside  of  his  relationship 


1  Chicago  Hansom  Cab  Co.  v. 
Yerkes,  141  111.  320.  See  §§  640- 
644. 

2  Northwest  Trans.  Co.  v.  Beatty, 
L.  R.  12  App.  Cas.  589;  Bjorngaard 
v.  County  Bank,  49  Minn.  483. 

3  Peabody  ».  Flint,  6  Allen,  52. 
Unless  by  unreasonable  delay  they 
forfeit  their  right  to  equitable  re- 
lief,    lb. 

4  Cases  in  next  note.  But  see 
Wayne  Pike  Co.  v.  Hammons,  129 
Ind.  368. 

5  Brewer  v.   Boston  Theatre,    104 


Mass.  378;  Eschweiler  v.  Stowell,  78 
Wis.  316;  Dunphy  v.  Newspaper 
Ass'n,  146  Mass.  495;  Rogers  v. 
Lafayette  Agricultural  Works,  52 
Ind.  296;  Pond  v.  Vermont  Valley 
R.  R.  Co.,  12  Blatchf.  280.  See 
Heath  v.  Erie  R'y  Co.,  8  Blatchf. 
347;  Moyle  v.  Lander's  Adm'rs,  83 
Cal.  579.  For  the  right  of  share- 
holders to  sue  on  behalf  of  the  cor- 
poration, see  §§  138-142;  for  their 
right  to  sue  improperly  acting  offi- 
cers of  the  corporation,  see  §§  685- 
691.     Compare  Cannon  v.  Trask,  L. 

567 


§  562.]       THE   LAW    OF   PRIVATE  CORPORATIONS.       [CHAP.  IX. 


Like  out- 
siders, a 
share- 
holder may 

sue  the  cor- 
poration. 


as  such,  has  the  same  capacity  to  sue  the  corporation 
as  any  other  person  having  a  right  of  action  against 
it.1  Thus  a  shareholder,  who  is  also  an  officer,  may 
sue  the  corporation  for  injuries  caused  by  the  negli- 
gence of  the  corporation  in  allowing  a  ditch  belong- 
ing to  it  to  break  and  overflow  his  lands ;  he  having  often  pro- 
tested against  the  mode  in  which  the  ditch  was  constructed, 
and  having  offered  to  reconstruct  it  himself,  which  the  corpo- 
ration would  not  permit.2 

§  562.  From  what  has  preceded  it  appears  that,  as  long  as 
the  corporation  carries  on  its  business,  the  general 
right  of  individual  shareholders  in  the  corporate 
funds  is  to  have  them  applied  to  the  purposes  of 
incorporation  in  a  reasonable  and  proper  manner,  so 
that,  due  regard  being  had  to  the  continuing  sol- 
vency of  the  corporation,  profits  may  accrue.  When 
profits  have  arisen  from  corporate  transactions,  shareholders 
have  no  unconditional  right  to  their  immediate  distribution  as 
dividends.3  For  it  ordinarily  lies  within  the  discretion  of  the 
corporate  management  to  decide  whether  profits  shall  be  dis- 
tributed among  the  shareholders,  or  whether  they  shall  be 
applied  to  the  payment  of  the  debts  of  the  corporation  or  be 
retained  as  a  surplus  fund.4  Should  the  question  arise  of  ap- 
plying the  profits  to  a  substantial  extension  of  the  corporate 


Share- 
holders 
have  no 
uncondi- 
tional right 
to  a  divi- 
sion of 
profits. 


R.  20  Eq.  669;  Merchants  and 
Planters'  Line  v.  Waganer,  71  Ala. 
581. 

1  Brinliam  v.  Wellersburg  Coal  Co., 
47  Pa.  St.  43;  Life  Association  v. 
Levy,  33  La.  Ann.  1203;  Barker  v. 
Cairo,  etc.,  R.  R.  Co.,  3  T.  &  C. 
(N.  Y.)  328.  See  Criswell's  Appeal, 
100  Pa.  St.  488. 

2  Bin  bank  v.  West  Walker  River 
Ditch  Co.,  13  Xev.  431.  See  also 
O' Conner  v.  North  Truckee  Ditch 
Co.,  17  Nev.  245. 

8  Phelps  v.  Farmers1  and  Mechan- 
ics' Bk.,  26  Conn.  269;  Goodwin  v. 
Hardy,  57  Me.  145;  Miuot  v.  Paine, 
99  Mass.  101;  Beveridge  v.  N.  Y.  E. 
R.  Co.,  112  N.  Y.  1;  Spooner  v. 
Phillips,  62  Conn.  62.  See  Gordon 
568 


v.  Richmond,  etc.,  R.  R.  Co.,  78  Va. 
501,  518.  An  unconditional  agree- 
ment to  pay  a  shareholder  a  specified 
dividend  each  year  is  ultra  vires,  and 
cannot  be  enforced  against  the  cor- 
poration. Elevator  Co.  v.  Memphis, 
etc.,  R.  R.  Co.,  85  Tenn.  703. 

4  Ely  o.  Sprague,  Clarke,  Ch.  (N. 
Y. )  351;  State  of  Louisiana  v.  Bank 
of  Louisiana,  6  La.  746;  see  Pratt  v. 
Pratt,  33  Conn.  446;  Karnes  v. 
Rochester,  etc.,  R.  R.  Co.,  4  Abb. 
Pr.  N.  S.  (N.  Y.)  107;  Barry  v.  Mer- 
chants' Exchange  Co.,  1  Sandf.  Ch. 
(X.  Y.)  280,  303;  Smith  v.  Prattville 
M'f'g  Co.,  29  Ala.  503;  Howell  v. 
Chicago  and  N.  W.  R'y  Co.,  51  Barb. 
378;  Hunter  v.  Roberts,  83  Mich.  63. 


CHAP.  IX.]        CORPORATION  AND  SHAREHOLDERS. 


[§  563. 


business,  its  decision  would  probably  rest  with  the  body  corpo- 
rate ;  and  if  the  extension  is  within  the  powers  of  that  body, 
and  a  majority  in  a  duly  summoned  meeting  decide  in  favor 
thereof,  the  minority  cannot  prevent  the  application  of  the 
corporate  funds  thereto.1 

§  563.  A  court  of  equity,  however,  may  interfere  when  there 
is  a  palpably  wrongful  refusal  to  declare  a  dividend  ;«  Butcourts 
especially  when  a  certain  percentage  of  dividends  is 
promised  or  guaranteed  on  certain  shares.  "  While, 
as  a  general  rule,  courts  of  equity  will  not  exercise 
visitorial  powers  over  a  corporation,  and  its  officers 
are  the  sole  judges  of  the  propriety  of  declaring 
dividends,  and  in  this  respect  the  court  will  not  interfere  with 
a  proper  exercise  of  their  discretion,  yet  where  the  right  to 
the  dividend  is  clear  and  fixed  by  the  contract,  and  requires 
the  directors  to  take  action  before  it  can  be  asserted  in  a  court 
of  law,3  and  a  restraint  by  injunction  is  essential  to  maintain 
the  right  of  the  stockholder,  the  injunction  of  a  court  of  equity 
is  a  proper  exercise  of  its  power,  and  should  be  upheld.'' 4  In 
general  it  may  be  said,  with  regard  to  the  payment  of  divi- 
dends on  preferred  shares,  that  the  decision  of  the  directors  is 
not  conclusive ;  and  if  the  corporation  has  funds  applicable  to 
the  payment  of  dividends,  preferred  shareholders  may  compel 


will  some- 
times 
interfere, 
especially 
in  favor  of 
preferred 
share- 
holders. 


1  See  Durfee  v.  Old  Colony,  etc., 
R.  R.  Co.,  ante,  §  534. 

2  Scott  v.  Eagle  Fire  Co.,  7  Paige 
(N.  Y.),  198,  203.  See  Beers  v. 
Bridgeport  Spring  Co.,  42  Conn.  17; 
Browne  v.  Monmouthshire  R'y  Co., 
13  Beav.  32. 

If  the  body  corporate  by  vote  in- 
structs the  directors  to  pay  a  divi- 
dend at  some  future  day  specified, 
if  the  corporation  shall  then  have 
sufficient  funds  applicable  to  the 
payment  of  dividends,  though  a 
court  will  give  due  weight  to  the 
decision  of  the  directors  on  the  point 
of  the  corporation's  ability  to  pay 
the  dividend,  the  court  will  not  treat 
that  decision  as  conclusive.  Barn- 
ard v.  Vermont,   etc.,  R.   R.   Co.,  7 


Allen,  512;    Richardson  v.  Railroad 
Co.,  44  Vt.  613. 

3  In  general,  a  shareholder  can- 
not sustain  an  action  for  a  dividend 
without  proof  of  a  making  of  the 
dividend  and  a  demand  of  payment. 
Scott  v.  Central  Railroad,  etc.,  Co., 
52  Barb.  45. 

4  Boardman  v.  Lake  Shore,  etc., 
Ry.  Co.,  84  N.  Y.  157,  180.  See  Park 
v.  Grant  Locom've  Wks.,  40  N.  J. 
Eq.  114.  Where  the  certificate  of 
incorporation  provides  for  dividends 
at  a  certain  rate  on  the  preferred 
stock  and  the  share  certificates  are 
so  issued,  a  stockholder  may  enjoin 
the  alteration  of  the  organization 
certificate  which  reduces  the  divi- 
dend rate.  Pronick  v.  Spirits  Dist. 
Co.,  58  N.  J.  Eq.  97. 

569 


§  565.]       THE    LAW    OF    PRIVATE   CORPORATIONS.        [CHAP.  IX. 


a  payment  in  accordance  with  the  terms  on  which  the  preferred 
shares  were  issued.1 

§  564.     That  dividends  on  preferred  shares  are  "  guaranteed," 

authorizes  the  interpretation  that  they  are  curnula- 

dividends      tive  ;  and  the  arrears  must  be  paid  before  any  divi- 

cumu  ative.  cjemj  can  rightfully  be  paid  on  the  common  stock.2 

§  565.  Rightfully,  dividends  can  only  be  paid  out  of  profits; 


1  Boardman  v.  Lake  Shore,  etc., 
Ry.  Co.,  84  N.  Y.  157;  Westchester, 
etc.,  R.  R.  Co.  v.  Jackson,  77  Pa.  St. 
321;  Bates  v.  Androscoggin,  etc.,  R. 
R.  Co.,  49  Me.  491;  Nickals  v  New 
York,  L.  E.  &  W.  R.  Co.,  15  Fed. 
Rep.  575;  see  St.  John  v.  Erie  R.  R. 
Co.,  22  Wall.  136;  compare  Williston 
v.  Michigan  South.,  etc.,  R.  R.  Co., 
13  Allen,  400;  Belfast  &  M.  L.  R.  R. 
Co.  v.  Belfast,  77  Me.  445;  Field  v. 
Lamson,  etc.,  Co.,  162  Mass.  388; 
McLean  v.  Plate  Glass  Co.,  159  Pa. 
St.  112. 

The  holders  of  common  stock  are 
not  necessary  parties  to  an  action  by 
preferred  shareholders  to  compel  the 
payment  of  dividends  claimed  to  be 
due  the  latter.  Thompson  v.  Erie  R. 
R.  Co.,  45  N.  Y.  468. 

It  has  been  held,  however,  that  an 
agreement  between  two  corporations 
whereby  one  guarantees  to  the  other 
a  certain  specified  annual  dividend 
on  its  capital  stock,  is  npt  a  guaranty 
to  the  shareholders  individually,  but 
only  to  the  corporation;  that  the 
respective  boards  of  directors  have 
power  to  modify  such  an  agreement; 
and  that  a  court  of  equity  will  not 
interfere  if  that  power  is  fairly  ex- 
ercised. Flagg  v.  Manhattan  R'y 
Co.,  10  Fed.  Rep.  413;  S.  C,  20 
Blatchf.  142  and  21  Am.  Law  Reg. 
N.  S.  775;  Beveridge  v.  N.  Y.  E.  R. 
Co.,  112  N.  Y.  1;  People  v.  Metro- 
politan Ry.  Co.,  26  Hun,  82.  See 
Sheffield  Nickel  Plated  Co.  v.  Unwin, 
36  L.  T.  N.  S.  246;  S.  C,  L.  R.  2  Q. 
B.  Div.  214. 
570 


2  Boardman  t>.  Lake  Shore,  etc., 
R'y  Co.,  84  N.  Y.  157;  Westchester, 
etc.,  R.  R.  Co.  v.  Jackson,  77  Pa.  St. 
321;  Bates  v.  Androscoggin,  etc., 
R.  R.  Co.,  49  Me.  491;  Prouty  v. 
Michigan  Southern,  etc.,  R.  R.  Co., 
1  Hun,  665.  Compare  Williston  v. 
Same,  13  Allen,  400;  New  York,  L. 
E.  and  W.  R.  R.  Co.  v.  Nickals,  119 
U.  S.  296. 

The  right  of  preferred  shareholders 
is  substantially  a  right  to  interest  at 
the  stipulated  rate  chargeable  ex- 
clusively on  profits,  and  payable, 
with  arrears,  before  anything  be 
divided  among  ordinary  sharehold- 
ers. Henry  v.  Great  Northern  R'y 
Co.,  3  Jur.  N.  S.  1133.  But  it  may 
be  provided  expressly  that  the  divi- 
dends on  preferred  shares  are  not  to 
be  cumulative.  See  Bailey  v.  Rail- 
road Co.,  17  Wall.  96.  Or  this  may 
be  inferred  from  the  language  of 
the  by-law  providing  for  the  divi- 
dends on  the  preferred  shares.  Bel- 
fast and  M.  L.  R.  R.  Co.  v.  Belfast, 
77  Me.  445;  Hazeltine  v.  Railroad 
Co.,  79  Me.  411.  For  the  respective 
rights  of  preferred  and  common 
shareholders  on  dissolution,  see 
§  786.  Where  by  by-law  the  divi- 
dends on  preferred  stock  are  not 
cumulative,  but  can  be  paid  only 
from  net  earnings  of  each  year, 
the  preferred  shareholders  have  a 
stronger  standing  to  compel  directors 
to  declare  a  dividend  when  earned. 
Hazeltine  v.  Railroad  Co.,  79  Me. 
411. 


CHAP.  IX.]       CORPORATION  AND  SHAREHOLDERS. 


[§  565. 


and  the  distribution  in  dividends  of  the  capital  of  Dividends 
the  corporation  may  be  enjoined  by  a  shareholder.1  ™b0eu^}d 
"Net  earnings,"  said  Judge  Blatchford,  with  refer-  .profits, 
ence  to  a  railroad  company,  "  are,  properly,  the  gross  receipts, 
less  the  expenses  of  operating  the  road  to  earn  such  receipts. 
Interest  on  debts  is  paid  out  of  what  thus  remains,  that  is, 
out  of  net  earnings.  Many  other  liabilities  are  paid  out  of 
net  earnings.  When  all  the  liabilities  are  paid,  either  out 
of  gross  receipts  or  out  of  the  net  earnings,  the  remainder 
is  the  profit  of  the  shareholders,  to  go  towards  dividends, 
which  in  that  way  are  paid  out  of  the  net  earnings."2    Even 


i  Carpenter  v.  N.  Y.  &  N.  H.  Ry. 
Co.,  5  Abb.  Pr.  (N.  Y.)  277;  Mac- 
dougall  v.  Jersey  Imperial  Hotel  Co., 
2  Hem.  and  M.  528;  Bloxaniz?.  Metro- 
politan Ry.  Co.,  L.  R.  3  Cb.  337.  See 
Fawcett  v.  Laurie,  1  Dr.  and  Sra. 
192;  Carlisle  v.  So.  Eastern  R'y  Co., 
1  Mac.  N.  and  G.  689;  Browne  v. 
Monmouthshire  Ry.  Co.,  13  Beav. 
32;  Coates  v.  Nottingham  Water- 
works Co.,  30  Beav.  86.  "  By  loss 
or  misfortune  or  misconduct  of  the 
managing  officers  of  a  corporation, 
its  capital  stock  may  be  reduced  be- 
low tbe  amount  limited  by  its  char- 
ter; but  whatever  property  it  has  up 
to  that  limit  must  be  regarded  as  its 
capital  stock.  When  its  property 
exceeds  that  limit,  then  the  excess 
is  surplus.  Such  surplus  belongs  to 
the  corporation,  and  is  a  portion  of 
its  property,  and,  in  a  general  sense, 
may  be  regarded  as  a  portion  of  its 
capital,  but  in  a  strictly  legal  sense, 
it  is  not  a  portion  of  its  capital,  and 
is  always  regarded  as  surplus  or 
profits.  .  .  .  The  surplus  may  be 
in  cash,  and  then  it  may  be  divided 
in  cash;  it  may  be  in  property,  and 
if  the  property  is  so  situated  that  a 
division  thereof  among  the  stock- 
holders is  practicable,  a  dividend  in 
property  may  be  declared,  and  that 
may  be  distributed  among  stock- 
holders. "    Williams  v.  W.  U.  Tel.  Co. , 


93  N.  Y.  162,  188.  Cf.  Rose  v.  Bar- 
clay,  191  Pa.  St.  594.  A  dividend 
may  be  paid  out  of  current  profits, 
though  the  capital  of  the  company 
is  impaired  by  depreciation  of  its 
property.  Verner  v.  General,  etc., 
Trust,  L.  R.  Oh.  Div.  1894,  II.  239. 
(The  company  did  not  appear  to  be 
insolvent.) 

2 St.  John  c.  Erie  R'y  Co.,  10 
Blatchf.  271,  279;  S.  C.,22  Wall.  136. 
See  Commonwealth  y.  Railroad,  164 
Pa.  St.  252;  Mobile,  etc.,  R.  R.  v. 
Tennessee,  153  U.  S.  486.  Compare 
Excelsior  Water  Co.  v.  Pierce,  90  Cal. 
131.  It  does  not  necessarily  follow 
that  all  debts  of  a  floating  character 
should  be  paid  before  a  dividend  is 
declared;  only  such  need  be  paid  as 
good  judgment  requires  under  the 
circumstances.  Belfast  &  M.  L.  R. 
R.  Co.  v.  Belfast,  77  Me.  445.  See 
also  as  to  payment  of  dividends  when 
the  corporation  is  indebted,  Mills 
v.  Northern  R'y  Co.,  L.  R.  5  Ch.  631. 
In  estimating  j>rofits  for  purposes  of 
Federal  taxation,  earnings  are  not  to 
be  included,  unless  they  represent 
profits  of  the  company  in  its  business 
as  a  whole,  i.  e.,  the  excess  of  the 
aggregate  of  gains  from  all  sources 
over  the  aggregate  of  losses.  The 
burden  of  proof  is  on  the  United 
States  to  show  what  is  due.  Little 
Miami,    etc.,    R.    R.    Co.    v.    United 

571 


§  oG5.]  THE    LAW    OF    PRIVATE   CORPORATIONS.  [CHAP.  IX. 


a  holder  of  "  preferred  and  guaranteed  "  stock  is  entitled  to  be 
paid  his  guaranteed  percentage  only  out  of  the  profits  of  the 
corporation  legally  applicable  to  the  payment  of  dividends.1 
He  is  not  a  creditor,  it  being  really  a  dividend  and  not  a  debt 
that  is  guaranteed.2    Thus,  in  a  recent  case  in  the  Federal 


States,  108  U.  S.  277.  "As  a  general 
proposition,  net  earnings  are  the  ex- 
cess of  the  gross  earnings  over  ex- 
penditures defrayed  in  producing 
them,  aside  from  and  exclusive  of  the 
expenditure  of  capital  laid  out  in  con- 
structing and  equipping  the  works 
themselves."  Union  Pacific  R.  R. 
Co.  o.  United  States,  99  U.  S.  402,  420; 
opinion  of  the  court  per  Bradley,  J. 
See,  also,  Sioux  City  and  P.  R.  R.  Co. 
v.  United  States,  110  U.  S.  205.  See 
also  regarding  what  constitutes  "  net 
earnings."  Union  Pac.  R.  R.  Co.  v. 
United  States,  99  U.  S.  402;  United 
States  o.  Central  Pac.  R.  R.  Co.,  ib. 
449;  Same  v.  Kansas  Pac.  R'yCo.,  ib. 
455.  A  solvent  corporation  may  pay 
dividends  out  of  its  receipts,  over 
and  above  expenses,  in  the  ordinary 
course  of  business,  though  its  assets 
consist  of  property  which  in  the  na- 
ture of  things  will  thereby  be  ex- 
hausted, like  a  mine  or  a  patent. 
Lee  v.  Neuchatel  Asphalte  Co.,  41 
Ch.  D.  1. 

1St.  John  v.  Erie  Railway  Co., 
supra.  Taft  «.  Hartford,  etc.,  R.  R. 
Co.,  8  R.  I.  310;  Chaffee  v.  Rutland 
R.  R.  Co.,  55  Vt.  110.  See  Miller  v. 
Ratterman,  47  O.  St.  141.  Compare 
Gordon  v.  Richmond,  F.  and  P.  R. 
R.  Co.,  78  Va.  501,  517.  A  contract 
by  the  corporation  to  pay  annual 
dividends  to  preferred  shareholders, 
without  reference  as  to  whether 
there  are  earnings  (i.  e.,  an  implied 
agreement  to  pay  dividends,  al- 
though there  are  no  profits),  is  op- 
posed to  public  policy  and  void. 
Lockhart  v.  Van  Alstyne,  31  Mich. 
76.     See   Elevator   Co.  v.   Memphis, 

572 


etc.,  R.  R.  Co.,  85  Tenn.  703.  But 
the  terms  on  which  "  preferred  share- 
holders" receive  their  interest  may 
be  such  that  courts  will  regard  them 
as  creditors;  e.  g.  when  they  have 
no  right  to  vote,  and  four  per  cent, 
annually  is  guaranteed  them,  with 
repayment  of  the  principal  at  a  time 
specified,  and  a  mortgage  is  exe- 
cuted to  secure  them.  Burt  v.  Rat- 
tle, 31  Ohio  St.  116;  see  Totten  v. 
Tison,  54  Ga.  139.  Compare  West 
Chester,  etc.,  R.  R.  Co.  v.  Jackson, 
77  Pa.  St.  321;  Williston  v.  Michi- 
gan Southern,  etc.,  R.  R.  Co.,  13 
Allen,  400.  In  a  late  Massachusetts 
case,  a  statute  authorizing  a  corpo- 
ration to  issue  "preferred  stock" 
provided:  (1)  "  the  said  company  to 
give  its  guaranty  that  each  share  of 
said  stock  shall  receive  semi-annual 
dividends  of  four  dollars  on  each 
share;  provided,  that  no  share  of 
such  preferred  stock  shall  be  issued 
until  the  said  company  shall  receive 
one  hundred  dollars  therefor."  (2) 
"No  dividends  more  than  four  dol- 
lars per  share  semi-annually  to  be 
paid  on  said  stock  under  any  cir- 
cumstances, but  any  holder  may  ex- 
change for  common  stock  share  for 
share."  (3)  "  In  case  of  dissolution 
.  .  .  .  the  holders  of  preferred  stock 
shall  be  entitled  to  payment  of  the 
same  in  full  next  after  payment  of 
the  debts  of  the  company,  and  be- 
fore any  payments  to  the  holders  of 
stock  not  preferred."  Held,  that  the 
guaranty  of  dividends  was  not  con- 
ditional on  the  earning  of  profits. 
Williams  v.  Parker,  136  Mass.  204. 
2  Taft  ».  Hartford,  etc.,  R.  R.  Co., 


CHAP.  IX.]       CORPORATION  AND  SHAREHOLDERS. 


[§  567. 


Supreme  Court,  preferred  shares  had  been  issued  with  certifi- 
cates in  the  following  form  :  "  The  preferred  stock  is  to  be 
and  remain  a  first  claim  upon  the  property  of  the  corporation 
after  its  indebtedness,  and  the  holder  thereof  shall  be  entitled 
to  receive  from  net  earnings  of  the  company  seven  per  cent 
per  annum,  payable  semi-annually,  and  to  have  such  interest 
paid  in  full  in  each  and  every  year  before  any  payment  of  divi- 
dend upon  the  common  stock."  The  holders  of  these  shares 
were  held  to  be  merely  shareholders,  and  entitled  to  no  lien  on 
the  property  of  the  corporation  prior  to  the  lien  of  the  corpo- 
rate indebtedness  contracted  after  their  issue ;  but  were  enti- 
tled only  to  a  priority  over  the  common  shares.1 

§  566.  If  a  dividend  has  been  paid  from  funds  of  the  cor- 
poration other  than  those  out  of  which  dividends  „ 

r  .  .      Recovery  of 

may  legally  be  paid,  the  corporation   may  recover  it  dividends 
back.     Thus  an  insurance  corporation  is  not  justifi-  paid. 
able  in  treating  premiums  received  upon  unexpired 
risks  as  profits  subject  to  division  when  it  has  no  independent 
fund  sufficient  to  meet  all  liabilities  that  may  accrue  on  pend- 
ing risks.     And  dividends  paid  from  such  a  source  may  be 
reclaimed  by  the  corporation.2 

§  567.  A   share  has  been   defined  as  "  a  right   to  partake, 
according  to  the  amount  of  the  party's  subscription, 
of  the  surplus  profits  obtained  from  the  use  and  dis-   ftock.S  °f 
posal  of  the  capital  stock  of  the  company  to  those 
purposes  for  which  the   company  is  constituted."  3     It  is  to 
be  noted  that  a  share  is  called  a  right  to  partake  in  profits 


8  R.  I.  310;  Branch  v.  Jessup,  106 
U.  S.  468;  Belfast  and  M.  L.  R.  R. 
Co.  v.  Belfast,  77  Me.  445.  Compare 
preceding  note. 

i  Warren  v.  King,  108  U.  S.  389. 

2  Lexington  Life,  etc.,  Ins.  Co.  v. 
Page,  17  B.  Mou.  (Ky.)  412;  Daven- 
port, Rec'r,  v.  Lines,  74  Conn.  118. 
The  statute  of  limitations  runs  in 
favor  of  shareholders  bona  fide  re- 
ceiving such  divideuds,  from  the 
time  they  were  declared,  as  against 
the  corporation  and  its  creditors.  Ih. 
Compare,  also,  Scott  v.  Eagle  Fire 
Co.,    7    Paige,     198;    De   Peyster    v. 


American  Fire  Ins.  Co.,  6  Paige,  486; 
see,  also,  §  708. 

3  Angell  and  Ames  on  Corp.,  §  557. 

"  The  capital  stock  is  that  money 
or  property  which  is  put  into  a  sin- 
gle corporate  fund,  by  those  who  by 
subscription  therefor  become  mem- 
bers of  the  corporate  body.  That 
fund  becomes  the  property  of  the 
aggregate  body  only.  A  share  of 
the  capital  stock  is  the  right  to  par- 
take according  to  the  amount  put 
into  the  fund  of  the  surplus  profits 
of  the  corporation,  and  ultimately  on 
the  dissolution  of  it,  of  so  much  of 

573 


§  568.]  THE   LAW   OF   PRIVATE  CORPORATIONS.   [CHAP.  IX. 


"  obtained  from  the  use  and  disposal  of  the  capital  stock 
.  ...  to  those  purposes  for  xohich  the  company  is  constituted." 
Should  the  capital  be  employed  for  unauthorized  purposes,  the 
shareholders  might  not  be  absolutely  entitled  to  the  profits 
arising  from  such  use  even  after  they  had  been  declared  in  the 
form  of  a  dividend ;  for  circumstances  are  conceivable  under 
which  the  shareholders  might,  at  least  to  the  extent  of  divi- 
dends received  by  them,  be  called  on  to  meet  any  liability 
subsequently  arising  from  the  improper  employment  of  the 
capital.  And  those  directors  or  shareholders  who  had  actively 
participated  in  the  improper  acts  might  possibly  be  held  liable 
personally  to  persons  injured  thereby. 

§  568.  After  a  dividend  has  been  declared  each  shareholder 
has  as  against  the  corporation  an  unconditional  right 
to  his  portion  of  it;1  but  cannot  sue  the  corporation 
for  it  without  a  previous  demand.2  The  discretion 
of  the  corporate  management  is  exhausted  in  de- 
claring the  dividend ;  thereupon  their  only  function 
is  to  pay  it  to  the  shareholders.3    But  it  has  been  held  that 


Rights  of 
share- 
holders 
after  a  divi 
dend  has 
heen  de- 
clared. 


the  fund  thus  created  as  remains  un- 
impaired, and  is  not  liable  for  the 
debts  of  the  corporation."  Burrall 
v.  Bushwick  R.  R.  Co.,  75  N.  Y.  211, 
216.  Compare  State  v.  Morristown 
Fire  Ass'n,  23  N.  J.  L.  195;  Williams 
v.  Western  Union  Tel.  Co.,  93  N.  Y. 
162,  188. 

An  attachment  of  shares  does  not 
encumber  the  property  of  the  com- 
pany or  prevent  the  company  from 
assigning  it.  Gottfried  v.  Miller, 
104  U.  S.  521.  Compare  Van  Nor- 
man v.  Jackson,  Circuit  Judge,  45 
Mich.  204.  A  shareholder  has  no 
interest  in  real  estate  owned  by  his 
corporation  tliat  will  entitle  him  to 
a  vendor's  lien  thereon  as  against  a 
company  formed  by  the  consolida- 
tion of  his  company  with  another. 
Cross  u.  B.  and  S.  W.  R.  Co.,  58 
Iowa,  62. 

Shares  are  not  "  securities."  Camp- 
bell v.  Morgan,  4  111.  App.  100;  Ogle 

574 


v.  Knipe,  L.  R.  8  Eq.  434;  Collins  v. 
Collins,  L.  R.  12  Eq.  455;  Hudleston 
v.  Gouldsbury,  10  Beav.  547.  Shares 
are  choses  in  action.  Keyser  v.  Hitz, 
2  Mackey  (Dist.  of  Col.),  473;  Webb 
v.  Balto.,  etc.,  R.  R.  Co.,  77  Md.  92. 
Shares  are  personal  property.  Tre- 
gear  v.  Water  Co.,  76  Cal.  537. 

1  Beers  v.  Bridgeport  Spring  Co., 
42  Conn.  17;  King  v.  Patterson,  etc., 
R.  R.  Co.,  29  N.  J.  L.  82.  See  Mat- 
ter of  Le  Blanc,  14  Hun,  8;  aff'd  75 
N.  Y.  598;  Albany  Fertilizer  Co.  v. 
Arnold,  103  Ga.  145.  But  when  a 
corporation  declares  a  second  divi- 
dend to  be  substituted  for  the  former 
one,  a  shareholder  accepting  the  sec- 
ond is  estopped  to  claim  the  former 
one.  Albany  Fertilizer  Co.  v.  Ar- 
nold, 103  Ga.  145. 

2  State  v.  Baltimore  and  O.  R.  R. 
Co.,  6  Gill  (Md.),  363;  cf.  Armantc. 
Railroad  Co.,  41  La.  Ann.  1020. 

3  It    has    recently  been    held    in 


CHAP.  IX.]        CORPORATION  AND  SHAREHOLDERS. 


[§  568. 


when  a  corporation  has  voted  to  issue  further  stock  out  of 
surplus  profits — in  effect  to  declare  a  stock  dividend x — but 
has  taken  no  further  steps  to  file  a  certificate  of  the  increase  or 
to  issue  certificates  of  stock,  a  shareholder  who  stands  by  for  a 
year  until  many  shares  have  changed  hands  cannot  compel  the 
issue  to  him  of  his  proportionate  number  of  shares.2  It  ap- 
peared in  this  case  that  the  increase  had  been  voted  for  a 
special  purpose  which  had  become  impracticable.  The  com- 
plainant argued  that  a  stock  dividend  was  like  a  cash  dividend, 
and  that  he  acquired  a  vested  right  to  it  from  the  moment  of 
the  vote.  But  the  court  said  : 3  "  There  is  a  difference  between 
a  cash  and  a  stock  dividend.  The  former  is  created  by  a  sim- 
ple vote  of  the  directors,  and  the  amount  thereby  becomes 
severed  from  the  general  fund  and  belongs  to  the  stockholders 
pro  rata.  The  latter  can  be  initiated  only  by  a  vote  of  the 
stockholders.  That  is  followed  by  issuing  the  stock,  and  the 
increase  can  only  be  completed  legally  by  filing  with  the  town 
clerk  and  with  the  secretary  of  state  the  certificates  required 
by  law.  .  .  .  Again,  a  cash  dividend  entitles  the  stockholder 
to  so  much  money,  the  ordinary  way  in  which  he  receives  from 
time  to  time  the  fruits  of  his  investment.  Such  dividends  do 
not  materially  affect  the  value  of  the  stock.  A  stock  dividend 
is  exceptional.  It  does  not  add  to  his  ready  cash,  but  changes 
the  form  of  his  investment  by  increasing  the  number  of  shares, 
therebv  diminishing  the  value  of  each  share,  leaving1  the  ag-gre- 


Massachusetts,  that  after  a  dividend 
has  been  declared  by  vote  of  direct- 
ors, but  payable  at  a  future  time, 
the  vote  may  be  rescinded  at  a  sub- 
sequent directors'  meeting  held  be- 
fore the  time  when  the  dividend 
becomes  payable,  if  the  fact  that 
the  dividend  has  been  declared  has 
not  been  made  public  or  communi- 
cated to  the  shareholders,  and  no 
fund  has  been  set  apart  for  its  pay- 
ment. Ford  v.  E.  Thread  Co.,  158 
Mass.  84.  But  see  Dock  v.  Cordage 
Co.,  167  Pa.  St.  370.  See,  also,  Hunt, 
Recr.,  v.  O'Shea,  Assignee,  69  N.  H. 
600,  where  it  is  held  that  the  mere 
declaration  of  a  dividend  does  not 


create  a  trust  fund.  Until  some 
specific  sum  is  set  apart  for  the  pur- 
pose of  paying  the  dividend,  the  re- 
lation of  the  stockholders  to  the 
corporation  with  respect  thereto  is 
that  of  debtor  and  creditor. 

1  A  corporation  having  earned  a 
dividend,  and  having  power  to  in- 
crease its  capital  stock,  may  make  a 
stock  dividend.  Howell  v.  Chicago 
and  N.  W.  R'y  Co.,  51  Barb.  378; 
Williams  v.  Western  Union  Tel.  Co., 
93  N.  Y.  162. 

2  Terry  v.  Eagle  Lock  Co.,  47  Conn. 
141. 

3  47  Conn.  164. 

575 


§  569.]  THE   LAW   OF   PRIVATE   CORPORATIONS.    [CHAP.  IX. 


gate  value  of  his  stock  substantially  the  same.  It  is  of  no  spe- 
cial importance  whether  that  value  be  divided  into  a  few  or 
many  shares."  ' 
§  569.  The  power  of  a  corporation  to  purchase  its  own 
shares  or  increase  or  decrease  its  capital  stock  has 
already  been  discussed.2  If  the  capital  stock  is 
increased  by  the  proper  authorities,  the  right  to  take 
the  additional  shares  vests  in  the  shareholders  pro 
rata?  This  right  may  be  waived  ;  but  the  directors 
cannot  deprive  a  shareholder  of  it,4  nor  burden  it 
with  conditions  unauthorized  by  the  charter  or  enabling  act,  as 
for  instance,  the  payment  of  so  much  per  share  for  the  privi- 
lege of  subscribing.5  Accordingly,  when  a  corporation  is 
issuing  new  stock  generally  and  refuses  to  issue  to  a  share- 
holder his  due  proportion,  he  can  compel  it  to  do  so  by  a  suit 
in  equity ;  at  least  so  long  as  there  remains  stock  undisposed 
of.6    And  when  new  stock  is  issued  to  share  equally  with  the 


Risjlit  to 
subscribe 
to  addi- 
tional 
shares  on 
an  increase 
of  the  capi- 
tal stock. 


1  Still  the  decision  of  this  case 
seems  really  to  have  turned  on  the 
plaintiffs  own  laches. 

2  §  133. 

8  Real  Estate  Trust  Co.  v.  Bird,  90 
Md.  229.  When  a  corporation  in- 
creases its  shares  on  the  basis  of  its 
property  already  owned,  and  not 
with  a  view  to  sell  them  to  raise 
more  money,  the  increase  belongs  to 
the  shareholders  in  proportion  to 
their  holdings.  Knapp  v.  Publishers, 
etc.,  Co.,  127  Mo.  53. 

4  Humboldt  Driving  Park  Ass'n  v. 
Stevens,  34  Neb.  528;  Eidman  v.  Bow- 
man, 58  111.  444;  Hart  v.  St.  Charles 
St.  R.  R.  Co.,  30  La.  Ann.  Pt.  I.  758; 
Jones  v.  Morrison,  31  Minn.  140.  In 
the  last  case  the  stock  of  a  corpora- 
tion was  all  held  by  a  few  holders, 
the  plaintiff  owning  about  one-third 
of  it.  While  he  was  absent  in  Europe, 
a  vote  was  passed  (as  was  competent) 
to  increase  the  stock,  which  was 
worth  much  more  than  par,  and  to 
allow  the  old  shareholders  to  sub- 
scribe in   proportion  to  their  shares. 

576 


This  privilege  was  limited  in  time  to 
a  shorter  period  than  was  possible 
for  the  plaintiff  to  act  in  the  matter, 
as  the  rest  knew.  It  was  held  that 
he  had  a  right  to  subscribe  after  such 
period  had  expired.  See  also  Ark. 
V.  Ag.  Soc.  v.  Eichholtz,  45  Kan.  164. 

5  Cunningham's  Appeal,  108  Pa. 
St.  546.  See  De  La  Caesta  v.  Insur- 
ance Co.,  136  Pa.  St.  62;  compare 
Reading  Tr.  Co.  u.  Reading  I. 
Works,  137  Pa.  St.  282;  Electric 
Co.  of  Am.  o.  Edison  Electric  Co., 
200  Pa.  St.  516. 

0  Dousman  U.Wisconsin,  etc.,  M'g 
Co.,  40  Wise.  418.  It  seems,  also, 
that  the  shareholder  could  have 
maintained  an  action  for  damages 
against  the  corporation.  lb.  Cf. 
Way  v.  American  Grease  Co.,  67  N. 
J.  Eq.  263;  Merideth  v.  Zinc  &  Iron 
Co.,  55  N.  J.  Eq.  211. 

When  a  corporation  has  issued 
the  full  number  of  shares  author- 
ized, no  court  can  compel  it  to  issue 
further  shares  unless  some  of  the 
shares  originally   issued    were  void. 


CHAP.  IX.]       CORPORATION    AND   SHAREHOLDERS. 


[§  5T1- 


existing  stock,  it  is  the  right  of  each  shareholder  that  it  shall 
be  so  distributed  as  not  to  divest  him  of  his  vested  proportion- 
ate right  in  the  corporate  property,  including  the  accumulated 
profits.1  But  this  rule  is  held  not  to  apply  to  old  stock  pur- 
chased by  the  company,  on  which  the  right  to  vote  is  merely 
suspended.  Such  stock  directors  in  their  discretion  may  re- 
issue or  sell  for  the  benefit  of  the  corporation.2  A  corporation 
having  the  power  to  issue  further  stock,  may  issue  it  in  ex- 
change for  an  equal  amount  of  its  indebtedness ;  and  no  par- 
ticular form  of  subscription  is  necessary.3 

§  570.  Conversely,  when  a  national  bank  under  the  United 
States  Revised  Statutes,  8  5143,  reduces  the  amount   _.  . . 

'  °  Rights  on  a 

of  its  capital  stock,  it  must  return  to  the  shareholders  decrease  of 
pro  rata  the  amount  of  capital  set  free,  and  cannot 
retain  a  portion  of  it  for  a  surplus.4  When  a  corporation  com- 
petently reduces  the  amount  of  its  capital  stock,  a  shareholder 
cannot  restrain  the  division  among  the  shareholders  of  the 
surplus  over  and  above  the  amount  to  which  the  stock  is 
reduced,  provided  that  amount  exceeds  the  liabilities  of  the 
company ;  even  though  the  statute  authorizing  the  reduction 
makes  no  provision  for  such  division.5 

§  571.  Whether,  when  not  specially  authorized,  a  corpora- 
tion on  the  first  issue  of  its  stock  may  divide  the   „ 

^  Power  to 

same  into  classes,  and  issue  a  portion  as  preferred   issue 
stock,  is  not  altogether  settled  by  authority.     There   fhares. 
seems  to  be  no  decision  in  this  country,  however, 
forbidding  a  corporation  to  issue  preferred  shares  provided  it 
keep  within  the  limits  of  the  stock  which  it  is  authorized  to 
issue,  and  does  not  in  any  way  impair  the  vested  rights  of  any 
shareholder.6     And  it  has  been  held  that   where  it  appears 


Smith   o.    North     Am.     M'g   Co.,    1 
Nev.  423.     See  §  541. 

1  State  v.  Smith,  48  Vt.  2G6;  Gray 
v.  Portland  Bank,  3  Mass.  364. 

2  State  v.  Smith,  48  Vt.  266.  See 
State  Bank  v.  Fox,  3  Blatchf.  431; 
Williams  v.  Savage  M'f'g  Co.,  3  Md. 
Ch.  418. 

3  Lohman  v.  New  York  and  Erie 
R.  R.  Co.,  2  Sandf.  (N.  Y.  )  39.  See 
cases  in  last  note. 

37 


4  Seely  v.  New  York  Nat.  Exch. 
Bk.,  8  Daly,  400;  S.  C,  4  Abb.  N. 
C.  (N.  Y.)  61. 

5  Strang  v.  Brooklyn  Cross-town 
R.  R.  Co.,  93  N.  Y.  426.  As  to  the 
division  of  surplus  assets  of  a  mu- 
tual insurance  company,  see  Carlton 
v.  Southern  Mutual  Ins.  Co.,  72  Ga. 
371. 

6Hazelhurst  v.  Savannah,  etc.,  R. 
R.  Co.,  43  Ga.  13.     See  for  what  was 
577 


§  572.]  THE   LAW    OF    PRIVATE   CORPORATIONS.   [CHAP.  IX. 

necessary  to  raise  further  capital  and  to  issue  preferred  shares, 
the  legislature  may  authorize  the  issue  on  a  vote  of  the  holders 
of  common  shares,  and  a  dissenting  shareholder  cannot  prevent 
the  issue  of  preferred  shares  nor  the  payment  of  dividends 
thereon.1  Nevertheless,  unless  the  right  to  alter  and  repeal  is 
reserved  to  the  legislature,  it  would  seem  that  no  constitutional 
legislation  could  authorize  the  issue  of  preferred  shares  when 
such  an  issue  would  impair  the  rights  of  any  shareholder  in  the 
corporate  funds. 

§  572.  A  leading  case  on  the  power  of  a  corporation  to 
issue  preferred  shares  is  Kent  v.  Quicksilver  Mining  Co.;2  a 
case  in  which  a  number  of  appeals,  taken  in  actions  brought 
to  determine  the  validity  of  certain  preferred  shares,  were 
heard  together  before  the  New  York  Court  of  Appeals.  The 
following  somewhat  extended  citation  is  from  the  opinion  of 
that  court  delivered  by  Judge  Folger :  "  We  know  nothing  in 
the  constitution  or  the  law  that  inhibits  a  corporation  from 
beginning  its  corporate  action  by  classifying  the  shares  in  its 
capital  stock  with  peculiar  privileges  to  one  share  over  another, 
and  thus  offering  its  stock  to  the  public  for  subscription  there- 
to. No  rights  are  got  until  a  subscription  is  made.  Each 
subscriber  would  know  for  what  class  of  stock  he  put  down 
his  name,  and  what  right  he  got  when  he  thus  became  a  stock- 
holder.  There  need  be  no  deception  or  mistake ;  there  would 
be  no  trenching  upon  rights  previously  acquired ;  no  contract, 
express  or  implied,  would  be  broken  or  impaired. 

"  This  corporation  did  otherwise.  A  by-law  was  duly  made, 
which  declared  the  whole  value  of  its  property  and  the  whole 
amount  of  its  capital  stock,  and  divided  the  whole  of  it  into 
shares  equal  in  amount,  and  directed  the  issuing  of  certificates 
of  stock  therefor.  It  is  not  to  be  said  that  this  by-law  author- 
ized anything  but  shares  equal  in  value  and  in  right ;  or  that 
the  taker  of  one  did  not  own  as  large  an  interest  in  the  corpo- 


held  authority  to  issue  preferred 
shares,  Gordon  v.  Richmond,  etc.,  R. 
R.  Co.,  78  Va.  501. 

*City  of  Covington  v.  Covington, 
etc.,  Bridge  Co.,  10  Bush  (Ky.),  69. 
This  on  the  principle  that  such 
amendments  to  the  charter  may  be 

578 


made  by  the  legislature  as  are  neces- 
sary to  enable  the  original  enterprise 
to  be  carried  out.  lb.  See  also  Rut- 
land, etc.,  R.  R.  Co.  v.  Thrall,  35  Vt. 
536. 

2  78  N.  Y.  159. 


CHAP.  IX.]        CORPORATION  AND  SHAREHOLDERS.  [§  572. 

ration,  its  capital,  affairs,  and  profits  to  come,  as  any  other 
holder  of  a  share.  Certificates  of  stock  were  issued  under  this 
bj^-law,  that  gave  no  expression  of  anj^thing  different  from  that. 
When  that  by-law  was  adopted,  it  was  as  much  the  law  of  the 
corporation  as  if  its  pro  visions  had  been  a  part  of  the  charter. 
(Presbyterian  Church  v.  City  of  New  York,  5  Cow.  538.)  So 
it  is  said  in  Grant  on  Corporations,  page  80,  in  a  qualified  way. 
Thereby,  and  by  the  certificate,  as  between  it  and  every  stock- 
holder, the  capital  stock  of  the  company  was  fixed  in  amount, 
in  the  number  of  shares  into  which  it  was  divisible,  and  in  the 
peculiar  and  relative  value  of  each  share.  The  by-law  entered 
into  the  compact  between  the  corporation  and  every  taker  of 
a  share  ;  it  was  in  the  nature  of  a  contract  between  them. 
The  holding  and  owning  of  a  share  gave  a  right  which  could 
not  be  divested  without  the  assent  of  the  holder  and  owner  ; 
or  unless  the  power  so  to  do  had  been  reserved  in  some  way. 
(Mech.  Bank  v.  N.  Y.  and  K  H.  R.  R.  Co.,  13  K  Y.  599-627.) 
Shares  of  stock  are  in  the  nature  of  chases  in  action,  and  give 
the  holder  a  fixed  right  in  the  division  of  the  profits  or  earn- 
ings of  a  compan}^  so  long  as  it  exists,  and  of  its  effects  when 
it  is  dissolved.  That  right  is  as  inviolable  as  is  any  in  prop- 
erty, and  can  no  more  be  taken  away  or  lessened  against  the 
will  of  the  owner  than  can  any  other  right,  unless  power  is 
reserved  in  the  first  instance,  when  it  enters  into  the  constitu- 
tion of  the  right ;  or  is  properly  derived  afterwards  from  a 
superior  lawgiver.  The  certificate  of  stock  is  the  muniment 
of  the  shareholder's  title,  and  evidence  of  his  right.  It  ex- 
presses the  contract  between  the  corporation  and  his  co-stock- 
holders and  himself ;  and  that  contract  cannot,  he  being  un- 
willing, be  taken  away  from  him  or  changed  as  to  him  without 
his  prior  dereliction,  or  under  the  conditions  above  stated. 
Now  it  is  manifest  that  any  action  of  a  corporation  which  takes 
hold  of  the  shares  of  its  capital  stock  already  sold  and  in  the 
hands  of  lawful  owners,  and  divides  them  into  two  classes,  one 
of  which  is  thereby  given  prior  right  to  a  receipt  of  a  fixed 
sum  from  the  earnings  before  the  other  may  have  any  receipt 
therefrom,  and  is  given  an  equal  share  afterwards  with  the 
other  in  what  earnings  may  remain,  destroys  the  equality  of 

579 


§  572.]  THE  LAW   OF    PRIVATE   CORPORATIONS.  [PHAP.  IX. 

the  shares,  takes  away  a  right  which  originally  existed  in  it, 
and  materially  varies  the  effect  of  the  certificate  of  stock.1 

"It  is  said  that  when  a  corporation  can  lawfully  buy  prop- 
erty or  get  money  on  loan,  any  known  assurance  may  be  ex- 
acted and  given,  which  does  not  fall  within  the  prohibition, 
express  or  implied,  of  some  statute  (Curtis  v.  Leavitt,  15  N.  Y. 
66-67) ;  and  that  is  sought  to  be  applied  here.  But  the  prohi- 
bition to  such  action  as  this  is  found,  not,  indeed,  in  a  statute 
commonly  so  called,  but  in  the  constitutional  provision  which 
forbids  the  impairment  of  vested  rights,  save  for  public  pur- 
poses and  on  due  compensation.  The  right  which  a  stock- 
holder gets  on  the  purchase  of  his  share  and  the  issue  to  him 
of  the  certificate  therefor  is  such  a  vested  right. 

"  It  is  contended  that  the  power  so  to  do  is  an  incidental  and 
implied  power  necessary  to  the  use  of  the  other  powers  of  the 
corporation,  and  is  a  legitimate  means  of  raising  money  and 
securing  the  agreed  consideration  therefor.  We  have  already 
conceded  that  it  is  legitimate  to  borrow  money,  and  to  secure 
the  repayment  of  it,  with  a  compensation  for  the  use  of  it. 
But  that  is  when  it  is  done  in  such  way  as  to  put  the  burthen 
upon  every  share  of  stock  alike,  and  to  enable  every  share  of 
stock  to  be  relieved  therefrom  alike,  in  such  way  as  to  preserve 
the  equality  of  right  and  privilege  and  value  of  the  shares, 
and  maintain  intact  the  contract  thereto  with  the  stockholder. 

"  Citations  are  made  to  us  for  the  converse  of  this,  but  they 
do  not  come  up — sometimes  in  their  facts,  sometimes  in  their 
declarations — to  the  necessity  of  the  proposition.  Either  it  is 
where  the  capital  is  not  limited  and  it  is  new  shares  that  may 
be  issued  with  a  preference,  and  where  there  is  express  power 


1  In  the  absence  of  authority  in  its 
articles  of  association,  a  company 
cannot  authorize  the  directors  to 
issue  the  unallotted  shares  as  pre- 
ferred stock,  against  the  wishes  of 
a  minority;  and  a  shareholder  may 
enjoin  such  issue.  Hutton  v.  Scar- 
borough Cliff  Hotel  Co.  (Limited), 
4  De  G.,  J.  &  S.  672;  Melhado  v. 
Hamilton,  28  L.  T.  N.  S.  578.  Com- 
pare Harrison  v.  Mexican  R'y  Co., 
L.  R.  19  Eq.  358.  Authority  to  issue 
an   increased   amount   of    preferred 

580 


stock  does  not  authorize  the  issue  of 
partly  preferred  and  partly  common 
stock.  Covington,  etc.,  Bridge  Co. 
».  Sargent,  1  Cin.  Sup.  Ct.  (Ohio) 
354.  That  a  corporation  has  ac- 
cepted an  amendment  to  its  charter, 
authorizing  it  to  issue  preferred 
shares,  besides  its  common  stock, 
does  not  release  a  dissenting  sub- 
scriber to  the  common  stock  from 
his  subscription.  Everhart  v.  Phil- 
adelphia and  W.  C.  R.  R.  Co.,  28  Pa. 
St.  339.     quaere  f 


1 


CHAP.  IX.]       CORPORATION  AND  SHAREHOLDERS.  [§  572. 

to  borrow  on  bond  and  mortgage  (2  Redf.  on  Railways,  chap. 
33,  sec.  4,  §  237 ;  Harrison  v.  Mex.  R.  W.,  12  Eng.  Rep.  793), 
or  the  amount  of  the  capital  has  not  been  reached,  and  such 
stock  is  issued  therefrom  (Hazelhurst  v.  Savannah  R.  R.,  43  G-a. 
53 ;  Tottan  v.  Tison,  54  ib.  139),  or  there  was  legislative  au- 
thority (Davis  v.  Proprietors,  8  Metcf.  321 ;  Rutland  R.  R.  Co. 
v.  Thrall,  35  Vt.  545),  or  a  restriction  to  authorized  capital,  and 
there  was  unanimous  consent  of  the  stockholders  (Prouty  v.  M. 
S.  and  N.  I.  R.  R.,  1  Hun,  663 ;  43  Ga.  53,  supra),  or  there  was 
power  to  redeem,  which  was  a  transaction  in  the  nature  of  a 
debt  (Westchester,  etc.,  R.  R.  Co.  v.  Jackson,  77  Penn.  St.  321), 
or  the  opinion  was  obiter  (Bates  v.  Androscoggin  R.  R.  Co.,  49 
Maine,  491),  or  it  was  the  case  of  a  subscription  for  stock  with 
a  condition  for  interest  until  the  corporation  was  in  operation 
(Richardson  v.  Vt.  and  Mass.  R.  R.  Co.,  44  Vt.  613),  or  it  was 
an  action  on  a  subscription  more  favorable  to  defendant  than  to 
other  subscribers,  and  it  was  held  that  defendant  could  not  set 
up  the  lack  of  equality  (Evansville  R.  R.  Co.  v.  Evansville,  15 
Ind.  395),  or  a  solemn  determination  of  this  question  was  not 
necessary  for  the  disposaL  of  the  case  (Williston  v.  M.  S.  and 
N".  I.  R.  R.  Co.,  13  Allen,  400),  or  the  issue  was  authorized  by 
the  articles  of  association  (In  re  A.  D.  St.  Nav.  and  Col.  Co.,  20 
L.  R.  [Eq.]  339),  or  there  was  full  knowledge  on  the  part  of  all 
concerned  (Lockhart  v.  Van  Alstyne,  31  Mich.  81),  or  the 
power  in  the  corporate  body  was  conceded,  and  it  was  denied 
that  it  existed  in  the  directors  (McLaughlin  v.  D.  and  M.  R.  R., 
8  ib.  100).  ...  It  needs  not  that  we  consider  the  position 
that  the  issue  of  the  preferred  stock  was  an  authorized  increase 
of  the  capital  and  so  legal.  It  did  not  profess  to  be,  nor  was 
it  in  fact.  For  each  share  of  preferred  stock  given  out  a  share 
of  common  stock  was  taken  in,  so  that  the  gross  amount  of  the 
capital  was  still  the  same,  and  so  were  the  number  of  shares 
and  the  nominal  value  of  each  share." 1 


1  Kent  v.  Quicksilver  Mg.  Co.,  78 
N.  Y.  159,  179  et  seq. 

It  is  held  that  a  corporation  is  not 
a  trustee  fur  preferred  any  more 
than  for  common  shareholders,  and 
the  former  have  no  special  control 
over  the   corporation  and   its  man- 


agement.     Thompson    v.    Erie    R'y 
Co.,  11  Ahb.  Pr.  N.  S.  (N.  Y.)  188. 

When  a.  company  disables  itself 
from  issuing  preferred  stock  sub- 
scribed for,  the  subscriber  may  re- 
fuse to  take  common  stock,  and  may 
recover    his  subscription    as   for    a 

581 


§  574.]  THE   LAW   OF   PRIVATE   CORPORATIONS.  [CHAP.  IX. 


§  573.  Each  shareholder  has  a  right  to  have  the  corporate 

funds  managed  and  applied  in  the  manner  prescribed 

Seecorpo-°f  b.v   tne   constitution   of  the   corporation.     It   is  his 

ration.  right   that  the  directors  shall   act   regularly  by   a 

Notice.  °  °  J       *7 

proper  quorum  : 1  that  corporate  meetings  shall  be 

summoned  and  shall  act  regularly,2  and  that  he  shall  receive 
due  notice  of  them.3  "  It  is  not  only  a  plain  dictate  of  reason 
but  a  general  rule  of  law,  that  no  power  or  function  entrusted 
to  a  body  consisting  of  a  number  of  persons  can  be  legally 
exercised  without  notice  to  all  of  the  members  composing  such 
body." 4  The  notice  should  specify  the  time  and  place  of  the 
meeting,  the  nature  of  the  business  to  be  transacted,  and,  if  the 
constitution  of  the  corporation  contains  provisions  as  to  the 
manner  of  giving  notice,  they  should  be  followed.5 

§  574.  The  time  of  the  meeting  should  be  stated  with  pre- 
cision,6 and  no  business  should  be  transacted  before  the  time 
set,7  nor  after  the  meeting  has  apparently  adjourned.8  A  meet- 
ing held  at  a  different  place  from  the  one  notified  is  irregular;9 
and  the  notice  should  be  reasonable  in  every  respect,  and, 


failure  of  consideration.  Coving- 
ton, etc.,  Bridge  Co.  v.  Sargent,  1 
Cin.  Sup.  Ct.  (Ohio)  354. 

i  See  §   184. 

2  See  Langdon  v.  Patterson,  158  Pa. 
St.  476;  Stow  v.  Wyse,  7  Conn.  214; 
Stevens  v.  Eden  Meeting-house  Soc'y, 
12  Vt.  (388.  Compare  Citizens1  Ins. 
Co.  v.  Sortwell,  8  Allen,  217;  Sargent 
o.  Webster,  13  Mete.  (Mass.)  497; 
Mutual  Fire  Ins.  Co.  v.  Farquar,  86 
Md.  668. 

a  The  King  ».  Theodorick,  8  East, 
543;  see  Shortz  v.  Unangst,  3  W.  & 
S.  (Pa.)  45;  Commonwealth  v.  Cul- 
len,  13  Pa.  St.  133. 

*  People  v.  Batchelor,  22  N.  Y. 
128,  134;  see  Rex  v.  Langhorn,  4  A. 
&  E.  538;  Reilley  v.  Oglebay,  25  W. 
Va.  36. 

5  Stockholders,  etc.,  v.  Louisville, 
etc.,  R.  R.  Co.,  12  Bush  (Ky.),  62; 
Johnston  v.  Jones,  23  N.  J.  Eq.  216; 
Stevens  v.  Eden  Meeting-house  Soc'y, 
12  Vt.  688;  People's  Ins.  Co.  v.  West- 

582 


cott,  14  Gray,  440.  "  Provisions  in 
statutes  and  by-laws  requiring  the 
election  of  directors  to  be  bad  on  a 
specific  day  are  regarded  as  direc- 
tory, and  the  election,  if  not  held 
on  a  regular  day,  may  be  held  at 
a  later  day,  and  the  directors  then 
chosen,  if  there  be  no  other  irregu- 
larity or  infirmity  in  their  title,  will 
be  directors  de  jure.'1''  Beardsley  v. 
Johnson,  121  N.  Y.  224,  228.  Opin. 
of  Ct.  per  Earl,  J. 

6  San  Buenaventura  M'f'g  Co.  v. 
Vassault,  50  Cal.  534. 

7  People  v.  Albany,  etc.,  R.  R.  Co., 
55  Barb.  344. 

8  State  v.  Bonnell,  35  Ohio  St.  10; 
see  South  School  Dist.  v.  Blakeslee, 
13  Conn.  227;  compare  Hardenburgh 
i\  Farmers',  etc.,  Bank,  2  Green  (3 
N.  J.  Eq.),  68. 

9  Miller  v.  English,  21  N.  J.  L.  317; 
Den  v.  Pilling,  24  N.  J.  L.  653;  com- 
pare McDaniels  v.  Flower  Brook  M. 
Co.,  22   Vt.  274;   Corbett   V.   Wood- 


CHAP.  IX.]       CORPORATION  AND  SHAREHOLDERS. 


[§  575. 


unless  otherwise  provided,  served  in  person  on  the  sharehold- 
ers.1 The  notice  of  a  special  or  extraordinary  meeting  should 
specify  the  proposed  business,  and  at  such  a  meeting  business 
not  referred  to  in  the  notice  cannot  properly  be  transacted.2 
But  no  notice  of  the  business  to  be  transacted  at  a  stated 
meeting  is  necessary,  unless  the  business  be  of  an  extraordi- 
nary nature.  JSTor  need  further  notice  be  given  of  an  adjourned 
meeting  where  there  is  transacted  only  such  business  as  was 
duly  notified  for  the  meeting  which  was  adjourned.3  And  in 
general  no  notice  at  all  need  be  given  of  a  stated  meeting,  for 
which  the  time  and  place  are  set  either  by  usage  or  by  the 
constitution  of  the  corporation.4 

§  575.  The  meetings  must  be  called  by  the  proper  authori- 
ties.5   In  business  corporations  when  there  is  no  pro-    _^ 

.  .  .  Who  may 

vision  for  calling  meetings  the  managing  agents  may  call  meet- 
call  them.6  Generally,  however,  the  charter,  arti- 
cles of  association,  or  by-laws,  specify  the  manner  of  calling 
meetings,  and  such  directions  should  be  followed.7  Conse- 
quently, the  president  cannot  call  a  meeting  to  elect  officers 
when  authority  to  call  meetings  is  vested  by  the  by-laws  in 
the  trustees.8    But  even  where  from  the  by-laws  other  officers 


ward,  5  Sawyer,  403.  Meetings  of 
shareholders  cannot  be  held  outside 
the  state.     §  382. 

1  Stow  v.  Wyse,  7  Conn.  214;  Wig- 
gin  v.  Freewill  Baptist  Church,  8 
Mete.  301;  Matter  of  Long  Island 
R.  R.  Co.,  19  Wend.  37.  See  Tuttle 
v.  Michigan  Central  Air  Line  R.  R. 
Co.,  35  Mich.  247,  252. 

2  Atlantic  De  Laine  Co.  v.  Mason, 
5  R.  I.  463;  People's  Mut.  Ins.  Co.  v. 
Westcott,  14  Gray,  440;  Howbeach 
Coal  Co.  v.  Teague,  5  H:  &  N.  151; 
In  re  Bridport  Old  Brewery  Co., 
L.  R.  2  Ch.  191;  In  re  Silkstone  Fall 
Colliery  Co.,  L.  R.  1  Ch.  D.  38. 

8  Warner  v.  Mower,  11  Vt.  385. 
But  see  Thompson  v.  Williams,  76 
Cal.  153. 

4  State  v.  Bonnell,  35  Ohio  St.  10, 
15 ;  People  u.  Batchelor,  22  New  York, 
128;  Morrill  v.  Manufacturing  Co.,  53 


Minn.  371.  Notice  of  a  meeting  is 
immaterial  when  the  party  raising 
the  question  was  present  by  proxy 
and  voted.  Jones  v.  Milton,  etc., 
Turnpike  Co.,  7  Ind.  547;  see  Zabris- 
kie  v.  Cleveland,  etc.,  R.  R.  Co.,  23 
How.  381;  Troy  Mining  Co.  v.  White, 
10  S.  D.  475. 

6  Reilly  v.  Oglebay,  25  W.  Va.  36; 
Congregational  Society  v.  Sperry,  10 
Conn.  200.  The  proper  officers  may 
be  compelled  by  mandamus  to  call  a 
meeting.  State  v.  Wright,  10  Nev. 
167;  People  v.  Board  of  Governors, 
61  Barb.  397;  McNeely  v.  Woodruff, 
13  N.  J.  L.  352;  compare  Goulding 
v.  Clark,  34  N.  II.  148. 

6  Stebbins  v.  Mcrritt,  10  Cash.  27. 

:  See  Evans  v.  Osgood,  18  Me.  213, 
and  §  573. 

8  State  v.  Petteinli,  10  Nev.  141. 

583 


§  577.]  THE    LAW    OF    PRIVATE   CORPORATIONS.   [CHAP.  IX. 

have  power  to  call  meetings,  the  managing  board  has  also  that 
power.1 

§  576.  The  methods  of  voting  and  of  conducting  the  meet- 
By-laws,  ings  may  be  regulated  by  by-laws,2  provided  the  by- 
irreguiariy  laws  are  not  inconsistent  with  the  terms  of  the 
transacted.  charter  or  other  statutes  applicable.3  And  generally 
business  transacted  in  disregard  of  the  required  formalities 
may  be  set  aside,  unless  the  divergence  was  trivial,  or  the  rights 
of  outsiders  who  have  acted  without  notice  of  the  irregularities 
intervene.4 

§  577.  At  common  law  each  member  of  a  corporation  was 
entitled  to  one  vote ;  and  this  rule  is  still  of  general 
Each1  share-  application  to  corporations  other  than  stock  corpora- 
as°mlnyas  tions.  With  regard  to  the  latter,  by  statute  and  by- 
votes  as        laws,  and  by  custom  so  general  as  to   amount   to 

shares.  -  ° 

Cumulative  accepted  law,  a  shareholder  is  entitled  to  as  many 

voting. 

votes  as  he  holds  shares.5     Shareholders  cannot  be 
deprived  of  the  right  to  vote,  nor  can  it  be  changed  bv  legisla- 


1  Citizens'  Mat.  Fire  Ins.  Co.  v. 
Sortwell,  8  Allen,  217.  Compare 
Chamberlain  ».  Painesville,  etc.,  R. 
R.  Co.,  15  Ohio  St.  225. 

2  Commonwealth  v.  Woelper,  3 
S.  &  R.  (Pa.)  29;  Jukeru.  Common- 
wealth, 20  Pa.  St.  484;  People  v. 
Crossley,  69  111.  195.  See  Matter  of 
Long  Island  R.  R.   Co.,  19  Wend.  37. 

8  When  the  statute  prescribes  the 
mode  of  electing  directors,  it  cannot 
be  changed  by  by-law.  Brewster  v. 
Hartley,  37  Cal.  15.  When  the  char- 
ter provides  that  annual  meetings 
shall  be  held  by  the  shareholders 
or  the  election  of  directors,  the  di- 
rectors cannot  by  a  by-law  so  change 
the  time  of  holding  the  annual  elec- 
tion that  they  will  continue  them- 
selves in  office  more  than  a  year 
against  the  wishes  of  a  holder  of  a 
majority  of  stock.  Elkins  v.  Cam- 
den and  Atlantic  R.  R.  Co.,  36  N.  J. 
Eq.  467.  Compare  S.  C.  on  Appeal, 
37  N.  J.  Eq.  273,  which  further  holds 
584 


that  directors  who  are  in  office  can- 
not dispute  the  rights  of  shareholders 
to  obtain  a  new  election,  in  accord- 
ance with  the  by-laws,  and  thus  pro- 
long their  own  authority,  on  the 
ground  that  the  proposed  election 
is  a  step  towards  the  illegal  and  im- 
proper control  of  the  property  or 
business  of  the  corporation,  and  that 
the  complainant  stockholder,  who 
holds  a  majority  of  the  stock,  has 
bought  it  with  the  money  of  rival 
companies  and  means  to  use  his 
rights  for  purposes  detrimental  to 
the  corporation.  Camden  and  A.  R. 
R.  Co.  v.  Elkins,  37  N.  J.  Eq.  273. 
Compare  Ryder  p.  Alton,  etc.,  R.  R. 
Co,  13  111.  516;  State  v.  Coonan,  23 
Nev.  437. 

4  People  v.  Albany,  etc.,  R.  R.  Co., 
55  Barb.  344.     See  §  184. 

5  See  Proctor  C'l  Co.  i\  Finley,  98 
Ky.  405.  The  old  rule  was  applied 
to  a  stock  corporation  in  Taylor  v. 
Griswold,   14  N.   J.   L.  222,  237.     In 


CHAP.  IX.]        CORPORATION  AND  SHAREHOLDERS.  [§  511a. 

tion  unless  the  charter  of  the  corporation  be  subject  to  altera- 
tion and  repeal.1 

In  some  states  there  are  constitutional  or  legislative  provi- 
sions the  object  of  which  is  to  enable  a  minority  of  shareholders 
to  obtain  through  their  votes,  a  minority  representation  on  the 
board  of  directors,  and  in  this  way  to  have  some  voice  in  the 
management  of  the  corporation.  This  is  called  cumulative 
voting.  The  typical  provision  is  that  of  the  Pennsylvania 
constitution  of  1874,  (article  16,  sec.  4),  which  is  as  follows :  "  In 
all  elections  for  directors  or  managers  of  a  corporation,  each 
member  or  shareholder  may  cast  the  whole  number  of  his  votes 
for  one  candidate,  or  distribute  them  upon  two  or  more  can- 
didates." Commenting  upon  this  section  the  Pennsylvania 
Supreme  Court  say  :  "This  section  to  us  seems  very  plain  and 
unambiguous.  If  there  are  six  directors  to  be  elected,  the 
single  shareholder  has  six  votes,  and,  contrary  to  the  old  rule, 
he  may  cast  those  six  votes  for  a  single  one  of  the  candidates, 
or  he  may  distribute  them  to  two  or  more  of  such  candidates 
as  he  may  think  proper.  He  may  cast  two  ballots  for  each  of 
three  of  the  proposed  directors,  three  for  two,  or  two  for  one, 
and  one  each  for  four  others,  or  finally  he  may  east  one  vote 
for  each  of  the  six  candidates."  2 

It  is  clear  that  legislation  cannot  impose  cumulative  voting 
upon  a  corporation  whose  charter  is  not  subject  to  alteration.3 
But  when  power  to  alter  and  repeal  is  reserved,  a  state  legis- 
lature may  so  amend  its  corporation  laws  as  to  permit  a  share- 
holder in  an  existing  corporation  to  "cumulate"  his  votes.4 

§  517a.  It  is  the  right  of  every  shareholder  that  the  elections 


Illinois,  under  construction  of  stat- 
utes, directors  must  be  stockholders, 
and  must  be  elected  solely  by  vote 
of  stockholders;  a  by-law  giving 
bondholders  a  right  to  vote  at  cor- 
porate meetings  is  void.  Durkee  v. 
People,  155  111.  354. 

1  Hays  v.  Commonwealth,  82  Pa. 
St.  518;  State  v.  Greer,  78  Mo.  188; 
Lowenthal  u.  Rubber  Co.,  52  N.  J. 
L.  440.  Compare  Everhart  v.  Phila. 
&  W.  C.  R.  R.  Co.,  28  Pa.  St.  339, 
holding  that  a  shareholder  was  not 
released  from  his  subscription  by  an 


amendment  accepted  by  the  corpora- 
tion, changing  the  voting  power. 

2  Pierce  v.  The  Commonwealth, 
104  Pa.  St.  150.  For  the  New  York 
statute,  see  section  20  of  the  General 
Corporation  Law  as  amended  by  laws 
of  1901,  chapter  355. 

3  Cases  in  last  note  but  one.  Di- 
rectors cannot  accept  such  an  amend- 
ment. Baker's  Appeal,  109  Pa.  St. 
401. 

*  Looker  v.  Maynard,  179  U.  S.  46. 
For  other  cases  upon  special  instan- 
ces of  cumulative  voting,  see  Horton 

585 


§  577rt.]        THE   LAW   OF    PRIVATE   CORPORATIONS.    [CHAP.  IX. 

Election  of  °f  corporate  officers  shall  be  conducted  legally  ;*  and 
officers.  ^at  0QYy  ^e  shareholders  shall  vote  who  are  right- 
fully entitled  to  do  so.  But  an  election  of  officers  will  not  be 
set  aside  because  illegal  votes  were  admitted,  if  their  rejection 
would  not  have  changed  the  result.2  Votes  cast  for  an  ineligible 
candidate  will  not  be  thrown  away,  so  as  to  elect  a  candidate 
having  a  minority  of  votes,  unless  the  persons  casting  such 
votes  knew  that  the  person  for  whom  they  voted  was  disquali- 
fied.3    And  persons  who  at  an  election  have  a  minority  only 


v.  Wilder,  48  Kan.  222  ;  Cross  v.  W. 
Va.  R.  R.  Co.,  85  W.  Va.  174  ;  Wright 
v.  Cent.  Cal.  C.  W.  Co.,  67  Cal.  532  ; 
Gregg  v.  Granby  M's  Co.,  164  Mo. 
616.  In  regard  to  the  cumulative 
voting  for  public  officers,  see  People 
B.  Kenney,  96  X.  Y.  294  ;  State  v. 
Coustantine,  42  O.  St.  437. 

1  In  re  Election  of  St.  Lawrence 
Steamboat  Co.,  44  N.  J.  L.  529  ;  San 
Buenaventura  M'f'g  Co.  v.  Vassault, 
50  Cal.  534  ;  Matter  of  Long  Island 
R.  R.  Co.,  19  Wend.  37;  Stater.  New 
Orleans,  etc.,  R.  R.  Co.,  20  La.  Ann. 
489. 

The  appointment  of  a  receiver  does 
not  affect  the  right  of  shareholders  to 
elect  directors.  At  a  meeting  to  elect 
directors  the  right  of  choosing  in- 
spectors is  in  the  shareholders,  not  in 
the  directors.  State  v.  Merchant,  37 
Ohio  St.  251. 

The  corporation  should  be  made  a 
party  to  an  application  to  set  aside  an 
election.  Matter  of  Pioneer  Paper 
Co.,  36  How.  Pr.  (N.  Y.)  102. 

A  person  who  becomes  a  share- 
holder after  an  election,  receiving  his 
certificate  of  stock  from  a  person 
who  took  part  therein,  has  no  stand- 
ing in  court  (under  a  certain  statute), 
to  compel  a  new  election.  In  re  Ap- 
plication of  Syracuse,  etc.,  R.  R.  Co., 
91  N.  Y.  1. 

2  Ex  parte  Chenango  County  Mut 
Ins.  Co.,  19  Wend.  635;  McNeely  v. 
Woodruff,  13  N.  J.  L.  (1  Green) 352; 

586 


Argus  Company,  Petition  of,  138 
N.  Y.  557. 

That  inspectors  were  not  sworn  as 
prescribed  by  statute  is  no  ground  to 
set  aside  an  election.  Ex  parte 
Mohawk,  etc.,  R.  R.  Co.,  19  Wend. 
135 ;  Ex  parte  Chenango  County  Mut. 
Ins.  Co.,  supra.  Nor  the  fact  that 
votes  were  received,  which,  though 
legal,  were  not  properly  proved  to  be 
so.  Conant  v.  Millandon,  5  La.  Ann. 
542.  Nor  that  certain  persons  were 
excluded  from  voting  by  the  injunc- 
tion of  a  court  of  competent  juris- 
diction. Brown  v.  Pacific  Mail  S.  S. 
Co.,  5  Blatchf.  525. 

3  In  re  Election  of  St.  Lawrence 
Steamboat  Co.,  44  N.  J.  L.  529; 
Jordy  v.  Hebrard,  18  La.  Ann.  456. 
See  Reg.  v.  Mayor  of  Tewkesbury, 
L.  R.  3  Q.  B.  629.  Yet  in  Baker's 
Appeal,  109  Pa.  St.  461,  it  was  held 
that  the  court  should,  in  determining 
who  were  elected,  disregard  votes  im- 
properly (cumulatively)  cast.  At  a 
shareholders'  meeting  a  majority 
vote  of  those  voting  is  good,  though 
the  vote  so  cast  is  not  a  majority  of 
all  the  stock.  State  v.  Chute,  34 
Minn.  135.  But  see  In  re  Election  of 
Cape  May,  etc.,  Navigation  Co.,  51 
N.  J.  L.  78;  Granger  v.  Grubb,  7 
Phila.  (Pa.)  350;  Manufacturing  Co. 
v.  Faunce,  79  Me.  440.  When  seven 
directors  are  voted  for,  yet  only  five 
obtain  the  requisite  pluralities  (un- 
der the  cumulative  system  of  voting), 


CHAP.  IX.]        CORPORATION  AND  SHAREHOLDERS. 


[§  578. 


of  the  votes  received  by  the  judges  of  the  election,  cannot  on 
a  quo  warranto  proceeding  brought  to  oust  the  improperly- 
elected  officers,  be  declared  elected  and  inducted  into  office, 
although  it  appear  that  enough  legal  votes  to  have  given  them 
a  majority  were  offered  in  their  favor  and  rejected  by  the 
judges  of  election.1 

§  578.  The  general  rule  is  that  the  transfer  books  of  the  cor- 
poration are  the  evidence  as  to  the  persons  who  are  entitled 
to  the  rights  and  privileges  of  shareholders,  including  the  right 
to  vote.3     And  the  inspectors  of  election  need  not  and,  per- 
haps, cannot  go  behind  the  transfer  books  to  ques-   Transfer 
tion  the  right  to  vote  of  one  who  appeal's  by  them  to   books  eYi- 
be  a  holder  of  legally  issued  stock.3     But  the  books   right  to 
are  not  under  all  circumstances  or  for  all  purposes 


their  election  is  valid.  Wright  v. 
Commonwealth,  109  Pa.  St.  560.  Un- 
less otherwise  provided,  those  who 
assemble  at  a  shareholders'  meeting 
constitute  a  quorum,  although  a 
minority  of  the  stock.  Morrill  b. 
M'f'g  Co.,  53  Minn.  371. 

1  State  v.  McDaniel,  22  Ohio  St. 
354.  Persons  who  take  part  in  the 
election  of  officers  and  the  formation 
of  the  company,  knowing  of  the  non- 
fullillment  of  conditions  precedent, 
cannot  afterward  bring  quo  loarranto 
on  these  grounds  against  the  officers. 
Cole  v.  Dyer,  29  Ga.  434. 

2  In  re  Election  of  St.  Lawrence 
Steamboat  Co.,  siqwa ;  People  v. 
Robinson,  64  Cal.  373;  State  v. 
Ferris,  42  Conn.  560,  568;  Hopkin 
v.  Buff  urn,  9  R.  I.  513.  See  Wilson 
v.  Proprietors,  ib.  590;  In  re  Cedar 
Grove  Co.,  61  N.  J.  L.  422.  A  regis- 
tered shareholder  may  vote  though 
he  has  not  paid  for  his  shares. 
Savage  v.  Ball,  17  N.  J.  Eq.  142; 
Downing  v.  Potts,  23  N.  J.  L.  66. 
Transferee  of  shares  cannot  vote 
until  the  transfer  is  registered. 
McNeil  b.  Tenth  Nat.  Bk.,  46  N.  Y. 
325,  332.  An  assignment  of  shares, 
with  power    of   attorney,    executed 


by  a  foreign  executor,  is  valid,  and 
the  company  is  bound  to  record  the 
transfer;  it  is  not  necessary  that 
letters  testamentary  should  be  taken 
out  here.  Middlebrook  v.  Merchants' 
Bank,  3  Keyes  (N.  Y.),  135. 

3  In  re  Electiou  of  St.  Lawrence 
Steamboat  Co.,  supra  ;  Ex  parte  Long 
Island  R.  R.  Co.,  19  Wend.  37; 
Morrsseaux  b.  Urquhart,  19  La.  Ann. 
482;  Morrill  b.  Mfg.  Co.,  53  Mich. 
371. 

A  shareholder  may  vote  though 
he  has  hypothecated  his  shares.  Ex 
parte  Willcox,  7  Cow.  (N.  Y.)  402; 
Ex  parte  Barker,  6  Wend.  509.  But 
the  pledgee  may  vote  when  the 
shares  have  been  transferred  to  his 
name.  In  re  Argus  Printing  Co.,  1 
Nor.  Dak.  434;  cf.  State  of  Oregon 
v.  Smith,  15  Oregon,  98.  A  person 
may  vote  on  shares  standing  in  his 
name  as  trustee.  Ex  parte  Barker, 
supra.  See  Ex  parte  North  Shore, 
etc.,  Ferry  Co.,  63  Barb.  556.  'See 
also  McHenry  v.  Jewett,  90  N.  Y. 
58;  Johnston  v.  Jones,  23  N.  J.  Eq. 
216,  228.  An  administrator  can  vote. 
In  the  Matter  of  the  North  Shore 
State n  Island  Ferry  Co.,  63  Barb. 
(N.  Y. )  556.     A  bankrupt  mav  vote 

587 


§  580.]  THE   LAW    OF    PRIVATE   CORPORATIONS.  [CHAP.  IX. 


Voting  by 
proxy. 


conclusive  as  to  the  right  to  vote  ; l  nor  are  they  conclusive 
evidence  of  the  qualification  of  directors,  where  a  statute  re- 
quires that  directors  shall  be  bona  fide  holders  of  stock.2 
Shares  held  by  the  corporation,  or  in  trust  for  it,  cannot  be 
voted  on.3 

§  579.  It  is  held  that  shareholders  have  no  implied  right  to 
vote  by  proxy,4  but  it  is  competent  for  a  corporation 
by  a  by-law  to  authorize  votes  to  be  cast  in  that  man- 
ner.5 And  inspectors  cannot  reject  a  vote  offered  by 
proxy  because  the  written  proxy  is  not  acknowledged.  A 
shareholder  must  give  his  agent  such  written  evidence  of  the 
agent's  right  to  act  as  will  reasonably  assure  the  inspectors  that 
the  agent  is  acting  by  the  authority  of  the  principal.  But  the 
power  of  attorney  need  not  be  in  any  particular  form,  or  exe- 
cuted with  any  particular  formality.6  A  shareholder  repre- 
sented by  proxy  at  a  meeting  is  chargeable  with  knowledge  of 
facts  connected  with  the  proceedings  of  that  meeting  known  to 
his  proxy.7 

§  580.  A  number  of  shareholders  may  by  agreement  combine 


on  shares  standing  in  his  name,  with 
the  assent  of  his  assignee  in  bank- 
ruptcy. State  v.  Ferris,  42  Conn. 
560. 

strong  v.  Smith,  15  Hun,  222. 
A  shareholder  cannot  vote  on  shares 
previously  assigned,  but  not  trans- 
ferred on  the  books  of  the  company, 
even  with  the  assent  and  in  the 
presence  of  the  assignee.  Common- 
wealth v.  Woodward,  4  Phila.  124. 
Compare  U.  S.  R.  S.,  §5144. 

Holders  of  illegally  issued  stock 
are  not  entitled  to  vote  thereon. 
McManus  v.  Philadelphia,  etc.,  R. 
R.  Co.,  58  Pa.  St.  330. 

2  In  re  Election  of  St.  Lawrence 
Steamboat  Co.,  supra. 

sMcNeely  v.  Woodruff,  13  X.  J. 
L.  (1  Green)  352;  Brewster  v.  Hart- 
ley, 37  Cal.  15;  Ex  parte  Holmes,  5 
Cow.  (N.  Y.)  426;  Ex  parte  Des- 
doity,  1  Wend.  98.     See  §§  136,   185. 

4  Commonwealth  r.  Bringhurst, 
103  Pa.  St.  134;  Philips  ».  Wickham, 

588 


1  Paige  (N.  Y.),  590,  598;  People  v. 
Twaddle,  18  Hun,  427;  Craig  v.  First 
Presbyterian  Church,  88  Pa.  St.  42; 
Taylor  v.  Griswold,  14  N.  J.  L.  222. 
None  of  these  cases,  except  the  first 
and  last,  were  cases  of  stock  corpo- 
rations. 

5  People  i\  Ciossley,  69  111.  195; 
State  v.  Tudor,  5  Day  (Conn.),  329. 
See  Philips  v.  Wickham,  1  Paige, 
590,  598;  Walker  v.  Johnson,  17  D. 
C.  App.  C,  144.  Contra,  Taylor  v. 
Griswold,  14  N.  J.  L.  222,  228. 

6  In  re  Election  of  St.  Lawrence 
Steamboat  Co.,  supra ;  Matter  of 
Cecil,  30  How.  Pr.  (N.  Y.)  477. 

An  irrevocable  power  of  attorney 
or  proxy  to  a  trustee,  executed  by 
a  number  of  shareholders,  is  not 
against  public  policy.  Brown  v. 
Pacific  Mail  S.  S.  Co.,  5  Blatchf. 
525. 

7  Thames  v.  Central  City  Ins.  Co., 
49  Ala.  577. 


CHAP.  IX.]         CORPORATION  AND  SHAREHOLDERS. 


[§  581. 


to  control  a  corporate   election    and    elect    proper 
officers  in  the  best  interests  of  the  corporation.1     But   ^on^o?*" 
it  has  been  held  that  such  agreements  must  not  con-   f11*";6" 

°        _  holders ; 

tain  provisions  restricting  the  right  of  shareholders  voting 
to  alienate  their  shares  and  vote  by  proxy.2  And  in 
Massachusetts  it  is  held  that  an  agreement  between  sharehold- 
ers to  vote  for  one  of  them  or  for  a  third  person  as  manager, 
and  to  vote  to  increase  the  salaries  of  all  the  officers,  including 
the  manager,  is  void  as  against  public  policy ;  at  least  unless 
assented  to  by  all  the  shareholders.3 

§  581.  A  court  of  law  is  the  proper  tribunal  to  determine 
the  validity  of  a  corporate  election.  For,  unless 
specially  authorized  by  statute,  a  court  of  equity  has 
no  authority  to  try  this  question,  and  pronounce 
judgment  of  amotion.4  But  when  the  question  of 
the  validity  of  a  corporate  election  necessarily  arises 
in  the  determination  of  a  suit  properly  cognizable 
by  a  court  of  equity,  it  will  determine  that  question  as  it  would 
any  other  question  of  law  or  fact  necessary  to  be  decided  in 
order  to  settle  the  rights  of  the  parties.5  And  a  court  of  equity 
has  jurisdiction  of  a  bill  brought  by  a  shareholder  to  procure  the 
cancellation  of  illegal  shares  and  incidentally  to  restrain  the 


A  court  of 
law  the  tri- 
bunal to  de- 
termine the 
validity  of 
corporate 
elections. 
Injunctions 


iFaulds  v.  Yates,  57  111.  516; 
Havemeyer  ».  Havemeyer,  11  J.  & 
S.  506;  affirmed  86  New  York,  618; 
Beitman  v.  Steiner,  98  Alabama,  241: 
see  Barnes  v.  Brown,  80  New  York, 
527,  537.  Shareholders  may  place 
their  stock  in  the  hands  of  a  deposi- 
tary, with  directions  to  vote  it  as  di- 
rected by  a  committee  appointed  by 
themselves  and  subject  to  their  con- 
trol. Railway  Co.  v.  State,  49  O.  St. 
668.  See,  also,  Chapman  v.  Bates,  60 
N.  J.  Eq.  17;  Clowes  v.  Miller,  ib. 
179;  Kreissl  0.  Distilling  Co.,  47  Atl. 
Rep.  471.  Compare  Brightmau  v. 
Davis,  175  Mass.  105.     See  §  559a. 

2  Fisher  v.  Bush,  45  Hun  (N.  Y.), 
641.  But  see  Argus  Company,  Peti- 
tion of,  138  N.  Y.  557. 

3  Woodruff  r.  Wentworth,  133 
Mass.   309;    Guernsey   v.    Cood,    120 


Mass.  501.  See  §  788.  On  so-called 
"voting  trusts,"  see  article  by  R.  L. 
Cutting  in  Albany  Law  Journal, 
June,  1902.  For  New  York  statute 
on  this  subject  see  section  20  of  the 
General  Corporation  Law  as  amended 
by  chapter  355  of  the  laws  of  1901. 

*  Mechanics'  National  Bk.  v.  Bur- 
nett Manuf.  Co.,  32  N.  J.  Eq.  236 
Owen  o.  Whitaker,  20  N.  J.  Eq.  122 
Kean  v.  Union  Water  Co.,  52  N.  J 
Eq.  813;  Neall  e.  Hill,  16  Cal.  146 
Supreme  Lodge  v.  Simering,  88  Md 
276;  Triesler  v.  Wilson,  89  Md.  169; 
Whitehead  v.  Sweet,  126  Cal.  67. 

5  Mechanics'  Nat.  Bank  v.  Burnett 
Manufr'ing  Co.,  supra.  Compare 
New  England  Mut.  Life  Ins.  Co.  v. 
Phillips,  141  Mass.  535;  Walker  V. 
Johnson,  17  D.  C.  App.  Ca.  144. 

589 


§  583.]  THE   LAW   OP   PRIVATE   CORPORATIONS.    [CHAP.  IX. 


holders  from  voting  on  them.1  Similarly,  an  injunction  may 
be  granted,  at  the  suit  of  shareholders,  restraining  other  share- 
holders from  voting  shares  in  a  manner  contrary  to  the  purport 
of  a  provision  in  the  charter.2  But,  it  is  submitted,  courts 
should  be  chary  of  granting  injunctions  at  the  suit  of  share- 
holders restraining  other  shareholders  from  voting  at  corporate 
elections;  and  certainly  a  preliminary  injunction  should  not  be 
granted  so  near  the  time  of  an  election  as  to  take  away  the 
votes  of  shareholders  without  giving  them  a  chance  to  be 
heard.3 

§  582.  Every  stock  corporation  has  the  implied  power  to 
make  by-laws  for  the  regulation  of  its  affairs;4  and 

Power  to 

make  by-  the  majority  may  competently  pass  any  reasonable 
by-law  within  the  general  scope  of  the  corporate 
purposes  that  is  calculated  to  effect  them.3  The  power  to 
make  by-laws  is  in  the  shareholders  (not  in  the  board  of 
directors)  when  there  is  no  law  or  valid  usage  to  the  con- 
trary.6 

§  583.  Ify-laws  must  be  reasonable,7  and  not  in  contraven- 
tion of  the  law,  written  or  unwritten,  and  particularly  must 


1  Wood  o.  Church  B'ld'g  Ass'n,  63 
Wis.  9.  But  it  has  been  held  that 
an  injunction  will  not  be  granted 
restraining    shareholders  from  vot- 


specified  is  invalid  regardless  of  its 
reasonableness.       Ireland    i>.    Globe 
Milling  Co.,  19  R.  I.  180. 
5  See   Carne    v.    Brigham,   39  Me. 


ing  on  alleged   illegal  stock,  at  least   35;  State  v.  Tudor,  5  Day  (Conn.), 


unless  irreparable  (threatened)  in- 
jury to  the  plaintiff  or  the  company 
be  shown.  Reed  v.  Jones,  G  Wis. 
680. 

2  Webb  v.  Ridgely,  38  Md.  364. 
An  election  of  officers  may  be  legal 
though  less  than  one-half  of  the 
stock  be  voted  thereat,  the  other 
shares  being  excluded  by  injunc- 
tion. Brown  v.  Pacific  Mail  S.  S. 
Co.,  5  Blatchf.  525. 

3  llilles  r.  Parish,  14  N.  J.  Eq. 
380.     Compare  §  794. 

4  Martin  v.  Nashville  B'ld'g  Ass'n, 
2  Coldw.  ( Tenn. )  418.  See,  also,  §§  6, 
12,  15,  20.  Where  a  general  statute 
gives  corporations  power  to  make 
by-laws  for  certain  specified  pur- 
poses,  a  by-law  for  a  purpose   not 

590 


329;  McFatlden  v.  County  of  Los 
Angeles,  74  Cal.  571.  By-laws  con- 
tained in  a  book  issued  to  share- 
holders are  evidence  against  a 
shareholder  in  an  action  by  the  re- 
ceiver of  the  corporation  to  collect  a 
subscription.  Frank  v.  Morrison,  58 
Md.  423. 

6  Morton  Gravel  Road  Co.  v.  Wy- 
song,  51  Ind.4;  Carroll  v.  Mullanphy 
S'v'gs  B'k,  8  Mo.  App.  249. 

7  Cartan  v.  Father  Matthew  Soc'y, 
3  Daly,  20;  State  v.  Merchants'  Ex- 
change, 2  Mo.  App.  96.  Whether  a 
by-law  is  unreasonable  or  not  is  a 
question  solely  for  the  court;  but  its 
unreasonableness  must  be  demon- 
strated. Hibernia  Fire  Engine  Co. 
u.  Harrison,  93  Pa.  St.  264. 


CHAP.  IX.]       CORPORATION  AND  SHAREHOLDERS. 


[§  584. 


not  contravene  the  charter  or  enabling  act  and  articles  of  asso- 
ciation.1 A  by-law  that  would  deprive  a  shareholder  of  vested 
rights  is  invalid,2  as,  for  instance,  one  prohibiting  a  share- 
holder from  alienating  his  shares.3  And  a  majority  cannot  by 
a  by-law  impose  on  shareholders  individual  liability  for  corpo- 
rate indebtedness.4  A  by-law  consisting  of  several  distinct 
and  independent  parts  may  be  valid  in  one  part  and  void  in 
another.5 

§  5S4.  The  authority  which  is  competent  to  enact  by-laws  is 
competent  to  repeal  them;6  but  no  more  can  their  repeal  than 
their  passage  affect  a  vested  right.7 


1  Martin  v.  Nashville  B'ld'g  Ass'n, 
2  Coldw.  (Term.)  418;  State  v.  Cur- 
tis, 9  Nev.  325;  Andrews  v.  Union 
Mut.  Fire  Ins.  Co.,  37  Me.  256; 
Seneca  County  Bank  v.  Lamb,  26 
Barb.  595;  Bergman  v.  St.  Paul 
Mut.  B'ld'g  Ass'n,  29  Minn.  275. 
See  Adley  v.  Reeves,  2  Maule  &  S. 
53;  Gordon  v.  Muchler,  34  La.  Ann. 
604.  Compare  Goddard  v.  Mer- 
chants' Exchange,  9  Mo.  App.  290; 
aff'd  78  Mo.  609;  Kolff  v.  St.  Paul 
Fuel  Exchange,  48  Minn.  215.  As 
to  by-laws  in  restraint  of  trade,  see 
Matthews  y.  Associated  Press,  136 
N.  Y.  333;  Trowbridge  v.  Hamilton, 
18  Wash.  686;  Bailey  v.  Master 
Plumbers,  103  Tenn.  99. 

2  See  Kent  v.  Quicksilver  M'g  Co., 
78  N.  Y.  159,  182;  Peutz  v.  Citizens' 
Fire  Ins.  Co.,  35  Md.  73;  Holyoke 
Bldg.  Ass'n  v.  Lewis,  1  Col.  App.  127. 
But  it  is  held  that  a  person  becoming 
a  member  of  a  corporation  (not  a 
stock  corporation),  may  be  bound  by 
an  agreement  that  his  relations 
thereto  shall  be  subject  to  by-laws 
then  in  force  or  thereafter  to  be  en- 
acted. Supreme  Commandery  v. 
Aiusworth,  71  Ala.  436;  cf.  May- 
nard  v.  Interstate  Ass'n,  112  Ga. 
443,  overruled  in  Interstate  Ass'n  v. 
Wooten,  113  Ga.  247.  Pain  v.  Societe 
St.    Jean   Baptiste,    172    Mass.   319. 


But  see  Parish  v.  N.  Y.  Produce  Ex- 
change, 169  N.  Y.  34. 

3  Moore  v.  Bk.  of  Commerce,  52  Mo. 
377;  In  re  Klaus,  67  Wis.  401;  Ire- 
land v.  Globe  Milling  Co.,  21  R.  I.  9. 
Compare  Spurlock  v.  Pacific  Rail- 
road, 61  Mo.  319.  See  McNulta  v. 
Corn  Belt  Bk.,  164  111.  427.  A  by- 
law providing  that  a  shareholder  who 
wishes  to  sell  his  shares  must  first 
give  other  shareholders  an  oppor- 
tunity to  buy  at  the  price  which  he 
can  get,  is  invalid.  Bloede  Co.  v. 
Bloede,  84  Md.  129.  See,  also,  Trust, 
etc.,  Co.  v.  Lumber  Co.,  118  Mo.  447. 
Compare  New  Eng.  T.  Co.  v.  Abbott, 
162  Mass.  148. 

4  Reid  v.  Eatonton  M'f'gCo.,  40  Ga. 
98;  Trustees  v.  Flint,  13  Mete.  539. 
As  to  the  reasonable  construction 
that  should  be  placed  on  by-laws,  see 
In  re  Dunkerson,  4  Biss.  227;  State 
v.  Conklin,  34  Wis.  21. 

5Amesbury  ».  Bowditch  Mut.  Fire 
Ins.  Co.,  6  Gray,  596;  State  v.  Curtis, 
9  Nev.  325,  337. 

6  Smith  v.  Nelson,  18  Vt.  511 ;  Un- 
derbill v.  Santa  Barb.  Land  Co.,  93 
Cal.  300. 

7 See  Kent  v.  Quicksilver  M'g  Co., 
78  N.  Y.  159,  182;  Parish  v.  N.  Y. 
Produce  Exchange,  169  N.  Y.  34; 
Savage  ».  People's  B.  &  L.  Assn.,  45 
W.  Va.  275. 

591 


§  586.] 


THE   LAW    OF   PRIVATE   CORPORATIONS.   [CHAP.  IX. 


Right  to 

inspect 

corporate 

books. 


§  585.  A  shareholder  has  a  right  to  inspect  the  corporate 
books  at  reasonable  intervals;1  and  may  enforce  this 
right  by  mandamus?  His  right  of  inspection  may 
be  exercised  through  an  expert  or  an  agent  when  he 
is  himself  too  ignorant  to  exercise  it  intelligent!}7.3 
And  where  shareholders  are  permitted  by  the  articles  to  in- 
spect the  register,  a  shareholder  (an  attorney)  may  inspect  it, 
although  he  is  really  acting  in  the  interests  of  his  clients  who 
are  in  litigation  with  the  company.4 

§  586.  On  a  transfer  of  shares  legal  relations  ordinarily 
cease  to  subsist  between  the  corporation  and  the 
shareholder  transferring  his  shares,  and — a  nova- 
tion taking  place — attach  themselves  to  the  trans- 
feree.5 It  is  the  American  doctrine,  however,  that 
a   transfer  of   shares   in    an   insolvent  corporation, 


Transfer 
of  shares. 
Effect. 
When  cor- 
poration is 
insolvent. 


1  Deoderick  ».  Wilson,  8  Bax.  (Tenn.) 
108;  Stone  c.  Kellogg.  Ib5  111.  192; 
State  ex  rel.  v.  Pacific  Brew'g  Co.,  21 
Wash.  451.  See  Angell  and  Ames  on 
Corp.,  §681;  2  Lindley  on  Part.,  809- 
814.  Cases  in  next  note.  Penalties 
are  sometimes  attached  by  statute  to 
a  refusal  of  corporate  officers  to  al- 
low a  shareholder  to  inspect  the 
books.  See  Lewis  v.  Brainard,  53 
Vt.  510. 

2Cockburn  v.  Union  Bk.,  13  La. 
Ann.  289;  Commonwealth  v.  Phco- 
nix  Iron  Co.,  105  Pa.  St.  Ill; 
Stettauer  v.  N.  Y.  etc.,  Cons. 
Co.,  42  N.  J.  Eq.  46;  Matter  of 
Steinway,  159  N.  Y.  250;  People  v. 
Lake  Shore,  etc.,  R.  R.  Co.  11  Hun, 
1;  People  v.  Pacific  Mail  S.  S.  Co.,  50 
Barb.  280;  Foster  v.  White,  86  Ala. 
467;  Weihenmeyer  v.  Bittner,  88 
Md.  325.  See,  Boundette  i\  Sreinard, 
52  La.  Ann.  1333;  Cinn.  Volksblatt, 
Co.  o.  Hoffmeister,  62  Ob.  St.  189. 
The  granting  of  the  writ  is  discre- 
tionary and  not  reviewable  on  ap- 
peal. Matter  of  Sage,  70  X.  Y.  221; 
Matter  of  Tuttle  v.  Iron  Nat.  B'k, 
170  N.  Y.  9.  See  Lyon  v.  Amer. 
Screw  Co.,  16  R.  I.  472.  But  the 
502 


shareholder  is  not  entitled  to  an 
action  for  damages  against  a  corpo- 
ration for  an  improper  refusal  of  its 
officers  to  permit  him  to  inspect  the 
books.  Legendre  v.  Brewing  Ass'n, 
45  La.  Ann.  669. 

3 States.  Bienville  Oil  Works  Co., 
28  La.  Ann.  204;  Phoenix  Iron  Co.  v. 
Coinmouwealth,  113  Pa.  St.  563. 

4  Reginav.  Wilts,  etc.,  Caual  Navi- 
gation, 29  L.  T.  N.  S.  922;  Weihen- 
meyer v.  Bittner,  88  Md.  325. 

5  This  principle  is  sometimes  de- 
clared by  statute,  as  in  regard  to  na- 
tional banks,  U.  S.  Rev.  Stat.  §  5139. 
"  When  an  original  subscriber  to  the 
stock  of  an  incorporated  company, 
who  is  bound  to  pay  the  instalments 
on  his  subscription  from  time  to 
time  as  they  are  called  in  by  the 
company,  transfers  his  stock  to  an- 
other persou,  such  other  person  is 
substituted  not  only  to  the  rights, 
but  to  the  obligations  of  the  original 
subscriber;  and  he  is  bound  to  pay 
up  the  instalments  called  for  after 
the  transfer  to  him.  The  liability 
to  pay  up  instalments  is  shifted  from 
the  outgoing  to  the  incoming  share- 
holder.    A  privity  is  created  between 


CHAP.  IX.]      CORPORATION  AND  SHAREHOLDERS. 


[§  586. 


made  to  an  irresponsible  person  for  the  purpose  of  getting  rid 
of  liability  on  the  shares,  is  void  both  as  to  the  corporation 
and  as  to  its  creditors.1  The  English  cases,  on  the  other  hand, 
hold  that  a  shareholder,  for  the  sole  purpose  of  escaping  liabil- 
ity, may  transfer  his  shares  to  a  man  of  straw  for  a  nominal 
consideration  or  as  a  mere  gift,  even  when  the  company  is  in 
a  failing  condition  ;  and  if  the  transfer  be  absolute,  the  trans- 
ferrer will  be  freed  from  his  liability.2  Not  so,  however,  if  the 
transfer  be  merely  colorable,  so  that  the  transferee  as  between 
himself  and  his  transferrer  remains  a  trustee  for  the  latter.3 


the  two  by  the  assignment  of  the  one 
and  the  acceptance  of  the  other;  and 
also  between  them  aud  the  corpora- 
tion, for  it  would  be  absurd  to  say 
upon  general  reasoning,  that  if  the 
original  subscribers  have  the  power 
of  assigning  their  shares,  they  should, 
after- disposing  of  them,  be  liable  to 
the  burdens  which  are  thrown  upon 
the  owners  of  the  stock."  Angell 
and  Ames  on  Corp.,  §534;  Hartford, 
etc.,  R.  R.  Co.  v.  Boorman,  12  Conn. 
530;  Mann  v.  Currie,  2  Barb.  294; 
Isham  v.  Buckingham,  49  N.  Y.  216; 
Cowles  v.  Cromwell,  25  Barb.  (N.  Y.) 
413.  See  Billings  v.  Robinson,  94 
N.  Y.  415 ;  Rochester  &  K.  F.  Ry.  Co. 
v.  Raymond,  158  N.  Y.  576;  Rafferty 
v.  Donald,  197 Pa.  St.  423;  Stewart©. 
Printing  Co.,  1  Wash.  521. 

1  Nathan  v.  Whitlock,  9  Paige  (N. 
Y.),  152;  Marcyv.  Clark,  17  Mass. 
330;  Rider  v.  Morrison,  54  Md.  429; 
Welch  v.  Sargent,  127  Cal.  72.  See 
§  749.  A  corporation  was  indebted 
beyond  the  amount  of  its  assets. 
The  defendant,  an  original  subscriber 
to  its  stock,  and  a  director,  objected 
to  the  management,  threatening  to 
bring  proceedings  for  a  winding  up. 
Thereupon,  with  the  consent  of  the 
trustees  and  all  the  shareholders  who 
had  made  any  payments  on  their 
shares,  he  transferred  his  shares, 
which  were  not  fully  paid  up,  and 
resigned  from  his  position  as  trustee, 

38 


which  was  taken  by  his  transferee, 
who  on  his  part  agreed  to  indemnify 
defendant  from  further  liability  on 
his  subscription  or  to  creditors,  and 
loaned  to  the  corporation  enough 
money  to  make  it  solvent.  The 
transfer  was  recorded  on  the  books 
of  the  corporation.  That  the  pur- 
pose of  the  whole  transaction  was  to 
free  defendant  from  all  further  lia- 
bility was  understood  by  all.  Held, 
that  the  receiver  could  not  recover 
from  the  defendant  the  unpaid  por- 
tion of  the  shares  subscribed  for  by 
him.  The  court  said  that  there  were 
no  creditors  having  equities  against 
defendant  by  virtue  of  his  having 
been  a  shareholder,  and  that  the  re- 
ceiver represented  only  the  corpora- 
tion which  had  assented  to  the  sub- 
stitution of  the  transferee's  liability 
for  that  of  defendant.  Billings  v. 
Robinson,  94  N.  Y.  415. 

2 In  re  London,  etc.,  Assurance 
Co.,  Jessopp's  Case,  2  De  Gr.  &  J. 
638;  In  re  Mexican,  etc.,  Co.,  De 
Pass's  Case,  4  De  (i.  &  J.  544;  Har- 
rison's Case,  L.  R.  6  Ch.  286;  King's 
Case,  ib.  196;  Master's  Case,  L.  R. 
7  Ch.  296,  note;  Williams's  Case,  1 
Ch.  Div.  576.  See  Thompson's  "Li- 
ability of  Stockholders,"  §  213. 

3Chinnock's  Case,  Johns.  (Eng. 
Ch.)  714;  In  re  Mexican,  etc., -Co., 
Hyman's  Case,  1  De  G.,  F.  &  J.  75; 
In   re    Mexican,    etc.,  Co.,  Costello's 

593 


§  587.]  THE    LAW    OF   PRIVATE   CORPORATIONS.    [CHAP.  IX. 


Liability 
of  trans- 
feree. 


A  transfer  to  an  infant  does  not  divest  the  transferrer  of  his 
liability  ; '  nor  a  transfer  to  the  company  or  to  its  directors  on 
its  account,2  or  to  a  mere  nominee  of  the  directors.3 

§  587.  The  transferee  (on  the  books  of  the  corporation)  of 
shares  that  are  not  fully  paid  up  is  liable  for  calls 
made  for  the  unpaid  portion  during  his  ownership.4 
A  person  becomes  legally  entitled  to  shares  by  hav- 
ing them  transferred  to  him  on  the  books  of  the  corporation ; 
a  certificate  being  but  evidence.5  It  is  also  held  that  an  assign- 
ment and  delivery  of  the  stock  certificate  will  pass  the  legal 
title  to  shares  transferable  only  on  the  books  of  the  company, 
though  there  be  no  such  transfer.6  And  a  transferee  of  shares, 
who  procures  a  transfer  to  be  made  to  himself  on  the  books  of 
the  corporation,  is  liable  to  the  assignee  in  bankruptcy  of  the 
corporation,  for  the  unpaid  balance  on  the  shares,  although  he 
merely  holds  them  as  collateral  security  for  the  debt  of  his 
transferrer.7 


Case,  2DeG.,  F.  &  J.  302;  Payne's 
Case,  L.  R.  9  Eq.  223;  In  re  Bank 
of  Hindustan,  Ex  parte  Kintrea,  L. 
K.  5  Ch.  95;  Gilbert's  Case,  ib.  559. 

JSymon's  Case,  L.  R.  5  Ch.  298; 
Weston's  Case,  ib.  614;  Costello's 
Case,  L.  R.  8  Eq.  504. 

2 Richmond's  Ex'rs'  Case,  3  De  G. 
&  Srn.  96;  In  re  Newcastle,  etc.,  Ins. 
Co.,  Ex  parte  Henderson,  19  Beav. 
107;  Daniell's  Case,  22  Beav.  43. 
In  America,  however,  unless  the  cor- 
poration were  insolvent,  a  transfer 
to  it  would  be  valid  for  most  pur- 
poses.    See  §§  134,  135.  747. 

8  Eyre's  Case,  31  Beav.  177. 

4  Webster  o.  Upton,  91  U.  S.  65; 
Hartford  and  N.  H.  R.  R.  Co.  v, 
Boorman,  12  Conn.  530;  Bend  v. 
Susquehanna  Bridge  Co.,  6  Har.  & 
J.  (Md.)  128;  Hall  v.  United  States 
Ins.  Co.,  5  Gill  (Md.),  484;  Merri- 
mac  M'g  Co.  v.  Bagley,  14  Mich. 
501;  Hnddersfield  Canal  Co.  v. 
Buckley,  7  T.  R.  36;  Cowles  v. 
Cromwell,  25  Barb.  413;  Fouche  v. 
Merchants    Nat.    B'k,  110    Ga.  827; 

594 


Efird  v.  Piedmont,   etc.,    Land  Co., 
55  S.  C.  78. 

A  contrary  doctrine  seems  to  pre- 
vail in  Pennsylvania.  Pittsburgh, 
etc.,  Coal  Co.  v.  Otterson,  4  Weekly 
Notes  of  Cases,  545;  Frank's  Oil  Co. 
v.  McCleary,  63  Pa.  St.  317;  Palmer 
v.  Ridge  M'g  Co.,  34  Pa.  St.  288; 
Canal  Co.  v.  Sansom,  1  Binney,  70,  75. 
See  Messersmith  d.  Sharon  S'v'gs 
Bk.,  96  Pa.  St,  440;  Finletter  v.  Ap- 
pelton,  195  Pa.  St.  349.  Compare 
Pittsburgh  and  Connellsville  R.  R. 
Co.  v.  Clarke,  29  Pa.  St.  146;  Graff  v. 
Pittsburgh  and  Steubenville  R.  R. 
Co.,  31  Pa.  St.  489. 

5  Hawley  v.  Upton,  102  U.  S.  314; 
Agricultural  Bank  v.  Burr,  24  Me. 
256.  See  Agricultural  Bank  v.  Wil- 
son, ib.  273;  First  Nat.  Bk.  v.  Gif- 
ford,  47  Iowa,  575,  583;  Russell, 
Rec'r,  v.  Easterbrook,  71  Conn.  50. 

6  Leitch  v.  Wells,  48  N.  Y.  585; 
Robinson  v.  National  Bank,  95  N.  Y. 
637;  Ashton  v.  Zeila  Mining  Co.,  134 
Cal.  408. 

7  Pullman  v.  Upton,  96  U.  S.  328; 


CHAP.  IX.]       CORPORATION  AND  SHAREHOLDERS. 


[§  589. 


§  588.  In  a  recent  New  York  case  a  person  transferred  his 
shares  by  delivery  of  the  certificate  with  a  power  of  attorney, 
the  name  of  the  transferee  was  entered  on  the  dividend  book, 
and  the  corporation  paid  him  dividends  for  four  years.  The 
stock  was  not  transferred  on  the  transfer  book,  but  no  pro- 
vision in  the  constitution  or  by-laws  required  it.  The  court 
held  that  the  corporation  could  not  recover  of  the  transferrer, 
having  so  long  recognized  the  transfer,  and,  the  corporation 
being  insolvent,  the  receiver  stood  in  no  better  position.1 

§  589.  The  constitution  or  by-laws  of  the  corporation  may 
contain  provisions  regulating  the  transfer  of  shares. 
If    these    provisions  are  not    observed,  neither   the   Jenifers, 
shareholder  nor  his  transferee  may  take  advantage 
of  their  non-observance,2  though  on  the  one  hand  the  corpora- 
tion may  refuse  to  recognize  an  irregular  transfer,8  and  in  most 
cases  of  irregular  transfers  the  shareholder  will  not  divest  him- 
self of  any  liability  toward  creditors,4  although  liability  may 


National  Bank  v.  Case,  99  U.  S.  628; 
Fouche  v.  Merchants  Nat.  B'k,  110 
Ga.  827.  So  the  executor  of  a  share- 
holder may  become  liable.  See 
Diven  v.  Duncan,  41  Barb.  520.  See 
§741. 

1  Cutting  v.  Damerel,  88  N.  Y.  410. 
Compare  Vale  Mills  v.  Spalding,  62 
N.  H.  605. 

2  Johnson  v.  Underbill,  52  N.  Y. 
203;  Bank  of  Utica  v.  Smalley,  2 
Cow.  (N.  Y.)  770;  Quiner  v.  Marble- 
head  Social  Ins.  Co.,  10  Mass.  476; 
Parrott  v.  Byers,  40  Cal.  614;  New- 
berry v.  Detroit,  etc.,  M'f'g  Co.,  17 
Mich.  141;  Duke  v.  Cahawba  Nav. 
Co.,  10  Ala.  82;  Cheltenham,  etc., 
R'y  Co.  v.  Daniel,  2  Eng.  R'y  Cas. 
728.  Compare  Weston  v.  Bear  River, 
etc.,  Water  and  M'g  Co.,  5  Cal.  186; 
S.  C,  6  Cal.  425;  Naglee  v.  Pacific 
Wharf  Co.,  20  Cal.  529. 

Holbrook  v.  Fauquier,  etc.,  Turn- 
pike Co.,  3  Crancb,  Cir.  Ct.  425;  Hall 
v.  Rose  Hill  Road  Co.,  70  111.  673; 
Helm  b.  Swiggett,  12  Ind.  196;  com- 
pare State  v.  New  Orleans  Gas  Light, 


Co.,  25  La.  Ann.  413;  Townsend  v. 
Mclver,  2  S.  C.  25.  A  consent  of  the 
board  of  directors  to  the  transfer  of 
stock  must,  when  made  necessary, 
be  evidenced  by  a  recorded  resolu- 
tion of  the  board.  Pittsburgh  and 
Connellsville  R.  R.  Co.  v.  Clarke.  29 
Pa.  St.  146;  semble  contra,  Ellison  v. 
Schneider,  25  La.  Ann.  435.  See, 
also,  regarding  the  consent  of  direct- 
ors to  a  transfer,  Shepherd's  Case, 
L.  R.  2  Eq.  564;  Slee  v.  International 
Bank,  17  L.  T.  N.  S.  425;  In  re 
Greshaui  Life  Assurance  Soc. ;  Ex 
parte  Penney,  L.  R.  8  Ch.  446. 

4  Shellington  v.  Howland,  53  N.  Y. 
371;  see  §  748.  Still  it  is  held  in 
England  that  if  the  transferrer  has 
done  all  in  his  power  to  perfect  the 
transfer,  he  is  discharged  from  his 
liability  as  shareholder.  Shortridge 
v.  Bosanquet,  16  Beav.  84;  Nation's 
Case,  L.  R.  3  Eq.  77;  Fyfe's  Case, 
L.  R.  4  Ch.  768;  Ward  &  Garfit's 
Case,  L.  R.  189.     But  see  §  748. 

Prima  facie  a  person  whose  name 
appears  on  the  books  of  tho  corpo- 

595 


[§  500.  THE    LAW    OF    PRIVATE   CORPORATIONS.    [CHAP.  IX. 


attach  to  his  transferee.1  If,  however,  the  corporation,  or 
those  of  its  officers  who  have  charge  of  the  transfers  of  shares, 
recognize  a  transfer  made  in  good  faith,  though  irregularly, 
the  corporation  raa}r  be  estopped  from  denying  its  validity.2 
And  if  the  corporation,  on  the  demand  of  a  transferee  of 
shares,  refuses  without  legal  reason,  i.  e.,  wrongfully,  to  reg- 
ister a  transfer,  it  will  be  deemed  to  have  waived  the  require- 
ment that  transfers  shall  be  registered,  and  the  transferee,  as 
against  the  corporation,  will  have  the  full  rights  of  a  share- 
holder.3 

§  590.  The  following  is  from  the  opinion  of  the  New  York 
Court  of  Appeals  by  Judge  Davis  in  New  York  and  New 
Haven  R.  R.  Co.  v.  Schuyler : 4  "  Where  the  stock  of  a  corpora- 
tion is  by  the  terms  of  its  charter  or  by-laws  transferable  only 
on  its  books,  the  purchaser  who  receives  a  certificate  with 
power  of  attorney,  gets  the  entire  title,  legal  and  equitable,  as 
between  himself  and  his  seller,  with  all  the  rights  the  latter 
possessed ;  but  as  between  himself  and  the  corporation  he  ac- 
quires only  an  equitable  title  which  they  are  bound  to  recog- 
nize and  permit  to  be  ripened  into  a  legal  title,  when  he  presents 
himself,  before  any  effective  transfer  on  the  books  has  been 
made,  to  do  the  acts  required  by  the  charter  or  by-laws  in  order 
to  make  a  transfer.5  Until  those  acts  be  done  he  is  not  a  stock- 
holder, and  has  no  claim  to  act  as  such,  but  possesses  as  between 
himself  and  the  corporation,  by  virtue  of  the  certificate  and 
power,  the  right  to  make  himself,  or  whomsoever  he  chooses,  a 
stockholder  by  the  prescribed  transfer.  The  stock  not  having 
passed  by  the  delivery  of  the  certificate  and  power  of  attorney, 
the  legal  title  remains  in  the  seller,  so  far  as  affects  the  com- 
pany and  subsequent  bona  fide  purchasers  who  take  by  transfers 
duly  made  on  the  books.     And  hence  a  buyer  in  good  faith  of 


ration  is  a  shareholder  as  to  it  and 
as  to  the  public.  State  v.  Ferris,  42 
Conn.  o60;  Holyoke  Bank  v.  Hurn- 
ham,  11  Cash.  183;  Skowhegan  Bank 
v.  Cutler,  49  Me.  315;  Matter  of 
Empire  City  Bank,  18  N.  Y.  200; 
Stanley  v.  Stanley,  26  Me.  191  ; 
Wm  rail  b.  Judson,  5  Barb.  210. 

1  Upton   o.    Burnham,  3  Biss.  431; 
Straffon's  ExVs  Case,  1  De  C,  M.  & 

596 


G.  576;  Cheltenham,  etc.,  R'y  Co.  v. 
Daniel,  2  Eng.  R'y  Cas.  728. 

2  Isham  v.  Buckingham,  49  N.  Y. 
216;  Bargate  v.  Shortridge,  5  H.  L. 
C.  297 ;  Scripture  v.  Francestown 
Soapstone  Co.,  50  X.  H.  571. 

3  Robinson  v.  National  Bank,  95 
N.  Y.  637. 

«  34  N.  Y.  30,  80. 

6  Townsend  v.  Mclver,  2  S.  C.  25. 


CHAP.  IX.]        CORPORATION  AND  SHAREHOLDERS. 


[§  591- 


a  person  in  whose  name  the  stock  stands  on  the  books,  who 
takes  a  transfer  in  conformity  to  the  charter  or  by-laws,  per- 
mitted to  be  made  by  the  authorized  officer  of  the  corporation, 
becomes  vested  with  a  complete  title  to  the  stock,  and  cuts  off 
all  the  rights  and  equities  of  the  holder  of  the  certificate  to  the 
stock  itself.  AVhat  other  rights  and  equities  he  may  possess  is 
another  question,  but  if  the  transferee  has  taken  in  good  faith, 
and  for  value,  the  stock  is  gone  beyond  his  reach,  and  beyond 
recall  by  the  corporation." 

§  591.  The  case  from  which  the  above  citation  is  taken 
decided  that  a  corporation  is  liable  in  damages  to  the 
bona  fide  holder  of  certificates  of  shares  issued  by  the 
proper  corporate  officers  in  due  form,  but  fraud- 
ulently and  in  excess  of  the  amount  of  capital  stock 
authorized  by  its  charter.1 


Liability  of 
corporation 
for  exces- 
sive issues. 


1  New  York  and  N.  H.  R.  R.  Co. 
v.  Schuyler,  34  N.  Y.  30  ;  accord, 
Willis  v.  Fry,  13  Phila.  (Pa.)  33; 
Titus  v.  Great  Western  Turnpike 
Road,  5  Lans.  (N.  Y. )  251.  See,  also, 
Allen  v.  South  Boston  R.  R.,  150 
Mass.  200;  First  Ave.  Land  Co. 
v.  Parker,  111  Wis.  1.  Compare 
Wright's  Appeal,  99  Pa.  St.  425.  See 
§  598. 

But  a  corporation  cannot  be  com- 
pelled to  transfer  stock  issued  in 
contravention  to  the  act  of  incorpo- 
ration. People  v.  Sterling  Mfg.  Co., 
82  111.  457.  A  corporation  is  liable 
to  a  bona  fide  holder  for  value  of  a 
stock  certificate  on  which  the  name 
of  the  president  was  forged  by  a  per- 
son who  was  the  secretary,  treasurer, 
and  transfer  agent  of  the  corpora- 
tion, having  charge  of  its  books  re- 
lating to  the  issue  and  transfer  of 
stock.  The  said  person  had  also 
countersigned  the  certificate  as  treas- 
urer and  transfer  agent,  and  the  cer- 
tificate seemed  regular.  The  holder 
had  made  inquiry  at  defendant's  of- 
fice, and  was  told  by  the  person  in 


charge  (the  forger)  that  the  certifi- 
cate was  good.  Fifth  Av.  Bk.  v. 
Forty-Second  St.  R.  R.  Co.,  137  N.  Y. 
231.  See  Jarvis  v.  Manhattan  Beach 
Co.,  148  N.  Y.  652. 

But  the  same  court  held  that  a  cor- 
poration is  not  liable  when  its  presi- 
dent signs  as  transfer  agent,  and 
dates  the  certificate  at  a  time  in  the 
past  when  he  was  transfer  agent;  it 
was  forgery.  Manhattan  Life  Ins. 
Co.  d.  Forty -Second  St.  R.  R.  Co., 
139  N.  Y.  146.  See,  also,  Hill  v. 
Jewett  Pub.  Co.,  154  Mass.  172.  A 
corporation  is  not  liable  to  an  inno- 
cent purchaser  for  reissue  of  surren- 
dered stock  certificates  by  manager 
who  has  no  authority  to  issue  certi- 
ficates for  any  purpose,  and  who  has 
not  been  invested  with  apparent  au- 
thority or  indicia  of  ownership  by 
the  corporation.  Knox  v.  Eden 
Musee,  148  N.  Y.  441.  The  fact  that 
in  this  instance  a  by-law  requiring 
immediate  cancellation  of  surren- 
dered certificates  was  not  observed, 
does  not  make  the  company  liable. 
lb. 

597 


§  593.]  THE    LAW    OF    PRIVATE   CORPORATIONS.   [CHAP.  IX. 


§  592.  In  registering  transfers  the  corporation  owes  to  the 
Liability  of  individual  shareholders  the  duty  to  act  carefully, 
corporation  anj  if  ft  fails  to  exercise  proper  vigilance  it  will  be 
iug  trans-  liable  to  the  shareholder  injured.1  Likewise  if  the 
corporation  has  notice  that  the  nominal  holder  is  an 
executor  or  trustee,  it  will  be  affected  with  notice  of  the  terms 
of  his  trust  and  will  be  liable  to  the  beneficiaries  if  it  permit 
a  wrongful  transfer  to  be  entered  on  its  books.2  But  when  an 
executor  has  unrestricted  power  to  transfer  the  assets  of  his 
estate,  a  corporation  is  not  bound  to  see  that  he  is  not  defraud- 
ing the  estate  in  making  transfers  of  its  stocks.3 

§  593.  A  corporation  is  liable  to  the  lawful  owner  if  it 
transfers  shares  on  a  forged  order.4  Thus,  a  bank 
which  has  permitted  a  transfer  of  shares  to  be  made 
on  a  forged  power  of  attorne}r,  may  be  compelled  to 
issue  new  certificates  to  the  shareholder  to  whom 
the  shares  belonged,  and  account  to  him  for  dividends  paid  on 


Registry  of 
transfers 
on  forged 
orders. 


1  Pennsylvania  R.  R.  Co.'s  Appeal, 
86  Pa.  St.  80;  Caulkins  v.  Gas  Light 
Co.,  85  Tenn.  683;  Wood  house  v. 
Crescent  Mut.  Ins.  Co.,  35  La.  Ann. 
238.  Plaintiff  need  not  sue  to  have 
the  transfer  set  aside,  but  may  sue 
the  corporation  for  the  value  of  his 
stock.  lb.  See  Keppel's  Ad  mi's  v. 
Petersburg  R.  R.  Co.,  Chase's  Dec. 
167;  Tel.  Co.  v.  Davenport,  97  U.  S. 
369;  Sewall  v.  Boston  Water  Power 
Co.,  4  Allen,  277. 

2  Stewart  v.  Firemen's  Ins.  Co.,  53 
Md.  564;  Lowry  v.  Commercial,  etc., 
Bk.,  Taney's  Dec.  310;  Webb  v. 
Graniteville  Mfg.  Co.,  11  S.  C.  396; 
Caulkins  v.  Gas  Light  Co.,  85  Tenn. 
683;  Magwood  v.  Railroad  Bk.,  5  S. 
C.  379.  See  Peck  v.  Providence  Gas 
Co.,  17  R.  I.  275.  Compare  Smith  v. 
Railroad,  91  Tenn.  221.  A  corpora- 
tion is  not  liable  in  damages  for  re- 
fusal to  transfer  stock,  standing  in 
name  of  decedent,  where  the  right 
of  the  executors  to  sell  is  doubtful, 
or  where  they  have  impeached  their 

598 


right  to  transfer.     Livezey  v.  Pacific 
R.  R.  Co.,  157  Pa.  St.  75. 

3  Crocker  v.  Old  Colony  R.  R.  Co., 
137  Mass.  417;  Hughes  v.  Drovers 
Bank,  86  Md.  418.  Compare  Peck  v. 
Providence  Gas  Co.,  17  R.  I.  275.  A 
corporation  cannot  require  an  execu- 
tor to  leave  with  it  certified  copies 
of  the  will,  etc.,  which  he  furnishes 
as  proof  of  his  authority.  Bird  v. 
Chicago,  etc.,  R.  R.  Co.,  137  Mass. 
428. 

4  Brisbaue  v.  Delaware,  etc.,  R.  R. 
Co.,  94  N.  Y.  204;  Midland  R'y  Co. 
v.  Taylor,  8  H.  L.  C.  751;  Sewall  v. 
Boston  Water  Power  Co.,  4  Allen, 
276;  Pratt  v.  Taunton  Copper  Co., 
123  Mass.  110;  Loring  v.  Salisbury 
Mills,  125  Mass.  138;  Machinists' 
Nat.  Bk.  v.  Field,  126  Mass.  345; 
Pratt  v.  Boston  and  Albany  B.  K. 
Co.,  ib.  443;  Chicago  Edison  Co.  v. 
Fay,  164  111.  323;  Swan  v.  North 
British,  etc.,  Co.,  7  H.  &  N.  603;  S.  C, 
on  Appeal,  2  H.  &  C.  175;  Kraft 
County  Bank  v.  Bank,  133  Cal.  64. 


CHAP.  IX.]        CORPORATION  AND  SHAREHOLDERS. 


[§  595. 


them.1  And  if  A.  in  good  faith  purchases  shares  from  a  share- 
holder who  himself  has  bought  on  the  faith  of  forged  transfers 
which  the  company  had  registered,  and  the  company  registers 
A.  as  a  shareholder,  but,  subsequently,  discovering  the  forgery, 
erases  his  name,  he  will  be  entitled  as  against  the  company  to 
be  placed  in  as  good  a  position — by  award  of  damages  or 
delivery  of  other  shares — as  he  would  have  been  in  had  the 
transfers  been  valid.2  But  the  simple  fact  that  the  company 
has  registered  a  forged  transfer,  using  due  care,  does  not  estop 
it  from  contesting  the  validity  of  the  certificate  which  it  has 
forwarded  to  the  purchaser,3  for  in  such  a  case  the  purchaser 
did  not  act  on  the  faith  of  the  company's  action.4 

§  594.  A  corporation  will  also  be  liable  to  the  holder  of  a 
stock  certificate  for  damages  arising  from  a  transfer 
which  it  permits  to  be  made  in  violation  of  it  own  oFby-^aVs!11 
regulations.  Thus,  where  stock  is  transferable  on 
the  books  of  the  company  only  on  surrender  of  the  certificates, 
and  a  by-law  further  provides  that  no  new  certificate  shall  be 
issued  until  the  previous  certificate  shall  have  been  cancelled, 
if  the  corporation  issues  new  certificates  to  a  former  holder 
wrho  represents  that  he  has  lost  his  certificates,  but  who  has 
really  transferred  them  for  a  valuable  consideration,  the  cor- 
poration will  be  liable  to  the  transferee  for  the  value  of  the 
stock,  but  not  for  dividends,  as  a  production  of  certificates 
was  not  required  for  their  collection.5 

§  595.  If,  however,  a  corporation  using  proper  care  and  vio- 
lating none  of  its  regulations,   transfers  shares  un-   in(jiSr6_ 
wittino-ly  in  disregard  of  rights  with  notice  of  which    g.ar.d°f  . 

m    o  j  o  o  rights  of 

it  is  in  no  way  affected,  it  will  not  be  liable.6     Thus,   winch  cor- 
where  shares  standing  on  the  books  of  the  corpora-   has  no 
tion  in  the  name  of  a  judgment  debtor,  are  sold  by   T10tlce- 


1  Pollock  v.  National  Bank,  7  N.  Y. 
274;  Blaisdell  v.  Bohr,  6*  Ga.  56; 
Penna.  Co.  v.  Ins.  Co.,  181  Pa.  St.  40. 

2  In  re  Bahia,  etc.,  R'y  Co.,  37  L. 
J.  Q.  B.  176.  See  Savings  Bank  v. 
Baltimore,  63  Md.  6. 

3  Waterhouse  v.  London  and  S.  W. 
R.  Co.,  41  L.  T.  N.  S.  553;  see,  also, 


Si  mm  o.  Anglo-American  Telegraph 
Co.,  5  Q.  B.  Div.  188. 

4  Simm  ».  Anglo-American  Tele- 
graph Co.,  supra  ;  see  §§  507,  508. 

6  Cleveland  and  Mahoning  R.  R. 
Co.  v.  Robbins,  35  Ohio  St.  483; 
Bank  v.  Lanier,  11  Wall.  360;  Conk- 
lin  v.  Second  Nat.  Bk.,  45  N.  Y.  655; 


6  For  note  6  see  page  600. 


599 


§  596.]  THE   LAW   OF   PRIVATE  CORPORATIONS.    [CHAP.  IX. 

the  sheriff  as  the  debtor's  property,  and  a  court  of  last  resort, 
after  a  fair  contest  by  the  corporation,  orders  the  stock  to  be 
transferred  to  the  purchaser  under  the  sheriff's  sale,  the  corpo- 
ration is  not  liable  to  the  holder  of  the  certificate  who  took  no 
steps  to  protect  himself.1  Again,  if  the  plaintiff  is  the  equita- 
ble owner  of  shares  standing  in  the  name  of  another  who 
claims  to  be  the  absolute  owner  of  them,  the  plaintiff  cannot 
recover  their  value  from  the  corporation  on  its  refusal  to  issue 
certificates  to  him.  Under  such  circumstances  the  corporation 
is  not  bound  to  take  on  itself  the  peril  of  issuing  the  certifi- 
cates, and  thus  deciding  between  rival  claimants.2  In  a  suit 
against  a  corporation  by  a  person  who  claims  to  be  the  owner 
of  stock  standing  in  the  name  of  another,  and  alleged  to  have 
been  illegally  transferred  on  the  books  of  the  company,  the 
demand,  if  for  damages,  must  be  based  on  allegations  of  wrong- 
ful acts  on  the  part  of  the  corporation ;  and  if  the  demand  is 
for  the  recovery  of  the  stock  itself,  the  person  to  whom  it  has 
been  transferred  is  a  necessary  party.3 

§  596.  Accordingly,  a  corporation  may  maintain  a  bill  of 
interpleader  against  two  opposing  claimants  of  a 
pleader.  dividend  due  on  shares  of  its  capital  stock  origi- 
nally held  in  trust  for  one  of  them  by  a  third  person 
who  had  fraudulently  transferred  them  to  the  other  through 
mesne  conveyances.  Upon  such  bill  the  court  may  determine 
which  claimant  is  entitled  to  the  dividend,  but  not  whether  the 
corpdration  is  liable  to  the  one  defrauded,  for  permitting  the 
transfer  to  be  made.4     A  corporation  cannot,  however,  sustain 


Strange  v.  H.  and  T.  C.  R.  R.  Co., 
53  Tex.  162  ;  Tafft  v.  Pifesidio,  etc., 
R.  R.  Co.,  84  Cal.  131  ;  Supply  Ditch 
Co.  v.  Elliot,  10  Col.  327.  See  Baker 
v.  Wasson,  ib.  150  ;  Cusliman  v. 
Thayer  M'f'g  Co.,  76  N.  Y.  365  ; 
Joslyn  v.  Distilling  Co.,  44  Minn. 
183. 

6  See  Williams  v.  Mechanics'  Bank, 
5  Blatchf.  59  ;  Smith  v.  Railroad,  01 
Tenn.  221.  Compare  Dickinson  v. 
Central  National  Bank,  129  Mass. 
279. 

1  Friedlander  v.  Slaughter  House 
Co.,  31  La.  Ann.  523. 
600 


2  National  Bank  v.  Lake  Shore, 
etc.,  R.  R.  Co.,  21  Ohio  St.  221. 
Compare  Baker  "v.  Marshall,  15 
Minn.   177. 

A  judgment  decreeing  against  a 
corporation  that  the  plaintiff  is  the 
owner  of  stock  evidenced  by  a  lost 
certificate,  should  provide  for  indem- 
nity from  the  plaintiff  to  the  corpo- 
ration. Galveston  City  Co.  v.  Sibley, 
56  Tex.  269. 

3  Reid  v.  Commercial  Ins.  Co.,  32 
La.  Ann.  546. 

4  Salisbury  Mills  v.  Townsend,  109 
Mass.  115. 


CHAP.  IX.]       CORPORATION  AND  SHAREHOLDERS. 


[§  597. 


a  bill  of  interpleader  to  force  opposing  claimants  to  contest 
with  each  other  the  ownership  of  shares,  when  the  corporation 
has  already  issued  a  certificate  to  one  of  them ;  since,  under 
such  circumstances,  having  to  admit  that  as  to  one  of  the  con- 
testants it  is  a  wrong-doer,  it  is  not  entitled  to  that  form  of 
remedy.1 

§  597.  If  a  corporation  by  mistake  or  in  ignorance  of  ma- 
terial facts  registers  an  improper  transfer  or  issues  a 
certificate,  it  is  not  precluded  from  denying  as  against   Registry  of 

I  •  o      t-.  transfer  by 

the  transferee  his  title  as  shareholder.2  But  it  can-  mistake. 
not  impugn  his  title  under  such  circumstances  to  the  injury  of 
subsequent  purchasers  who,  on  the  faith  of  the  company's  ac- 
tion, have  bought  the  shares  without  notice  of  any  impro- 
priety.3 In  a  recent  Maryland  case  a  savings  bank  made  a 
loan  on  the  security  of  a  stock  certificate  on  which  the  indorse- 
ment for  transfer  was  forged.  The  borrower  afterwards  ap- 
plied for  a  further  loan,  and  the  bank  assented  on  condition 
that  the  corporation  should  make  out  a  new  certificate  to  the 
bank.     This  the  corporation  did,  and  the  bank  on  the  security 


1  Mount  Holly  Turnpike  Co.  v. 
Ferree,  17  N.  J.  Eq.  117. 

2  Wright" s  Appeal,  99  Pa.  St.  425; 
Houston,  etc.,  R'y  Co.  u.Van  Alstyne, 
56  Tex.  439;  Central  R.  R  Co.  v. 
Ward,  37  Ga.  515;  Hare  u.  London 
and  N.  W.  R'y  Co.,  Johns.  (Eng.) 
722. 

In  a  Massachusetts  case  the  de- 
fendant, in  good  faith,  presented  to 
plaintiff  for  a  transfer  a  certificate 
of  plaintiff's  stock,  on  which  the 
owner's  name  to  the  power  of  at- 
torney on  the  back  had  been  forged. 
Afterwards  defendant  sold  the  stock 
to  a  third  person,  to  whom,  on  de- 
fendant's request,  the  plaintiff  issued 
a  new  certificate.  Thus  the  plain- 
tiff had  no  remedy  against  such 
third  person,  being  estopped  as  to 
him  ;  and  having  been  forced  to 
issue  equivalent  certificates  to  the 
real  owner,  was  damaged.  Held,  it 
could  maintain  an  action  against  de- 
fendant,    and     as     damages    could 


recover  the  costs  and  expenses  of  the 
suit  (exclusive  of  counsel  fees)  by 
which  plaintiff  had  been  forced  to 
issue  new  certificates  to  the  real 
owner,  plaintiff  having  notified  de- 
fendant to  defend  that  suit;  also  the 
amount  paid  in  good  faith  by  plain- 
tiff for  the  equivalent  shares  with 
which  it  replaced  the  shares  trans- 
ferred on  the  forgery,  and  this 
although  the  stock  was  then  of  a 
higher  value  in  the  market  than  at 
the  time  when  the  forgery  was  com- 
mitted; and  also  the  dividends  which 
plaintiff  had  had  to  pay  the  real 
owner.  Boston  and  A.  R.  R.  Co.  v. 
Richardson,  135  Mass.  473. 

3  See  Ward  v.  South  Eastern  R'y 
Co.,  2  E.  &  E.  812;  Hart  v.  Fron- 
tino,  etc.,  Mining  Co.,  L.  R.  5  Ex. 
Ill;  Boston  and  A.  R.  R.  Co.  v. 
Richardson,  135  Mass.  473;  Metro- 
politan Savings  Bank  v.  Baltimore, 
63  Md.  G. 

601 


§  598.]  THE   LAW    OF   PRIVATE   CORPORATIONS.    [CHAP.  IX. 


of  the  new  certificate  made  a  further  loan.  "When  the  forgery 
was  discovered  the  bank  brought  suit  against  the  corporation, 
and  was  allowed  to  recover  the  amount  of  the  second  loan,  but 
not  the  amount  of  the  first.1 

§  598.  Accordingly,  a  certificate  of  stock  in  a  corporation, 
under  the  corporate  seal,  and  signed  by  the  officers 
authorized  to  issue  certificates,  estops  the  corpora- 
tion to  deny  its  validity  as  against  one  who  has 
taken  it  for  value  without  knowledge  or  notice  of 
any  fact  tending  to  show  that  it  has  been  irregularly  issued.2 


Estoppel  of 
corpora- 
tion by  its 
certificate. 


1  Metropolitan  Savings  Bank  v. 
Baltimore,  63  Md.  6. 

2  Moores  v.  Citizens'  National 
Bank,  111  U.  S.  156,  165.  In  this 
case  the  plaintiff  lent  money  to  the 
cashier  of  a  bank  for  his  own  use, 
and  took  from  him  as  security  a 
certificate  of  stock  written  by  him 
on  one  of  the  printed  forms  which 
the  president  had  signed  and  left 
with  the  cashier  to  be  used  if  needed 
in  the  president's  absence.  The  cer- 
tificate certified  that  the  plaintiff 
was  the  owner  of  the  stock  "trans- 
ferable only  on  the  books  of  the 
bank  on  the  surrender  of  this  cer- 
tificate," and  the  by-laws  did  in  fact 
provide  that  certificates  should  be 
issued  only  on  surrender  of  the 
former  certificate.  The  cashier 
falsely  represented  to  the  plaintiff 
that  he  owned  the  stock  in  question 
and  had  transferred  it  to  the  plain- 
tiff. The  cashier  did  not  surrender 
any  certificate  to  the  bank,  or  make 
any  transfer  on  its  books  to  the 
plaintiff;  he  never  repaid  the  money 
loaned  and  was  insolvent.  The 
bank  never  rati  lied  or  received  any 
benefit  from  the  transaction.  Held, 
on  the  refusal  of  the  bank  to  recog- 
nize the  certificate  as  valid,  the 
plaintiff  could  not  recover  from  the 
bank  its  value,  and  could  not  sus- 
tain her  case  by  evidence  that  in  one 
or  two  other  instances  the  cashier 

602 


had  issued  certificates  without  any 
certificate  being  surrendered. 

The  court  further  held  that  the 
representations  of  the  cashier,  be- 
yond those  in  the  certificate,  were 
made  by  him  personally,  and  not  on 
behalf  of  the  bank.  "  The  duty  of 
transferring  his  stock  to  the  plaintiff 
before  taking  out  a  new  certificate 
in  her  name  was  a  duty  that  he  and 
not  the  bank  owed  to  the  plaintiff. 
The  making  of  such  a  transfer  was 
an  act  to  be  done  by  him  in  his  own 
behalf  as  between  him  and  the  plain- 
tiff, and  in  the  plaintiff's  behalf  as 
between  her  and  the  bank.  The 
very  form  of  the  certificate  was  such 
as  to  put  her  on  her  guard."  Plain- 
tiff "was  not  applying  to  the  bank 
to  take  stock  as  an  original  sub- 
scriber or  otherwise;  but  she  was 
bargaining  with  the  cashier  for  his 
stock,  which  she  supposed  him  to 
hold  as  his  own;  she  knew  that  she 
had  not  held  or  surrendered  any  cer- 
tificate, and  she  never  asked  to  see 
his  certificate  or  a  transfer  thereof 
to  her;  and  he  in  fact  made  no  sur- 
render to  the  bank  or  transfer  on  its 
books;  she  relied  on  his  personal 
representation  as  the  party  with 
whom  she  was  dealing  that  he  had 
such  stock;  and  she  trusted  him  as 
her  agent  to  see  the  proper  transfer 
thereof  made  on  the  books  of  the 
bank.     Having  distinct  notice  that 


CHAP.  IX.]        CORPORATION  AND  SHAREHOLDERS. 


[§  599. 


And   consequently,   as   a  general   rule,  a   person   purchasing 

shares  need  not,  in  the  absence  of  circumstances  putting  him 

on  his  inquiry,  look  beyond  the  certificate  delivered  to  him 

for  the  title  of  his  vendor.1     For  if  a  corporation  competently 

issues  a  certificate  in  which  it  affirms  that  the  person  named 

therein  is  entitled  to  a  certain  number  of  shares,  it  holds  out 

to  all  who  may  deal  with  him  in  good  faith,  that  he  owns  and 

has  capacity  to  transfer  them.2 

§  599.  The  purchaser  of   a   stock  certificate  regular  on  its 

face,  who  is  willing  to  comply  with  the  corporate   Ri  htof 

regulations  respecting  the  transfer  of  shares,  may   purchaser 

to  a  trans- 
maintain  an  action  in  equity  against  the  corporation   fer;  to 

to  compel  it  to  transfer  the  shares  to  him.3     Or,  on     amases- 


the  surrender  and  transfer  of  a 
former  certificate  were  prerequisites 
to  the  lawful  issue  of  a  new  one,  and 
having  accepted  a  certificate  that  she 
owned  stock,  without  taking  any 
steps  to  assure  herself  that  the  legal 
prerequisites  to  the  validity  of  her 
certificate,  which  were  to  be  fulfilled 
by  the  former  owner  and  not  by  the 
bank,  had  been  complied  with,  she 
does  not,  as  against  the  bank,  stand 
in  the  position  of  one  who  receives  a 
certificate  of  stock  from  the  proper 
officers  without  notice  of  any  facts 
impeaching  its  validity."  Moores  v. 
Citizens'  National  Bank,  111  U.  S. 
156,  164,  opinion  of  court  per  Gray,  J. 
Ace.  Farrington  v.  South  Boston  R. 
R.  Co.,  150  Mass.  406. 

Salisbury  Mills  v.  Townsend,  109 
Mass.  115;  Lowry  v.  Commercial, 
etc.,  Bank,  Taney's  Dec.  310;  Ameri- 
can Wire  Nail  Co.  v.  Bayless,  91  Ky. 
94.  See  Western  Maryland  R.  R. 
Co.  o.  Franklin  Bank,  60  Md.  36; 
Souder  v.  Columbia  Nat.  Bk.,  156 
Pa.  St.  374.  But  see  Shropshire 
Union  R'y  Co.  v.  The  Queen,  L.  R. 
7  H.  L.  496.  A  stock  certificate  is 
transferable  by  a  blank  indorsement 
which  the  holder  may  fill  up  by 
writing  an  assignment   and    power 


of  attorney  above  it.  Kortright  v. 
Buffalo  Commercial  Bank,  20  Wend. 
91;  Leavitt  v.  Fisher,  4  Duer  (N.  Y.), 
1.  But  see  Dunn  v.  Commercial 
Bank,  11  Barb.  580.  Compare  Shaw 
v.  Spencer,  100  Mass.  382.  A  power 
of  attorney  executed  in  blank  is  au- 
thority to  the  holder  to  fill  up  the 
blank  and  demand  a  transfer.  Ger- 
man Un.  B'ld'g  Ass'n  v.  Sendmeyer, 
50  Pa.  St.  67. 

2  Holbrook  ».  New  Jersey  Zinc 
Co.,  57  N.  Y.  616;  Tome  v.  Parkers- 
burg  Branch  R.  R.  Co.,  39  Md.  36; 
Shaw  v.  Port  Philip,  etc.,  M'g  Co., 
13  Q.  B.  Div.  103.  See  Western 
Maryland  R.  R.  Co.  v.  Franklin  Bank, 
60  Md.  36.  Compare  Mechanics' 
Bank  v.  New  York  and  N.  H.  R.  R. 
Co.,  13  N.  Y.  599;  Central  R.  R.  Co. 
o.  Ward,  37  Ga.  515;  Kisterbock's 
Appeal,  127  Pa.  St.  601;  Northwood 
Union  Shoe  Co.  v.  Pray,  67  N.  H.  435; 
see  §  591. 

3  Driscoll  r.  West  Bradley,  etc., 
M'fg  Co.,  59  N.  Y.  96;  Cushman  v. 
Thayer  M'fg  Co.,  76  N.  Y.  365; 
Hill  n.  Rockingham  Bank,  44  N.  H. 
567;  Dayton  Nat.  Bk.  v.  Merchants' 
Nat.  Bk.,  37  Ohio  St.  208;  Sibley  v. 
Quinsigamond  Nat.  Bk.,  133  Mass. 
515;  Iron  R.  R.  Co.  v.  Fink,  41  Ohio 

603 


§  599.]  THE    LAW    OF    PRIVATE   CORPORATIONS.   [CHAP.  IX. 

the  refusal  of  the  corporation  to  make  the  transfer,  he  may  sue  it 
for  damages,1  and  as  damages  recover  the  market  value  of  the 
shares  at  the  time  of  its  refusal.2  If,  however,  the  relief  de- 
manded is  in  the  alternative  for  specific  performance  or  for 
damages,  a  judgment  for  damages  is  improper  unless  it  appears 
that  the  corporation  is  unable  to  deliver  the  shares  or  similar 
ones.3  And  when  a  person  whom  a  corporation  refuses  to 
recognize  as  a  shareholder,  elects  to  treat  such  refusal  as  a 
conversion  of  the  shares  and  sues  for  damages  in  trover,  he 
can  maintain  no  action  for  dividends  declared  after  the  com- 
mencement of  his  suit.4     The  great  preponderance  of  authority 


St.  321.  And  a  corporation,  or  an 
organization  like  one,  cannot  refuse 
a  transfer  on  the  ground  that  the 
person  asking  to  become  a  share- 
holder is  hostile  to  the  corporation. 
Rice  v.  Rockefeller,  134  N.  Y.  174. 
(At  least  if  a  recovery  of  damages 
for  a  refusal  to  transfer  would  be 
inadequate.)  See  Towusend  v.  Mc- 
Iver,  2  S.  C.  25.  The  corporation 
and  the  person  in  whose  name  the 
shares  stand  are  always  necessary 
parties  to  a  suit  to  compel  a  transfer. 
St.  Louis  &  S.  F.  Ry.  Co.  v.  Wilson, 
114  U.  S.  60.  A  bill  in  equity  to 
compel  a  transfer  of  shares  on  the 
books  of  a  corporation  does  not  lie 
when  by  statute  plaintiff's  title  is 
complete  without  a  transfer.  Lip- 
pett  v.  American  Wood  Paper  Co., 
14  R.  I.  301. 

1  Kortright  v.  Buffalo  Com.  Bk., 
20  Wend.  91;  S.  C,  22  Wend.  348; 
Bk.  of  Attica  v.  Manuf'rs  Bk.,  20  N. 
Y.  505;  De  Coineau  v.  Guild  Farm 
Oil  Co.,  3  Daly,  218;  N.  Amer.  Bldg. 
Ass'n  v.  Sutton,  35  Pa.  St.  463;  Ger- 
man Union  Bldg.  Ass'n  v.  Sendmeyer, 
50  Pa.  St.  67;  Helm  v.  Swiggett,  12 
Ind.  194;  Galbraith  v.  Bldg.  Ass'n, 
43  N.  J.  L.  389;  Durham  v.  Monu- 
mental Silver  Mfg.  Co.,  9  Oreg.  41; 
State  v.  Rombauer,  46  Mo.  155 ;  Balti- 

604 


more  City  Pass.  Ry.  Co.  v.  Sewell,  35 
Md.  238;  Protection  Life  Ins.  Co.  v. 
Osgood,  93  111.  69;  Case  v.  Bank,  100 
U.  S.  446.  See  Arnold  v.  Suffolk 
Bank,  27  Barb.  424.  An  improper 
refusal  of  a  corporation  to  transfer 
shares  is  a  conversion.  Ralston  v. 
Bk.,  112  Cal.  208,  and  cases  above 
cited. 

2  German  Union  Building  Ass'n  v. 
Sendmeyer,  50  Pa.  St.  67;  Van  Die- 
men's  Land  Co.  v.  Cockerell,  1  C.  B. 
N.  S.  732;  Cattle  Co.  v.  Barns,  82 
Tex.  50.  See  West  Branch,  etc., 
Canal  Co.'s  Appeal,  *81  Pa.  St.  19. 
Trover  lies  against  a  corporation  for 
the  conversion  by  it  of  shares  of  its 
stock  belonging  to  plaintiff.  Budd  v. 
Street  Ry.  Co.,  12  Oreg.  271.  The 
measure  of  damages  when  the  con- 
version is  not  fraudulent  is  the  high- 
est value  of  shares  between  the  time 
of  conversion  and  a  reasonable  time 
after  the  owner  has  received  notice 
of  it.  Galigher  v.  Jones,  129  U.  S. 
193;  Wright  v.  Bk.  of  Metropolis, 
110  N.  Y.  237;  Citizens'  St.  R.  R.  Co. 
v.  Robbins,  144  Ind.  671. 

3  Otter  v.  Brevoort  Petroleum  Co., 
50  Barb.  247. 

4  Hughes  v.  Vermont  Copper  M'g 
Co.,  72  N,  Y.  207. 


CHAP.  IX.]        CORPORATION  AND  SHAREHOLDERS. 


[§  601. 


is  that  mandamus  will  not  lie  to  compel  a  corporation  to  trans- 
fer shares.1 

§  600.  A  corporation  has  no  implied  lien  on  its  shares  for 
calls  or  other  debts  owing  it  from  shareholders,  and   LieQ 
consequently  no  implied  right  to  refuse  to  register  a  corporation 
transfer  because  the  transferrer  is  indebted  to  it.2     It  shares. 
has  been  held,  however,  that  a  shareholder  in  a  bank 
who  borrows  money  of  it  with  full  notice  of  its  usage  not  to 
permit  a  transfer  of  shares  while  the  holder  is  indebted  to 
it,  is  bound  by  such  usage,  and  neither  he  nor  his  assignees 
under  a  voluntary  general  assignment  can  maintain  an  action 
against  the  bank  for  refusing  to  permit  a  transfer  under  such 
circumstances.3 

§  601.  As  to  whether  a  corporation  has  the  implied  power  to 
pass  a  by-law  giving  itself  a  lien  on  its  shares  for  the  holders' 
indebtedness  to  it,  the  authorities  conflict.  A  number  of 
decisions  hold  it  competent  for  a  corporation  to  pass  such  a 


i  The  King  v.  Bk.  of  England,  2 
Dougl.  524;  Ex  pa rte  Fireman's  Ins. 
Co.,  6  Hill,  243;  Galbraitk  p.  Bldg. 
Ass'n,  43  N.  J.  L.  389;  State  v. 
Rombauer,  46  Mo.  155;  Baker  v. 
Marshall,  15  Minn.  177;  Townes  v. 
Nichols,  73  Me.  515;  Freon  v.  Car- 
riage Co.,  42  Ohio  St.  30;  State  v. 
Carpenter,  51  Ohio  St.  83. 

Contra,  Green  Mount,  etc.,  T'pk 
Co.  v.  Bulla,  45  Ind.  1;  Burnsville 
T'pk  Co.  v.  State,  119  Ind.  382.  Per- 
haps a  mandamus  might  be  sustained 
if  the  plaintiff's  right  to  the  shares 
■were  clear,  and  it  appeared  that  he 
■would  be  injured  unless  lie  were  al- 
lotted the  very  shares  demanded. 
Durham  v.  Monu.  Silver  M'g  Co.,  9 
Oreg.  41;  Townes  v.  Nichols,  73  Me. 
515.  In  State  v.  Cheraw,  etc.,  R.  R. 
Co.,  16  S.  C.  524,  mandamus  was 
granted  to  compel  a  railroad  com- 
pany to  issue  shares  of  preferred 
stock  to  a  county. 

2  Steamship  Dock  Co.  v.  Heron's 
Admr'x,    52    Pa.  St.    280;  Driscoll  v. 


W.  Bradley,  etc.,  Mfg.  Co.,  59  N.  Y. 
96;  Mobile  Mut.  Ins.  Co.  v.  Cullum, 
49  Ala.  558;  Farmers',  etc.,  Bk.  v. 
Wasson,  48  Iowa,  336;  Gemmell  v. 
Davis,  75  Md.  546;  Dearborn  v.  Wash- 
ington Sav.  B'k,  18  Wash.  8;  Wil- 
liams v.  Lowe,  4  Neb.  382,  398,  and 
cases  in  following  notes.  A  share- 
holder in  a  bank  died  insolvent  and 
indebted  to  the  bank.  After  his 
death  the  bank  went  into  liquidation 
and  asserted  a  right  to  retain  the 
decedent's  pro  rata  share  of  its  as- 
sets on  account  of  his  indebtedness. 
But  it  was  held  that  the  bank,  hav- 
ing no  lien  by  its  charter,  could  not 
hold  the  money  as  against  the  ad- 
ministrator of  the  decedent's  estate, 
who  claimed  it  for  distribution 
among  decedent's  creditors.  Mer- 
chants' Bank  v.  Shouse,  102  Pa.  St. 
488. 

3  Morgan  v.  Bank  of  North  Amer- 
ica, 8  S.  &  R.  ( Pa. )  73.  See,  also, 
Vausands  v.  Middlesex  County 
Bank,  26  Conn.  144. 

605 


§  002.]  THE   LAW    OF   PRIVATE   CORPORATIONS.   [CHAP.  IX. 

by-law,1  and  the  preponderance  of  authority  is  certainly  to  the 
effect  that  a  general  power  possessed  by  a  corporation  to  regu- 
late the  transfer  of  its  shares  authorizes  it  to  create  by  a  by-law 
a  lien  on  them  in  its  own  favor.2  But  even  this  last  proposi- 
tion has  been  disapproved  ;8  and  many  cases  strenuously  deny 
any  implied  power  in  a  corporation  to  pass  a  by-law  which 
creates  a  lien  on  its  shares,  or  in  any  material  way  interferes 
with  their  transferability.4  But  in  order  to  decide  some  of  the 
cases  where  the  opinion  of  the  court  in  terms  denies  the  power 
of  a  corporation  to  pass  a  by-law  of  this  character,  it  was  only 
necessary  to  hold  (what  these  cases  also  hold  with  perfect 
justice  on  their  side,  and  little  or  no  authorit}^  against  them), 
that  the  rights  of  a  person  purchasing  shares  without  actual 
notice  of  such  a  by-law  are  not  affected  by  it.5 

§  602.  It  may  also  be  held  contrary  to  public  policy  to  allow 
certain  corporations  to  acquire  a  lien  on  their  shares.  Thus,  a 
national  bank  organized  under  the  act  of  186i,  cannot  even  by 
provisions  in  its  articles  of  association  and  by-laws,  acquire  a 
lien  on  its  own  shares  for  debts  owing  it  from  shareholders  ; 


1  Child  ».  Hudson's  Bay  Co.,  2  P. 
Wms.  207;  In  re  Bachman,  12  Nat- 
B'k'y  Reg.  223;  Tiittle  v.  Walton,  1 
Ga.  43  ;  Gever  15.  Insurance  Co.,  3 
Pittsburgh,  41.  See  Brent  v.  Bank 
of  Washington,  10  Pet.  596,  616  ; 
Costello  v.  Brewing  Co.,  69  N.  H.  405. 

2  Lockwood  v.  Mechanics1  Nat. 
B'k,  9  R.  I.  308;  Pendergast  v.  Bank 
of  Stockton,  2  Sawyer,  108  ;  Cun- 
ningham v.  Alabama  Life  Ins  Co., 
4  Ala.  652;  Geyer  15.  Ins.  Co.,  3  Pitts- 
burgh, 41;  Graflin  County  15.  Wood- 
side,  87  Md.  146. 

3  See  Driscoll  15.  West  Bradley, 
etc.,  M'f'g  Co.,  59  N.  Y.  90;  Chou- 
teau Spring  Co.  15.  Harris,  20  Mo. 
382;  Moore  15.  Bank  of  Commerce, 
52  Mo.  377. 

4  Mobile  Mutual  Insurance  Com- 
pany 15.  Cnllum,  49  Alabama,  558; 
Bank  r.  Durfee,  118  Missouri,  431; 
Driscoll  15.  West  Bradley,  etc.,  M'f'g 
Co.,  supra  ;  Bank  of  Attica  v.  Manu- 

606 


facturers1  Bank,  20  N.  Y.  505;  Byron 
15.  Carter,  22  La.  Ann.  98;  People  v. 
Crockett,  9  Cal.  112;  Moore  v.  Bank 
of  Commerce,  52  Mo.  377;  Farmers', 
etc.,  Bank  v.  Wasson,  48  Iowa,  336. 
See  Steamship  Dock  Co.  15.  Heron's 
Administratrix,  52  Pa.  St.  280;  Nes- 
mith  v.  Washington  Bank,  6  Pick. 
324;  Weston's  Case,  L.  R.  4  Ch.  20; 
Robinson  15.  Chartered  Bank,  L.  R.  1 
Eq.  32;  Anglo  California  Bank  15. 
Granger's  Bank,  63  Cal.  359.  Com- 
pare Walker's  Case,  L.  R.  2  Eq.  554. 
5  Farmers',  etc.,  Bank  v.  Wasson, 
48  Iowa,  536;  Driscoll  v.  West  Brad- 
ley, etc.,  M'f'g  Co.,  59  N.  Y.  96; 
Bank  of  Attica  v.  Manufacturers' 
Bank,  20  N.  Y.  505;  Bank  of  Holly 
Springs  15.  Pinson,  58  Miss.  421.  See 
People  15.  Crockett,  9  Cal.  112.  For 
the  general  rule  is  that  outsiders  are 
not  affected  with  notice  of  the  by- 
laws of  a  corporation.  See  §§196, 
197. 


CHAP.  IX. J       CORPORATION  AND  SHAREHOLDERS. 


[§  604. 


as  that  would  be  against  the  spirit  and  policy  of  the  act.1 
But  a  national  bank  may  have  a  right  to  hold  a  cash  dividend 
as  pledged  for  a  debt  owing  it  from  a  shareholder.2 

§  603.  When   by  statute  a   corporation   has   a   lien    on   its 
shares  for  debts  owing  it  from  shareholders,  its  lien 
is  binding  as   to  shareholders,  their   creditors  and   ijenec 
assignees  in  insolvency,  and  also  as  to  persons  who 
purchase  shares  from  prior  holders3  or  take  them  as  collateral 
security  ;4  and  every  purchaser  of  a  certificate  is  affected  with 
notice  of  the  lien.5    Accordingly,  if  a  corporation  has  a  statu- 
tory lien  on  its  shares  for  unpaid  subscriptions,  it  may  refuse 
a  certificate  to  a  purchaser  for  value  from  a  prior  holder  until 
the  subscription  due  on  the  shares  purchased  is  paid.     Under 
such  circumstances  the  purchaser  acquires  as  against  the  cor- 
poration only  the  rights  of  the  prior  holder.6 

§  604.  Unless  expressly  restricted  to  a  certain  class  of  debts, 
a  statutory  lien  covers  all  debts   owing  from  the 
shareholder  to  the  corporation.7     A  provision  in  the      s  'cope' 
articles  of  a  bank  that  the  shares  of  its  stock  should  not  be 
transferable  until  the  shareholder  should  discharge  all  debts 


1  Bullard  v.  Bank,  18  Wall.  589; 
Buffalo  Germ.  Ins.  Co.  v.  Third  Nat. 
B'k,  162  N.  Y.  171;  Delaware,  L.  & 
W.  R.  R.  Co.  v.  Oxford  Iron  Co.,  38 
N.  J.  Eq.  340.  But  see  Young  v. 
Vougb,  23  N.  J.  Eq.  325.  Compare 
Bank  v.  Lanier,  11  Wall.  369;  Conk- 
lin  v.  Second  Nat.  B'k,  45  N.  Y.  655. 

2  Hager  v.  Union  Nat.  Bank,  63 
Me.  509.  A  corporation  may  set 
off  a  debt  due  from  a  shareholder 
against  his  right  to  a  dividend,  but 
not  as  against  the  assignee  (a 
pledgee)  of  the  shares,  if  the  divi- 
dend is  declared  after  the  assign- 
ment. Gemmell  v.  Davis,  75  Md. 
546. 

3  Union  Bank  v.  Laird,  2  Wheaton, 
390;  McCready  v.  Rumsey,  6  Duer 
(N.  Y.),  574;  Tuttle  v.  Walton,  1 
Ga.  43.  See  Dobbins  v.  Walton,  37 
Ga.   614.     Compare    St.    Louis   Per- 


petual Ins.  Co.  v.  Goodfellow,  9  Mo. 
149;  Bryon  v.  Carter,  22  La.  Ann.  98. 

4  Mount  Holly  Paper  Co.'s  Appeal, 
99  Pa.  St.  513;  Piatt  e.  Birmingham 
Axle  Co.,  41  Conn.  255;  Bradford 
Banking  Co.  v.  Briggs,  31  Ch.  Div. 
19.  Such  a  lien,  given  by  statute, 
will  be  recognized  and  given  effect 
to  in  another  state.  Bishop  v.  Globe 
Co.,  135  Mass.  132. 

5  Hammond  v.  Hastings,  134  U.  S. 
401.  The  same  holds  when  the  lien 
is  given  by  the  charter  (i.  e.  by  a 
special  statute),  Kenton  Ins.  Co.  v. 
Bowman,  84  Ky.  430. 

6  McCready  v.  Rumsey,  6  Duer, 
574.  See,  also,  Spurlock  v.  Pacific 
Railroad,  61  Mo.  319;  cf.  Dorr  v. 
Life  Ins.  CI.  Co.,  71  Minn.  38. 

7  Mobile  Mut.  Ins.  Co.  v.  Cullom, 
49  Ala.  558.  See  Schmidt  v.  Hen- 
nepin, etc.,  Co.,  35  Minn.  511.  But 
see  Boyd  v.  Redd,  120  N.  C.  335. 

607 


§  606.]  THE    LAW    OF    PRIVATE   CORPORATIONS.  [CHAP.  IX. 


due  by  him  to  the  bank,  includes  liabilities  not  yet  matured, 
and  creates  a  valid  lien  as  against  an  assignee  of  the  shares, 
who  takes  with  notice  while  the  shareholder  is  under  a  contin- 
gent liability  as  indorser,  and  does  not  inform  the  bank  of  his 
claim  until  after  the  indorsees  liability  has  become  fixed.1 
And  when  a  bank  has  a  lien  on  its  shares  for  all  indebtedness 
of  the  shareholder,  its  lien  covers  not  only  the  indebtedness  of 
the  legal  holder,  but  also  of  a  subsequent  transferee  whose 
title  has  not  yet  been  perfected,  but  who  has  become  the 
equitable  owner.2 

§  605.  After  a  bank,  which  has,  by  its  charter,  a  lien  on  its 
shares,  has  applied  the  proceeds  arising  from  a  sale  of  shares 
to  the  satisfaction  of  a  debt  due  from  the  holder,  it  will  be 
postponed  until  the  general  creditors  of  the  holder  shall  have 
been  made  equal  out  of  his  other  estate,  the  residue  of  which 
will  thereupon  be  distributed  pro  rata? 

§  606.  By  issuing  a  new  certificate  to  a  transferee  of  shares 
in  which  certificate  is  expressly  stated  that  the 
Waiver  of  snares  are  transferable  after  the  liabilities  of 
the  holder  to  the  bank  are  discharged,  a  bank 
waives  any  lien  it  may  have  had  for  the  debts  of  the  prior 
holder.4  But  when  a  bank  has  a  lien  by  its  charter,  it  does  not 
waive  its  lien  by  using  stock  certificates  (on  their  face  trans- 
ferable only  on  the  books  of  the  bank)  which  make  no  mention 
of  the  lien  ;  for  a  person  purchasing  or  lending  money  on  the 
security  of  the  shares  is  affected  with  notice  of  the  lien/'  AVhen 
a  bank  releases  its  lien  for  a  specified  time,  and  within  that  time 
the  shares  are  pledged  for  a  debt,  the  right  of  the  bank  after 
the  expiration  of  the  time  to  re-acquire  its  lien  is  subordinate 
to  the  right  of  the  pledgee,  until  the  debt  for  which  the  shares 
were  pledged  is  paid,  or  the  pledge  released.6 


1  Leggett  v.  Bank  of   Sing  Sing,  24 
N.  Y.  283.     Compare  Eahn  r.    Bank 

of  St.  Joseph,  70  Mo.  262;  Bank  of 
K'y  r.  Bonnie  Bros.,  102  Ky.  343; 
Battey  v.  Eureka   Bank,  02  Kas.  384. 

2  Planters',  etc.,    Mut.    Ins.    Co.  v. 
Selma  Savings  Bank,  63  Ala.  585. 

3  German   Security  Bank  r.  Jeffer- 
son, 10    Hush  (Ky.),   326.     Compare 

608 


Petersburg  Savings,  etc.,  Co.  v.  Lums- 
den,  75  Va.  327. 

4  Hill  v.  Pine  K'r  Bk.,  45  N.  II.  300. 

6  Bohmer  v.  City  Bank,  77  Va.  445. 

6  Bank  of  Amer.  v.  McNeil,  10  Bush 
(Ky. ),  54.  When  a  corporation  is 
affected  with  notice  of  a  pledge  of 
shares  it  cannot  enforce  its  lien  for  a 
debt  to  itself  subsequently  arising. 


CHAP.  IX.]         CORPORATION  AND  SHAREHOLDERS. 


[§  607. 


§  607.  In  another  case  a  bank  charter  contained  the  follow- 
ing provision  :  k'  The  stock  of  the  bank  shall  be  assignable  and 
transferable  on  the  books  of  the  corporation  only,  and  in  the 
presence  of  the  president  or  cashier,  in  such  manner  as  the  by- 
laws shall  ordain  ;  but  no  stockholder  indebted  to  the  bank  for 
a  debt  actually  due  and  unpaid  shall  be  authorized  to  make  a 
transfer  or  receive  a  dividend  until  such  debt  is  discharged,  or 
security  to  the  satisfaction  of  the  directors  given  for  the 
same.'"  A.,  a  shareholder  indebted  to  the  bank,  delivered  his 
stock  certificate  with  power  of  sale  to  B.  as  collateral  security 
for  a  debt.  On  default  of  payment,  B.  sent  the  certificate  to 
the  cashier,  who  made  the  requisite  entries  on  the  stock- 
ledger,  where  it  was  his  practice  to  keep  account  of  transfers 
without  consulting  in  each  case  the  directors,  who  had  adopted 
no  by-law  regulating  the  matter.  The  cashier  then  sold  a  por- 
tion of  the  shares  for  B.  on  B.'s  power  of  attorney,  having  told 
B.  that  he  needed  no  certificate.  Subsequently  A.  became 
insolvent,  being  indebted  to  the  bank.  It  was  held  that  as 
between  A.  and  B.  the  title  to  the  shares  passed  by  A.'s 
delivery  of  the  certificate ;  also,  that  the  acts  of  the  cashier 
were  binding  on  the  bank,  and  the  transfer  made  by  him  on  the 
stock-ledger  vested  in  B.  a  complete  and  unincumbered  title 
to  the  shares  with  a  right  to  the  usual  certificate;  and  it  was 
further  held  that  even  if  B.  had  acquired  merely  an  equity 
based  on  an  executory  contract  for  a  transfer,  the  right  of  the 
bank  to  assert  its  lien  was  lost  by  its  laches,  and  the  enforce- 
ment of  its  lien  would  have  operated  as  a  fraud.1 


Birmingham  T.  &  S.  Co.  v.  Louisiana 
Nat.  Bk.,  99  Ala.  380.  See,  also, 
Loan  &  Trust  Co.  v.  Bank,  97  Iowa, 
6G8.  A  clause  in  a  charter  that  no 
shareholder  shall  sell  his  shares 
without  giving  the  corporation  ten 
days'  refusal  of  them,  applies  only 
to  voluntary  sales  ;  and  does  not 
affect  the  rights  of  a  purchaser  at  a 
sheriffs  sale  on  an  execution.  Bar- 
rows i\  National  Rubber  Co.,  12  R.  I. 
173.  A  railroad  company  issued 
conditional  stock  certificates,  for 
which  ordinary  stock  certificates 
were    to    be    exchanged    when   the 

39 


notes  given  to  secure  the  payment 
of  the  subscription  were  paid.  It 
negotiated  these  notes,  and  after- 
wards issued  unconditional  certifi- 
cates to  the  original  subscribers, 
who  were  the  makers  of  the  notes. 
The  makers  failed  to  pay  the  notes, 
and  the  company  was  held  liable  to 
pay  the  judgments  recovered  by  the 
holders  against  the  makers,  to  the 
extent  of  the  value  of  the  uncon- 
ditional certificates.  Houston,  etc., 
Ry.  Co.  i).  Bremond,  66  Tex.  159. 

1  National    Bank    o.    Watsontown 
Bank,  105  U.  S.  217. 

609 


§  608.]  THE   LAW   OF   PRIVATE   CORPORATIONS.  [CHAP.  IX. 


Rights  of 
share- 
holders in 
respect  of 
winding 
up. 


§  608.  Although  it  would  seem  that  there  is  no  method  by 
which  a  shareholder  can,  against  the  will  of  the  ma- 
jority, force  the  corporation  to  continue  its  opera- 
tions, a  shareholder  has  important  rights  respecting 
the  manner  of  discontinuing  the  business  and  winding 
up  the  corporate  affairs.1  On  the  dissolution  of  a 
corporation,  as  by  expiration  of  its  charter,  any  shareholder 
ordinarily  may  insist  that  its  assets  shall  be  turned  into 
money  ;2  and  where  a  statute  provides  a  way  for  winding  up  a 
company  or  reducing  its  capital  stock,  the  company  cannot  in 
a  way  unauthorized  by  the  statute,  against  the  will  of  a  dis- 
sentient shareholder,  purchase  its  own  shares  with  a  view  to 
dividing  its  assets ;  and  in  such  a  case  a  clause  in  the  articles 
of  association,  that  the  shares  of  any  shareholder  who  begins 
directly  or  indirectly  a  suit  against  the  company  or  the 
directors,  shall  be  forfeited  on  payment  to  him  of  their  full 
market  value,  cannot  avail  the  company.3  It  has  also  been 
held  that  the  directors  and  a  majority  of  shareholders  cannot 
sell  out  the  entire  property  of  a  solvent  and  paying  railroad 
company  against  the  consent  of  a  minority.4     And  a  railroad 


1  But  a  subscriber  who  has  never 
paid  anything  on  his  shares,  and 
whose  shares  have  been  forfeited, 
has  no  standi ng  as  a  shareholder  to 
object  to  the  disposition  made  of 
corporate  funds  on  dissolution.  St. 
Louis,  etc.,  Coal,  etc.,  Co.  v.  Sando- 
val Coal,  etc.,  Co.,  116  111.  170. 

2 Mason  v.  Pewabic  M'g  Co.,  133 
U.  S.  50. 

8  Hope  v.  International  Financial 
Society,  L.  11.  4  Ch.  Div.  327. 

4Kean  v.  Johnson,  9  N.  J.  Eq. 
401.  See  People  v.  Ballard,  134 
N.  Y.  269;  Morris  v.  Ely  ton  Land 
Co.,  125  Ala.  263;  Plant  v.  Macon  Oil 
&  Ice  Co.,  103  Ga.  666;  Forresters 
B.  &  M.  Min.  Co.,  21  Mont.  544. 
But  see  Waldoborough  v.  Railroad 
Co.,  84  Me.  469. 

The  owners  of  a  majority  of  shares 

of  a  corporation  under  the  form  of 

dissolving   it   and   disposing   of    its 

property  and  distributing  the  pro- 

610 


ceeds,  became  the  purchasers  of  such 
property  at  an  unfair  price,  through 
a  new  corporation,  in  which  they 
were  shareholders,  to  the  exclusion 
of  the  minority  shareholders  in  the 
old  corporation.  In  a  suit  in  ecpiity 
by  the  latter  against  the  new  corpo- 
ration, it  was  held  that  plaiutiffs  had 
a  lien,  to  the  extent  of  the  moneys 
of  which  they  had  been  deprived  by 
the  sale,  on  the  property  of  the  old 
corporation  in  the  hands  of  the  new. 
Ervin  v.  Oregon  Ry.,  etc.,  Co.,  23 
Blatchf.  517.  The  court  followed 
the  idea  that  when  a  majority  com- 
bine, they  constitute  themselves  the 
corporation,  and  so  are  bound  to  ex- 
ercise their  powers  with  due  regard 
to  the  interests  of  the  minority. 
See,  also,  Meeker  v.  Winthrop  Iron 
Co.,  17  Fed.  Rep.  48;  cf.  Phillips  v. 
Providence  S.  E.  Co.,  21  R.  I.  302; 
Bartholomew  v.  Derby  Rubber  Co., 
69  Conn.  521. 


CHAP.  IX.]       CORPORATION  AND  SHAREHOLDERS. 


[§  610. 


company  has  no  authority  to  sell,  or  lease  in  perpetuum,  all 
its  property  and  business  to  another  corporation,  and  compel  a 
dissenting  shareholder  to  accept  stock  in  the  other  company, 
or  a  fixed  and  arbitrary  price  per  share  of  its  own  stock.1 

§  609.  Nevertheless,  if  under  the  authority  of  the  board  of 
directors,  whose  action  is  ratified  by  the  holders  of  all  the  stock 
represented  at  a  shareholders'  meeting,  a  conveyance  is  made 
of  the  total  assets  of  a  corporation  in  payment  of  its  sole  debt, 
the  conveyance  will  be  valid  as  against  other  shareholders, 
when  there  is  no  fraud  and  a  continuance  of  the  business' would 
have  been  ruinous.2 

§  610.  The  majority  of  shareholders,  moreover,  acting  as  the 
body  corporate,  may,  when  the  rights  of  the  state  power  of 
do  not  prevent,  dissolve  the  corporation  and  wind  ^soi"*/-  of 
up  its  affairs.3  Likewise  it  is  held  competent  for  minority, 
the  shareholders  by  a  by-law  adopted  at  their  first  meeting 
to  limit  the  term  of  the  corporate  existence.4  But  a  minority 
cannot  compel  a  dissolution  unless  there  exist  more  substantial 
reasons  against  the  further  prosecution  of  the  corporate  enter- 
prise ;5  nor  has  the  minority,  in  the  absence  of  fraud  or  wrong- 


1  Boston  &  Prov.  R.  R.  Co.  v.  New 
York  &  N.  E.  R.  R.  Co.,  13  R.  I.  260; 
Mason  v.  Pewabic  M'g  Co.,  25  Fed. 
Rep.  882;  Byrue  v.  Schuyler,  etc., 
Co.,  65  Conn.  336.  See,  also,  Froth- 
ingham  v.  Barney,  6  Hun,  366;  Tay- 
lor v.  Earle,  8  Hun,  1;  Lauman  c. 
Lebanon  Valley  R.  R.  Co.,  30  Pa.  St. 
42;  In  re  Empire  Assur.  Co.,  Ex 
parte  Bagsbaw,  L.  R.  4  Eq.  341; 
Clinch  v.  Financial  Co.,  L.  R.  4  Ch. 
117;  McCurdy  v.  Myers,  44  Pa.  St. 
535.  Compare  Buford  v.  Keokuk 
Nortbern  Packet  Co.,  3  Mo.  App. 
159.  But  see  Sawyer  v.  Dubuque 
Printing  Co.,  77  Iowa,  242. 

2  Hancock  v.  Hoi  brook,  9  Fed. 
Rep.  353.  See,  also,  Buford  v.  Keo- 
kuk Northern  Packet  Co.,  3  Mo. 
App.  159;  Sheldon  Hat  Blocking, 
Co.  v.  Eickemeyer  Hat  Blocking, 
etc.,  Co.,  90  N.  V.  607. 

3  Treadwell  r.  Salisbury  M'f'g  Co., 
7   Gray,    393;    Lauman   v.    Lebanon 


Valley  R.  R.  Co.,  30  Pa.  St.  42; 
Merchants,'  etc.,  Line  v.  Wagner,  71 
Ala.  581;  Trisconi  v.  Winship,  43 
La.  Ann.  45;  Berry  v.  Broach,  65 
Miss.  450;  Skinner  v.  Smith,  134  N. 
Y.  240.  See  Webster  v.  Turner,  12 
Hun,  264;  Ervin  v.  Oreg.  Ry.,  etc., 
Co.,  23  Blatchf.  517;  Price  v.  Hol- 
comb,  89  Iowa,  123;  Pringle  v.  Elt- 
iugham  Cons.  Co.,  49  La.  Ann.  301. 
In  regard  to  national  banks  the  stat- 
ute (U.  S.  Rev.  St.,  §  5220)  provides 
that  they  may  go  into  liquidation 
and  be  closed  by  a  vote  of  the  share- 
holders owning  two-thirds  of  the 
stock. 

4  Merchants,'  etc.,  Line  v.  Wagner, 
71  Ala.  581. 

5  See  Matter  of  Pyrolusite  Man- 
ganese Co.,  29  Hun,  429;  O'Connor 
v.  Hotel  Co.,  93  Tenu.  708,  in  which 
demurrer  to  complaint  was  over- 
ruled. It  has  been  held  that  an  in- 
solvent corporation  may  be  dissolved 

611 


§  611.]  THE   LAW   OF   PRIVATE   CORPORATIONS.  [CHAP.  IX. 

doing  on  the  part  of  the  directors,  an  absolute  right  to  have  a 
receiver  of  the  corporate  property  appointed,  although  the 
corporation  be  utterly  insolvent ;  this  last  being  discretionary 
with  the  court.1  Thus,  it  is  no  ground  for  dissolving  a  manu- 
facturing corporation  on  the  petition  of  shareholders — a  ma- 
jority in  number  though  a  minority  in  interest — that  a  person 
owning  a  majority  of  stock  has  for  many  years  controlled  the 
election  of  officers  and  elected  himself  agent ;  and  that  he 
has  for  a  long  time  "  managed  the  affairs  of  said  corporation 
according  to  his  own  will  and  choice,  regardless  of  the  wishes 
and  interests  of  the  other  stockholders ;  "  that,  according  to 
his  statement,  the  corporation  had  been  doing  a  losing  business, 
that  he  refuses  to  purchase  the  shares  of  complainants,  and 
that  if  the  affairs  of  the  corporation  were  properly  managed 
the  business  might  be  a  source  of  profit  to  all. 2 

§  611.  Independent  of  statute,  moreover,  a  court  of  equity 
Jurisdic-  has  no  power  to  dissolve  a  corporation  and  divide  its 
equity.  property  at  the  suit  of  a  shareholder,3  or  remove 
corporate  officers.4  Under  statutes  in  some  of  the  states,  how- 
ever, an  information  in  the  nature  of  a  quo  warranto  may  be 
filed  at  the  relation  of  a  shareholder  against  an  illegally  exist- 


at.  the  suit  of  a  shareholder.  Masters 
v.  Eclectic  Life  Ins.  Co.,  6  Daly.  455. 
But  see  Deuike  v.  New  York,  etc., 
Lime  Co.,  80  N.  Y.  599;  Hardon  v. 
Newton,  14  Blatchf.  376. 

1  Denike  v.  New  York,  etc.,  Lime 
Co.,  80  N.  Y.  599.  See  Hardon  v. 
Newton,  14  Blatchf.  376. 

a  Pratt  v.  Jewett,  9  Gray,  34.  See, 
also,  Burnham  v.  S.  F.  Fuse  Mfg.  Co., 
76  Cal.  24. 

3  Strong  v.  McCagg,  55  Wis.  624; 
Bayless  v.  Orne,  1  Freem.  Ch.  (Miss.) 
161;  Howe  v.  Deuel,  43  Barb.  504; 
Belmont  i\  Erie  Ry.  Co.,  52  Barb. 
637;  Waterbury  v.  Merchants'  Un. 
Exp.  Co.,  50  Barb.  157;  Fountain 
F'ry  Tr'npk  Co.  v.  Jewell,  8  B.  Mon. 
(Ky.)  140;  Morrows  v.  Edwards, 
20  Dist.  Col.  475;  Coquard  v.  Nat. 
L.  O.  Co.,  171  111.  480.  See  Gibson 
v.  Thornton,  107  Ga.  545;  Oldham  v. 
612 


Mt.  Sterling  Imp.  Co.,  103  Ky.  529. 
Compare  Baker  v.  Backus,  32  111.  79; 
Terhune  v.  Midland  R.  R.  Co.,  38  N. 
J.  Eq.  423;  Baker  v.  Louisiana  Port- 
able R.  R.  Co.,  34  La.  Ann.  754. 
Compare  Hitch  i\  Hawley,  132  N.  Y. 
212.  It  has  recently  been  held  that 
a  court  of  equity,  when  a  shareholder 
is  aggrieved  by  oppressive  and  fraud- 
ulent action  of  the  officers  and 
holders  of  a  majority  of  shares,  may, 
in  entertaining  his  suit  for  relief,  if 
carrying  on  the  business  is  impracti- 
cable, proceed  and  appoint  a  receiver 
and  wind  up  the  corporation.  Miner 
v.  Ice  Co.,  93  Mich.  97.  Compare 
Benedict  v.  Columbus  Cons.  Co., 
49  N.  J.  L.  23;  Ulmer  v.  Maine  R.  E. 
Co.,  93  Me.  324. 

*  Neall  v.  Hill,  16  Cal.   146.     See 
§581. 


CHAP.  IX.]        CORPORATION  AND  SHAREHOLDERS.  [§  611. 

ing  corporation  to  compel  a  dissolution.  And,1  finally,  a  court 
has  power,  on  the  application  of  a  shareholder,  to  open  or 
vacate  a  judgment  dissolving  a  corporation,  although  the  share- 
holder was  not  a  party  to  the  action  instituted  by  the  attorney- 
general,  when  it  is  shown  the  court  that  there  is  reasonable 
ground  to  believe  that  there  was  fraud  or  collusion  in  obtaining 
the  judgment  operating  to  the  injury  of  the  shareholder.2 

i  See  Albeit  v.  State,  65  Ind.  413.     i      2  People    v.    Hectograph    Co.,    10 

I  Abb.  N.  C.  (N.  Y.)358. 

613 


§  612.]  THE  LAW    OF   PRIVATE  CORPORATIONS.      [CHAP.  X. 


CHAPTER  X. 

LEGAL  RELATIONS  BETWEEN  THE  CORPORATION  AND 
ITS  OFFICERS. 


Fiduciary  position  of  corporate  offi- 
cers, §§  612,  613. 

Liability  to  pay  for  qualification 
shares,  §  614. 

Directors'  duties  enforceable  by  the 
corporation  or  its  receiver.  Join- 
der, §  615. 

Liability  of  directors  for  fraud, 
neglect  of  duty,  and  acts  in  viola- 
tion of  by-laws,  §  616. 

Ordinary  care  required,  §§  617- 
619. 

Directors  not  liable  for  errors  of 
judgment,  §§  620,  621. 

Liability  for  ultra  vires  acts.  §§  622, 
623. 

Liability  of  directors  for  the  acts  of 
other  corporate  agents,  §§  624-626. 

Corporate  officers  should  not  place 
their  interests  in  opposition  to 
those  of  the  corporation,  §  627. 


They  cannot  contract  with  them- 
selves, §  628. 

Secret  profits,  §  629. 

Transactions  fraudulent  as  a  matter 
of  law,  §  630. 

Remedies  of  the  corporation,  §  631. 

Loans  by  directors  to  the  corpora- 
tion, §§  632-634. 

Invalidity  of  transactions  in  which 
officers  are  interested,  §§  635-637. 

Railroad  construction  companies,  §§ 
638,  639. 

Transactions  in  which  officers  act 
for  two  adversely  interested  cor- 
porations, §§  640-643. 

Common  boards  of  directors,  §  644. 

Directors'  authority;  their  right  to 
indemnification,  §  645. 

Compensation  of  directors  and  other 
agents,  §§  646-648. 

Removal  of  officers,  §§  649,  650. 


§  612.  Directors  and  other  corporate  officers  and  agents 
Fiduciary  occupy  towards  the  corporation  which  they  repre- 
corporate*  sent  Potions  of  trust  and  confidence,  and  owe  to  it 
officers.  the  duties  which  persons  occupying  such  positions 
ordinarily  owe  to  their  cestuis  que  trustent.1    And  the  duties 


1  See  Wardell  v.  Railroad  Co.,  103 
U.  S.  651 ;  Wickersham  v.  Crittenden, 
93  Cal.  17;  Lagarde  v.  Anniston  L. 
&  S.  Co.,  126  Ala.  496;  Morgan  v. 
King,  27  Colo.  539.  This  can  hardly 
apply  when  the  directors  are  the 
only  shareholders.  See  e.  g.  Higgins 
v.  Lansingh,  154  111.  332;  Manufac- 
turing Co.  v.  Peabody,  21  N.  Y.  App. 
247.  Thus  directors  issued  the  en- 
tire stock  of  a  corporation  to  them- 

614 


selves  in  payment  for  property  trans- 
ferred to  the  corporation,  and  then 
sold  the  stock  to  innocent  outsiders. 
The  issue  of  the  stock  was  such  as 
was  authorized  by  statute,  and  the 
directors  at  the  time  of  the  issue 
were  the  only  shareholders.  It  was 
held  that  the  proceeding  could  give 
no  cause  of  action  to  the  corporation. 
Foster  v.  Seymour,  23  Blatchf.  107. 
See,  also,  Schilling  v.  Schneider,  110 


CHAP.  X.J  CORPORATION  AND  OFFICERS.  [§  613. 

of  corporate  officers — at  least  directors — are  more  compli- 
cated than  those  of  ordinary  agents  of  individuals.  Pri- 
marily they  are  accountable  for  the  proper  performance  of  their 
duties  to  the  corporation  or  body  corporate  as  such.  But  it 
must  be  remembered  that  the  body  corporate  not  only  repre- 
sents the  interests  of  all  the  shareholders,  but  is  also  bound  to 
regard  the  interests  of  the  creditors  of  the  corporation,  whom 
in  a  certain  sense  it  also  represents ;  and  the  directors,  of 
course,  are  affected  with  knowledge  of  the  fact  that  the  powers 
of  the  body  corporate  must  be  exercised  with  due  regard  to 
the  interests  of  all  persons  in  any  way  interested  in  the  corpo- 
rate enterprise. 

§  613,  The  powers  of  directors  are  either  given  them  directly 
by  the  constitution  of  the  corporation,  or  delegated  to  them 
by  the  majority  of  shareholders.1  It  would  seem,  accordingly, 
that  those  powers  which  directors  receive  directly  from  the 
constitution  must  be  exercised  with  due  regard  for  the  interests 
of  all  persons  entitled  to  rely  on  its  provisions,  and  that  the 
powers  which  directors  receive  by  vote  of  a  majority  of  share- 
holders must  also  be  exercised  with  due  regard  for  the  interests 
of  all,  because  that  majority  was  bound  to  exercise  its  powers 
for  the  interests  of  all,  and,  therefore,  only  in  the  interests  of 
all  could  it  delegate  power  to  others.  Accordingly,  the  direct- 
ors cannot  act  with  blind  devotion  for  the  interests  of  the 
majority  of  shareholders,2  or  even  of  all  the  shareholders,3 
but  must  regard  at  the  same  time  the  interests  of  creditors.4 
And  the  truth  of  this  is  not  affected  by  the  fact  that  ordinarily 
in  the  first  instance  directors  are  accountable  for  the  abuse  of 
their  powers  only  to  the  body  corporate ;  because,  as  before 


Mo.  83;  Barr  v.  N.  Y.,  L.  E.  &  W. 
R.  R.  Co.,  125  N.  Y.  263.  Compare 
Metropolitan  Elevated  R.  R.  Co.  v. 
Manhattan  Elevated  R.  R.  Co.,  11 
Daly  (N.  Y. ),  373,  516.  Since  direct- 
ors are  trustees  for  the  corporation, 
as  under  an  express  trust,  the  statute 
of  limitations  does  not  run  against 
the  demands  of  its  receiver  for  mis- 
appropriation of  moneys.  Ellis  v. 
Ward,  137  111.  509;  Masonic,  etc., 
Life  Ass'n  Co.  v.  Sharpe  [1892],  1  Ch. 
154.     See  §  626,  note. 


1  See  §§  219  et  seq. 

2  See  Goodin  v.  Cincinnati,  etc., 
Canal  Co.,  18  Ohio  St.  169,  §  559. 

3  Certain  corporate  funds,  i.  e., 
those  properly  applicable  to  the 
payment  of  dividends,  may  be  man- 
aged exclusively  in  the  interests 
of  shareholders  or  paid  over  to 
them,  and  the  creditors  have  no 
ground  to  complain.     See  §  750. 

4  See  §§  756  et  seq. 


615 


§  til4.]  THE    LAW    OF    PRIVATE    CORPORATIONS.      [CHAP.  X. 

pointed  out,  it  is  to  this  body  as  representing  all  the  interests 
in  the  corporate  enterprise  that  they  are  accountable,  and  if 
this  body  Tails  to  enforce  the  rights  of  all  persons  against  the 
directors,  the  persons  injured  may  themselves  take  action  to 
bring  the  directors  to  account.1 

To  such  an  extent  may  the  duties  of  directors  become  com- 
plicated by  the  divergency  in  interest  of  the  different  persons 
to  whom  the}r  owe  duties,  that  it  may  often  be  difficult  for 
them  to  discriminate  properly,  and,  by  giving  due  and  propor- 
tionate consideration  to  the  rights  of  all  persons,  keep  them- 
selves free  from  liability.  It  is  only  by  acting  always  in 
accordance  with  the  corporate  constitution,  where  that  appears 
silent  using  a  sound  and  honest  discretion,  and  in  all  cases  of 
difficulty  taking  the  advice  of  counsel,  that  directors  may  keep 
themselves  free  from  liability  and  carry  out  the  trusts  imposed 
upon  them. 

§  014-.  By  accepting  the  office  of  director  a  person  impliedly 
undertakes  to  discharge  its  duties,  and  assumes  the 
pay  for  °  liabilities  attached  to  it.  Accordingly,  where  by  the 
tionltoares  constitution  of  the  corporation,  the  ownership  of  a 
certain  number  of  shares  is  a  condition  precedent  to 
eligibility  as  a  director,  anyone  accepting  the  office  and  acting 
therein  is  liable  to  pay  for  the  requisite  number  of  shares.2  A 
person,  however,  who  has  merely  accepted  the  office  of  director, 
but  has  not  acted  as  one,  and  without  laches  has  retracted  his 
acceptance  on  the  ground  of  misrepresentations  made  to  him  by 
the  promoters,  will  not  be  held  liable  as  contributory  on  the 
qualification  shares,  if  as  a  matter  of  fact  he  has  never  taken 
them ;  for  the  acceptance  of  the  office  of  director  merely  im- 


1  See  §§  686,  687,  757,  758. 

2  Fowler's  Case,  L.  R.  14  Eq.  316; 
Leeke's  Case,  L.  1!.  6  Ch.  469;  Har- 
vard's Case,  L.  R.  13  Eq.  30;  Sidney's 
Case,  L.  R.  13  Eq.  228;  Miller's  Case, 
3  Ch.  D.  661.  Compare  Do  Ruvigne's 
Case,  5  Ch.  D.306;  Printing,  etc.,  Co., 
in  re,  L.  R.  Ch.  Div.  1894,  vol.  ii. 
392. 

There  is  no  general  rule  of  law 
making  the  holding  of  shares  an  in- 
dispensable qualification  to  the  office 

616 


of  director.  State  v.  McDaniel,  22 
Ohio  St.  354;  Wight  v.  Springfield  & 
New  Lond.  R.  R.  Co.,  117  Mass.  226; 
In  re  Election  of  St.  Lawrence  Steam- 
boat Co.,  44  N.  J.  L.  529;  Florida's 
Savings  Bk.  v.  Rivers,  36  Fla.  575; 
Bristol,  etc.,  Trust  Co.  v.  Jonesboro, 
etc.,  Trust  Co.,  101  Tenn.  545.  The 
Civil  Code  requires  it  in  California. 
Rosecrans  Gold  Mining  Co.  v.  Morey, 
111  Cal.  114.  And  in  Oregon,  Silsby 
v.  Strang,  38  Or.  36. 


CHAP.  X.] 


CORPORATION  AND  OFFICERS. 


[§  616. 


Directors' 
duties  en- 
forceable 
by  the  cor- 
poration or 
its  receiver. 
Joinder. 


plies  an  agreement  to  take  the  requisite  number  of  shares 
within  a  reasonable  time  after  assuming  the  office.1  A  director, 
moreover,  is  not  bound  to  take  the  shares  directly  from  the 
company,  but  may  acquire  them  by  purchase  or  gift  from  some 
prior  holder.2 

§  615.  Directors'  duties  are  ordinarily  enforceable  in  the 
name  of  the  corporation ; 3  as  it  is  only  after  failure 
or  neglect  on  the  part  of  the  corporation  to  enforce 
the  rights  which  it  represents  that  the  creditors  or 
shareholders  may  themselves  proceed  to  enforce  such 
rights  as  pertain  to  them  respectively.  A  receiver, 
however,  or  an  assignee  of  the  corporation  has  all  the  rights 
and  capacities  of  action  possessed  by  the  corporation  against  its 
officers.4  And  in  suits  against  them  for  damages  arising  from 
their  negligent  or  wrongful  acts  or  omissions  all  the  guilty 
officers  may  be  joined,  or  any  one  of  them  may  be  sued  sepa- 
rately.5 

§  616.  In  brief,  then,  the  duties  of  directors  and  other  officers 
towards  the  corporation  are  to  act  for  the  furtherance 

...  ,  »    .  ,  .    ,      .  Liability  of 

or  the  complex  mass  or  interests  which  it  possesses  directors 

or  represents,  and  to  do  no  act  infringing  the  rights  of  n^iect  of 

the  possessors  of  any  of  those  interests ;  these  duties  aetsmvio- 

include  all  the  duties  considered  in  their  correlations  ,lati,on  of 

by-laws. 

and  due  proportions  owed  by  the  directors  to  any  of 
the  classes  of  persons  interested  in  the  corporate  enterprise. 
For  the  consequences  of  a  breach  of  this  trust  on  their  part, 
the  officers  are  liable  in  damages ;  and  first  of  all,  for  any  fraud 
or  unfair  dealing  towards  the  corporation ; fi   then  for  gross 


i  Karuth's  Case,  L.  R.  20  Eq.  506. 
See  Hewitts  Case,  25  Ch.  Div.  283. 

2  State  ».  Leete,  16  Nev.  242; 
Dent's  &  Forbe's  Case,  L.  R.  8  Ch. 
768;  Brown's  Case,  L.  R.  9  Ch.  102. 
See  Chapman's  Case,  L.  R.  2  Eq. 
567;  Austin's  Case,  L.  R.  2  Eq.  435; 
Jenner's  Case,  7  Ch.  D.  132.  See, 
also,  §  578.  But  see  In  re  Carriage 
Co-operative  Supply  Ass'n,  27  Ch. 
Div.  323. 

3  Hersey  v.  Veazie,  24  Me.  9;  Smith 
v.  Hurd,  12  Mete.  371. 

4  Hun  v.  Carey,  82  New  York,  65; 


Mason  v.  Henry,  152  New  York,  529; 
Shultz  o.  Christman,  6  Mo.  App.  338; 
Austin  v.  Daniels,  4  Den.  (New  York) 
299. 

s  Hun  v.  Cary,  82  N.  Y.  65. 

6  First  Nat.  Bk.  v.  Reed,  36  Mich. 
263.  See  Shultz  v.  Christman,  ti  Mo. 
App.  338;  Metropolitan  El.  Ry.  Co. 
v.  Kneeland,  120  X.  Y.  134;  Cores  v. 
Day,  99  Wis.  276.  If  a  treasurer 
misappropriates  funds  of  his  corpo- 
ration and  lends  them  to  a  third 
person,  an  action  of  contract  brought 
by  the  corporation  against  tlie  bor- 

617 


§  617.]  THE   LAW   OF   PRIVATE   CORPORATIONS.      [CHAP.  X. 


Ordinary- 
care  re- 
quired. 


negligence  in  attending  to  the  corporate  affairs,  or  gross  mis- 
management whereby  the  corporate  assets  are  wasted ; x  for 
any  acts  in  violation  of  the  by-laws  that  occasion  loss  to  the 
corporation ; 2  and  for  acts  forbidden  by  statute  which  occasion 
loss,  though  the  statute  impose  no  penalty.3 

§<il7.  "The  first  question  to  be  considered  is  the  measure 
of  fidelity,  care,  and  diligence  which  such  trustees 
[trustees  of  a  savings  bank]  owe  to  such  a  bank  and 
its  depositors.  The  relation  existing  between  the 
corporation  and  its  trustees  is  mainly  that  of  principal  and 
agent,  and  the  relation  between  the  trustees  and  the  depos- 
itors is  similar  to  that  of  trustee  and  cestui  que  trust.  The 
trustees  are  bound  to  observe  the  limits  placed  upon  their 
powers  in  the  charter,  and  if  they  transcend  such  limits  and 
cause  damage,  they  incur  liability.  If  they  act  fraudulently, 
or  do  a  wilful  wrong,  it  is  not  doubted  that  they  may  be  held 
for  all  the  damage  they  cause  to  the  bank  or  its  depositors. 
But  if  they  act  in  good  faith,  within  the  limits  of  powers  con- 
ferred, using  proper  prudence  and  diligence,  they  are  not 
responsible  for  mere  mistakes  or  errors  of  judgment.  That  the 
trustees  of  such  corporations  are  bound  to  use  some  diligence 
in  the  discharge  of  their  duties  cannot  be  disputed.  All  the 
authorities  hold  so.     What  decree  of  care  and  diligence  are 


rower  is  not  a  ratification  of  the 
treasurer's  unauthorized  act,  and 
does  not  discharge  him  from  his  lia- 
bility to  the  corporation.  Goodyear 
Dental  Vulcanite  Co.  v.  Caduc,  144 
Mass.  85. 

1  Austin  v.  Daniels,  4  Den.  (N.  Y. ) 
299;  Citizens'  Loan  Ass'n  v.  Lyon, 
29  N.  J.  Eq.  110.  See  Merchants1 
Bank  v.  Jeffries,  21  W.  Va.  504;  Nix 
v.  Miller,  26  Colo.  203;  Bank  v.  Hill, 
148  Mo.  380;  Warren  v.  Robinson,  19 
Utah,  289. 

2  Citizens1  Building  Ass'n  v. 
Coriell,  34  N.  J.  Eq.  383;  Williams 
v.  Riley,  34  N.  J.  Eq.  398;  Oakland 
Bank  v.  Wilcox,  60  Cal.  126.  An 
officer,  e.  g.,  a  cashier,  is  not  liable 

618 


to  the  corporation  for  acts  done  in 
good  faith,  but  in  violation  of  a  by- 
law, when  the  board  of  directors, 
who  have  power  to  make  by-laws 
and  prescribe  his  duties,  practically 
disregard  the  by-law  which  he  has 
violated,  and  render  his  observance 
of  it  impossible.  Thus,  where  a  by- 
law provided  that  the  cashier  should 
consult  a  committee  of  directors  in 
making  discounts,  he  is  not  liable 
for  neglecting  to  consult  such  com- 
mittee when,  with  the  acquiescence 
of  the  board  of  directors,  it  holds  no 
meetings.  Second  National  Bank  v. 
Burt,  93  N.  Y.  233. 

3 Thompson    v.  Greeley,    107  Mo. 
577;  Thompson  u.  Swain,  ib.  594. 


CHAP.  X.] 


CORPORATION  AND  OFFICERS. 


[§  618. 


they  bound  to  exercise  ? l  Not  the  highest  degree,  not  such 
as  an  extremely  vigilant  and  very  careful  person  would  exer- 
cise. ...  It  would  not  be  proper  to  answer  the  question  by 
saying  the  lowest  degree.  .  .  .  When  one  deposits  money  in 
a  savings  bank,  or  takes  stock  in  a  corporation,  thus  divest- 
ing himself  of  the  immediate  control  of  his  property,  he  has 
the  right  to  expect  that  the  trustees  or  directors,  who  are 
chosen  to  take  his  place  in  the  management  and  control  of  his 
property,  will  exercise  ordinary  care  and  prudence  in  the  trusts 
committed  to  them — the  same  degree  of  care  and  prudence 
that  men  prompted  by  self-interest  generally  exercise  in  their 
own  affairs.  When  one  voluntarily  takes  the  position  of 
trustee  or  director  of  a  corporation,  good  faith,  exact  justice, 
and  public  policy  unite  in  requiring  of  him  such  a  degree  of 
care  and  prudence,  and  it  is  a  gross  breach  of  duty — crassa 
negligentia—not  to  bestow  them."2 

§  618.  Like  directors,  other  corporate  officers  and  agents  are 
bound  to  observe  the  utmost  good  faith  towards  the  corpora- 
tion ;  and,  perhaps,  may  be  held  to  even  a  stricter  performance 
of  their  duties  ;  for  agents  and  officers,  other  than  directors, 
usually  receive  salaries,  and  are  supposed  to  devote  a  greater 
portion  of  their  time  to  the  service  of  the  corporation  ; 3  and, 
generally,  all  agents  and  servants  of  a  corporation  are  bound 
to  act  with  care  and  diligence,  and,  while  engaged  in  the  per- 


1  Not  keeping  property  of  the  cor- 
poration insured  is  not  per  se  negli- 
gence on  the  part  of  directors:  the 
complaint  in  such  a  case  should 
allege  facts  showing  that  the  direct- 
ors violated  their  duty  in  not  keep- 
ing it  insured.  Charleston  Boot, 
etc.,  Co.  v.  Dansmore,  60  N.  H.  85. 

2  Hun  v.  C'ary,  82  N.  Y.  65,  70. 
Opinion  of  the  court  per  Earl,  J. 
See  Citizens1  Building  Ass'n  v.  Cori- 
ell,  34  N.  J.  Eq.  383.  Directors  are 
liable  only  for  gross  negligence, 
Jones  v.  Johnson,  86  Ky.  530, 
which  is  absence  of  that  diligence 
which  ordinarily   prudent   business 


men  would  have  exercised  in  their 
business.  Savings  Bk.  v.  Caperton, 
87  Ky.  306. 

3  Commercial  Bank  v.  Ten  Eyck, 
48  N.  Y.  305;  Austin  v.  Daniels,  4 
Den.  (N.  Y.)  299;  East  N.  Y.,  etc., 
R.  R.  Co.  o.  Elmore,  5  Hun,  214; 
Pangborn  v.  Citizens'  Building  Ass'n, 
35  N.  J.  Eq.  341;  First  Nat.  B'k  v. 
Reed,  36  Mich.  263.  For  disobeying 
an  order  of  court  regarding  invest- 
ment of  funds  of  a  savings  bank,  its 
president  may  be  punished  for  con- 
tempt, though  the  bank  suffer  no 
loss.  Una  v.  Dodd,  39  N.  J.  Eq. 
173. 

619 


§  619.]  THE    LAW    OF    PRIVATE   CORPORATIONS.      [CHAP.  X. 


formanoe  of  their  functions,  to  act  wholly  and  entirely  in  its 
interests.1 

§  619.  An  admirable  exposition  of  the  liability  of  directors 
to  the  corporation  for  neglect  of  their  duties  is  contained  in  a 
case  decided  by  the  greatest  of  England's  chancellors  as  long 
ago  as  the  year  1742.  The  facts  of  Charitable  Corporation  v. 
Sutton2  were  briefly  as  follows:  The  committee-men  (direct- 
ors), into  whose  hands  the  general  charge  of  the  corporate 
affairs  had  been  confided,  had  been  guilty  either  of  positive 
frauds  and  breaches  of  trust,  or  of  gross  negligence.  The 
corporation  had  been  formed  for  the  purpose  of  lending  on 
pledges,  and,  in  contravention  of  its  rules  or  by-laws,  its  affairs 
and  the  whole  power  and  discretion  of  lending  were  left  in 
charge  of  one  or  two  persons  in  such  a  way  as  to  afford  them 
abundant  opportunity  to  defraud  the  corporation,  of  which 
opportunity  they  took  every  advantage. 

In  his  opinion,  Lord  Hardwicke  said  :3  "  The  grounds  upon 
which  the  plaintiffs  found  their  relief  against  the  committee- 
men are  these  :  1.  That  they  have  been  guilty  of  manifest 
breaches  of  trust,  or,  at  least,  of  such  supine  and  gross  negli- 
gence of  their  duty,  and  so  often  repeated,  that  it  will  amount 
to  a  breach  of  trust.  These  are  great  and  important  questions. 
It  will  be  proper  to  state  what  are  the  actual  breaches  of  trust: 
1st.  Passing  of  notes,  etc.  2dly.  Signing  notes  for  loans 
upon  pledges,  called  renewal  pledges,  though  they  knew  at 
the  same  time  that  the  money  originally  lent  was  not  paid. 
3dly.  Signing  notes  of  John  Thompson,  warehouse-keeper. 
4thly.  Taking  off  all  checks  upon  him,  etc.     5thly.  Making 


1  A  railroad  company  had  a  rule 
that  persons  not  buying  tickets  be- 
fore entering  sliould  pay  ten  cents 
extra.  A  conductor  did  not  collect 
this  extra  fare,  but  received  the  or- 
dinary fare,  bought  tickets  himself, 
and  punched  and  gave  them  in,  con- 
cealing the  facts.  It  was  held  that 
this  did  not  constitute  a  payment, 
and  that  the  railroad  company  could, 
notwithstanding,  recover  the  fares 
collected  by  him  in  assumpsit  as 
money  had  and  received.     Concord 

620 


R.  R.  Co.  v.  Clough,  49  N.  H.  257. 
Compare  Taylor  v.  Taylor,  74  Me. 
582.  The  cashier  of  a  bank,  though 
authorized  to  loan  its  funds  with  or 
without  security,  is  liable  for  money 
loaned  without  security  to  au  indi- 
vidual, and  not  entered  up  for  sev- 
eral years;  such  loan  being  evidently 
concealed  from  the  trustees.  San 
Joaquin  Valley  Bank  v.  Bours,  65 
Cal.  247. 

2  2  Atkyns,  400. 

8  2  Atkyns,  403  et  seq. 


CHAP.  X.]  CORPORATION  AND  OFFICERS.  [§  619. 

several  orders  to  put  it  in  the  power  of  Thompson,  Wooley, 
and  Warren  to  commit  those  frauds. 

"  As  to  the  three  first,  they  are  actual  breaches  of  trust,  and 
the  committee-men  are  clearly  guilty  who  have  been  concerned 
in  them.  The  by-law  prescribes  that  when  notes  were  to  be 
issued  by  the  cashier,  they  should  be  signed  by  one  of  the  com- 
mittee-men, and  intended  as  a  check  upon  the  warehouse-keeper 
and  cashier.  Now  several  notes  have  been  issued  without  ob- 
serving this  rule,  which  is  an  express  contravention  of  the  by- 
law. .  .  .  As  to  the  third  breach  of  trust,  the  committee-men's 
behavior  with  regard  to  Thompson,  their  warehouse-keeper.  It 
is  such  a  notorious  fraud,  or  at  least  gross  inattention  to  suffer 
him,  who  was  to  set  a  value  upon  all  the  pledges,  to  borrow 
money  upon  them  himself,  that  I  shall  direct  those  who  shall 
appear  to  be  guilty  of  it,  to  make  good  the  loss. 

"As  to  the  fourth  and  fifth  breach  of  trust,  the  taking  off 
all  checks  upon  Thompson,  and  making  several  orders  to  put 
it  in  the  power  of  Thompson,  Wooley,  and  Warren  to  commit 
those  frauds.  These  are  not  so  clearly  breaches  of  trust,  though 
at  the  same  time  they  appear  to  me  to  have  tended  greatly  to 
the  loss  and  prejudice  of  the  corporation.  But  whether  they 
are  criminal  will  be  the  question.  Now  I  think  the  persons 
present  are  only  liable  who  issued  out  the  orders,  which  invested 
Thompson,  Wooley,  and  Warren  with  such  powers. 

"  But  then  another  head  of  charge  has  been  made  under  the 
crassa  ncgl'ujentia,  which  has  been  divided  into  these  several 
branches :  1st.  The  committee-men's  non-attendance  upon 
their  employment ;  2dly.  Their  not  observing  the  by-law  of 
laying  the  balance  of  cash  regularly  before  them  ;  3dly.  Not 
taking  any  notice  of  forfeited  pledges ;  4thly.  Never  once  in- 
specting the  warehouse  to  see  what  number  of  real  pledges 
were  there ;  5thly.  Putting  the  whole  power  into  the  hands 
of  Thompson,  Wooley,  and  Warren.  Now  from  all  these  an 
accumulated  charge  is  made  against  the  whole  body  of  direct- 
ors or  committee-men.  Consider  first  the  foundation  of  this 
general  charge.  .  .  .  Committee-men  are  most  properly 
agents  of  those  who  employ  them  in  this  trust,  and  who  em- 
power them  to  direct  and  superintend  the  affairs  of  the  corpo- 
ration. In  this  respect  they  may  be  guilty  of  acts  of  com- 
mission or  omission,  of  malfeasance  or  non-feasance.       Vide 

G:il 


§  *519.]    THE  LAW  OF  PRIVATE  CORPORATIONS.   [CHAP.  X. 

Domat's  Civil  Law  upon  this  head  (2  B.  Tit.  3,  §§  1  and  2). 
Now  where  acts  are  executed  within  their  authority,  as  repeal- 
ing by-laws  and  making  orders,  in  such  cases,  though  attended 
with  bad  consequences,  it  will  be  very  difficult  to  determine 
that  these  are  breaches  of  trust.  For  it  is  by  no  means  just 
in  a  judge,  after  bad  consequences  have  arisen  from  such  exe- 
cutions of  their  power,  to  say  that  they  foresaw  at  the  time 
what  must  necessarily  happen ;  and,  therefore,  were  guilty 
of  a  breach  of  trust. 

"Next  as  to  malfeasance  and  non-feasance.  For  instance, 
in  non-attendance,  if  some  persons  are  guilty  of  gross  non- 
attendance,  and  leave  the  management  entirely  to  others,  they 
may  be  guilty  by  this  means  of  the  breaches  of  trust  that  are 
committed  by  others.  By  accepting  of  a  trust  of  this  sort  a 
person  is  obliged  to  execute  it  with  fidelity  and  reasonable 
diligence ;  and  it  is  no  excuse  to  say  that  they  had  no  benefit 
from  it,  but  that  it  was  merely  honorary;  and,  therefore,  they 
are  within  the  case  of  a  common  trust.1 

"  Another  objection  has  been  made,  that  the  court  can  make 
no  decree  upon  these  persons  which  will  be  just ;  for  it  is  said 
every  man's  non-attendance  or  omission  of  his  duty  is  his  own 
default,  and  that  each  particular  person  must  bear  such  a  pro- 
portion as  is  suitable  to  the  loss  arising  from  his  particular 
neglect,  which  makes  it  a  case  out  of  the  power  of  this  court. 
Now,  if  this  doctrine  should  prevail,  it  is,  indeed,  laying  the 
axe  at  the  foot  of  the  tree.  But,  if  upon  inquiry  before  the 
master,  there  should  appear  to  be  a  supine  negligence  in  all  of 
them,  by  which  a  gross  complicated  loss  happens,  I  will  never 
determine  that  they  are  not  all  guilty.  Nor  will  I  ever  deter- 
mine that  a  court  of  equity  cannot  lay  hold  of  every  breach 
of  trust,  let  the  person  be  guilty  of  it  either  in  a  private  or 
public  capacity.  The  tribunals  of  this  kingdom  are  wisely 
formed,  both  of  courts  of  law  and  equity,  and  so  are  the  tribu- 
nals of  most  other  nations ;  and  for  this  reason  there  can  be 
no  inquiry  but  there  must  be  a  remedy  in  all  or  some  of  them  ; 
and  therefore  I  will  never  determine  that  frauds  of  this  kind 
are  out  of  the  reach  of  courts  of  law  or  equity,  for  an  intoler- 
able grievance  would  follow  from  such  a  determination.     In 

1  Citing  Coggs  v.  Bernard,  1  Salk.  26. 

622 


CHAP.  X.] 


CORPORATION  AND  OFFICERS. 


[§  621. 


the  present  case  one  thing  is  clear  [those  who  were  engaged 
in  the  confederacy  to  divert  the  funds  of  the  corporation],  are 
certainly  liable  to  make  good  the  losses  which  the  corporation 
have  sustained  in  the  first  place,  and  the  committee-men  who 
were  not  partners  in  this  affair  are  liable  in  the  second  place 
only.  Therefore,  in  the  present  case,  I  am  of  opinion,  if  there 
is  no  evidence,  to  charge  the  committee-men  of  being  privy  to 
the  original  design,  yet  they  will  be  guilty  in  the  second 
degree,  by  conniving  at  the  affair,  and  not  making  use  of 
the  proper  power  invested  in  them  by  the  charter,  in  order 
to  prevent  the  ill  consequences  arising  from  such  a  confed- 
eracy." i 

§  620.  Directors  acting  in  good  faith  are  not  liable,  in  the 
absence  of  gross  negligence,   for  doing  what  they    Directors 
have   been   authorized   to   do,   even   though  it  was  ?ot  liable 

'  °  for  errors 

imprudent;2  nor  for  errors  in  judgment  in  matters  ofjudg- 
within  the  scope  of  their  discretion,  even  when  the 
errors  seem  palpable,  and  such  as  men  of  ordinary  prudence 
would  not  have  committed.3  They  ordinarily  receive  no 
salary,4  are  required  to  exercise  only  reasonable  care  and  pru- 
dence, and  cannot  be  presumed  to  devote  all  their  time  to  the 
service  of  the  company;5  and  under  any  circumstances,  in  the 
absence  of  negligence,  to  hold  them  liable  for  the  consequences 
of  mere  errors  of  judgment  would  add  an  undue  hardship  to 
the  already  onerous  responsibilities  of  their  position. 

§  621.  The  circumstances  of  a  Tennessee  case  are  of  interest. 


1See,  also,  Briggsr.  Spaulding,  141 
U.  S.  132;  North  Hudson  B'ld'g 
Ass'n  v.  Childs,  82  Wis.  460;  Henry 
v.  Jackson,  37  Vt.  431;  Wilkinson 
v.  Dodd,  40  N.  J.  Eq.  123;  aff'd  41 
N.  J.  Eq.  566;  Williams  v.  McKay, 
40  N.  J.  Eq.  189;  Deaderick  v.  Bank, 
100  Tenn.  457;  Utley  v.  Hill,  155  Mo. 
232;  Warren  v.  Robinson,  19  Utah, 
289. 

2Overend  v.  Gurney,  L.  R.  4  Ch. 
701;  S.  C,  sub  nom.  Overend  and 
Gurney  Co.  ».  Gibb,  L.  R.  5  H.  L. 
480.  See  International,  etc.,  R.  R. 
Co.  v.  Bremond,  53  Tex.  96.  Direct- 
ors of  a  savings  bank   are  not  lia- 


ble for  not  requiring  the  president 
to  furnish  a  bond,  when  the  charter 
leaves  this  to  their  discretion.  Wil- 
liams v.  Halliard,  38  N.  J.  Eq.  373. 

3Spering1s  Appeal,  71  Pa.  St.  11; 
Godbold  v.  Branch  Bank  of  Mobile, 
11  Ala.  191;  Citizens'  Building  Ass'n 
».  Coriell,  35  N.  J.  Eq.  383;  Hun  v. 
Cary,  82  N.  Y.  65,  §617;  Charita- 
ble Corporation  v.  Sutton,  supra  ; 
Excelsior  Petroleum  Co.  v.  Lacey,  63 
N.  Y.  422;  Vance  v.  Phoenix  Ins. 
Co.,  4  Lea  (Tenn.),  385. 

4  See  §  646. 

5  Percy  v.  Millardon,  8  Mart.  N.  S. 
(La.)  68. 

623 


§  622.]  THE   LAW   OF   PRIVATE   CORPORATIONS.      [CHAP.  X. 


The  by-laws  of  a  corporation  provided  that  the  directors  should 
elect  a  secretary,  whose  terra  of  office  should  be  twelve  months, 
or  until  his  successor  was  elected ;  and  provided  further  that 
the  secretary  should  give  a  bond  with  sureties  for  the  faithful 
performance  of  his  duties.  The  board  elected  a  secretaiw,  took 
the  prescribed  bond,  and  afterwards  re-elected  the  same  person 
for  the  two  following  years,  but  took  no  new  bond,  deciding 
without  legal  advice  and  erroneously,  though  after  a  discussion 
of  the  matter,  that  the  bond  already  taken  was  a  continuing 
security.  In  the  third  year  the  secretary  became  a  defaulter, 
and  it  was  held  that  the  directors  having  acted  in  good  faith 
were  not  liable  to  make  good  the  loss.1 

§  622.  If,  however,  directors  do  an  act  even  honestly,  which 
is  clearly  beyond  their  powers,  or  ultra  vires  the  cor- 
poration, they  will  be  liable  to  the  corporation  for 
any  damages  resulting.2  As  Baron  Lindley  says  : 
"  Directors  are  responsible  for  the  loss  of  the  company's  assets 
if  that  loss  is  attributable  to  the  employment  of  the  assets  in  a 
manner  and  for  purposes  not  warranted  by  the  constitution."1 
Thus,  a  director  of  a  savings  bank,  who  acts  with  its  president 
in  making  a  loan  on  security  palpably  worth  less  than  double 


Liability 
for  ultra 

vires  acts. 


1  Vance  v.  Phoenix  Ins.  Co.,  4  Lea 
(Tenn.),  385. 

-  As  where  directors  without  au- 
thority return  deposits  to  subscrib- 
ers; Williams  v.  P;ige,  25  Beav.  654; 
or  cancel  subscriptions  irregularly 
and  purchase  shares  (in  England)  in 
the  stock  of  the  corporation  with 
corporate  funds.  Hodgkinson  v. 
National  Live  Stock  Ins.  Co.,  26 
Beav.  473;  Joint  Stock  Discount  Co. 
v.  Brown,  L.  R.  3  Eq.  139;  S.  C,  L. 
R.  8  Eq.  381;  or,  against  the  pro- 
visions of  the  statute  allot  shares  to 
infants.  In  re  Crenver,  etc.,  M'g 
Co.,  Ex  parte  Wilson,  L.  R.  8  Ch.  45. 
See  Lester  v.  Howard  Bank,  33  Md. 
558.  Trustees  of  a  savings  bank  are 
liable  to  the  receiver  for  dividends 
paid  by  them  which  were  not  earned. 

624 


Van  Dyck  o.  McQuade,  45  N.  Y. 
Super.  Ct.  620;  2  Lindley  on  Part., 
794;  Evans  v.  Coventry,  8DeC,  M. 
&  G.  835;  see  the  decree,  clause  4. 
But  see  Excelsior  Petroleum  Co.  v. 
Lacy,  63  N.  Y.  422.  Compare  Tur- 
quand  v.  Marshall,  L.  R.  4  Ch.  376; 
Stringer's  Case,  L.  R.  4  Ch.  475; 
Ranee's  Case,  L.  R.  6  Ch.  104.  It  is 
competent  for  a  corporation  to  re- 
lease a  director  from  its  claims 
against  him  on  account  of  an  ultra 
vires  act  of  his  done  on  its  behalf. 
Pneumatic  Gas  Co.  v.  Berry,  113  U. 
S.  322.  See  Holmes  v.  Willard,  125 
N.  Y.  75. 

3  2  Lindley  on  Part.,  592.  Com- 
pare Pickering  v.  Stephenson,  L.  R. 
14  Eq.  322,  342. 


CHAP.  X.] 


CORPORATION  AND  OFFICERS. 


[§  623« 


the  amount  of  the  loan,  and  so  violates  a  provision  in  the 
charter  of  the  bank,  will  be  liable  for  any  loss.1 

§  623.  But  it  has  been  held  that  when  the  powers  of  direct- 
ors are  uncertain  or  difficult  to  ascertain,  and  they  act  honestly 
under  the  advice  of  counsel,  they  will  not  be  personally  liable, 
even  though  their  acts  be  afterwards  declared  beyond  their  au- 
thority and  ultra  vires?  "  In  regard  to  whether  the  defendants 
[directors]  should  be  held  responsible  for  any  of  their  acts  and 
investments  as  ultra  vires,  it  might  be  sufficient  to  notice  the 
fact  that  the  charter  of  this  corporation  was  a  very  compli- 
cated one,  made  up  by  comparing  together  no  less  than  sixteen 
acts  of  incorporation  or  supplements.  ...  To  have  mistaken 
the  extent  of  their  powers  under  such  circumstances  would  not 
have  been  matter  of  surprise  even  in  the  most  timid  and 
cautious.  We  may  adopt  on  this  point  the  language  of  Green, 
C.  J.,  in  Hodges  v.  New  England  Screw  Co.,  1  R.  I.  312 :  '  In 
considering  the  question  of  the  personal  responsibility  of  the 
directors  we  shall  assume  that  they  violated  the  charter  of  the 
Screw  Company.  The  question  then  will  be,  Was  such  viola- 
tion the  result  of  mistake  as  to  their  powers,  and  if  so,  did 
they  fall  into  the  mistake  from  want  of  proper  care,  such  care 
as  a  man  of  ordinary  prudence  practices  in  his  own  affairs? 
For  if  the  mistake  be  such  as  with  proper  care  might  have 
been  avoided,  they  ought  to  be  liable.  If,  on  the  other  hand, 
the  mistake  be  such  as  the  directors  might  well  make,  notwith- 
standing the  exercise  of  proper  care,  and  if  they  acted  in  good 
faith  and  for  the  benefit  of  the  Screw  Company,  they  ought  not 
to  be  liable.'  We  may  say  in  this  case,  conceding  that  the 
directors  did  violate  the  charter,  it  Avas  a  question  upon  which 
with  all  due  care  they  might  have  made  an  honest  mistake ; 
and  moreover,  it  appears  by  the  evidence  and  is  so  reported, 
that  they  acted  throughout  by  the  advice  of  their  counsel.  It 
is  well  settled  that  trustees  will  be  protected  from  responsibil- 
ity under  such  circumstances." 3 

Still,  it  may  be  suggested  that  as  to  transactions  within  the 


i  Williams  v.  McDonald,  42  N.  J. 
Eq.  392. 

2  Spering's  Appeal,  71  Pa.  St. 
11;  Hodges  v.  New  England  Screw 
Co.,    1   R.  I.   312;    S.   C,   3  It.   I.  9. 

40 


Compare  Williams  v.  McDonald,  37 
N.  J.  Eq.  409. 

3Spering's  Appeal,  71  Pa.  St.  11; 
opinion  of  the  court  per  Sharswood, 
C.  J. 

625 


§  624.]  THE   LAW   OF   PRIVATE  CORPORATIONS.     [CHAP.  X. 


directors 
for  the  acts 
of  other 
corporate 
agents. 


powers  of  the  corporation,  but  possibly  beyond  the  powers  of 
the  directors,  directors  may  act  in  safety  by  procuring  before- 
hand the  consent  of  a  majority  of  shareholders  in  a  corporate 
meeting;  and  that  as  to  acts  which  are  ultra  vires,  it  may  be 
unwise  to  permit  directors  in  a  great  corporation  to  shield 
themselves  from  responsibility  behind  even  the  most  "un- 
purchasable  opinions"  of  counsel.  The  maxim  Ignorantia 
leyis  neminem  excusat  is  one  of  the  pillars  of  corporation 
law.1 

§  624.  As  appears  from  Charitable  Corporation  v.  Sutton,2 
Liability  of  if  the  directors  improperly  surrender  duties,  Avhich 
they  ought  themselves  to  perform,  into  the  hands  of 
one  or  more  of  their  number,  or  into  the  hands  of 
other  agents  of  the  corporation,  they  may  render 
themselves  liable  for  damages  arising  to  the  corporation  from 
such  frauds  and  wrongful  acts  as  the  persons,  into  whose  hands 
they  have  improperly  surrendered  their  duties,  commit  in  the 
performance  of  them.  It  is  even  conceivable  that  directors, 
by  improperly  intrusting  to  any  person  discretionary  powers 
confided  to  them  to  be  exercised  only  by  themselves,  might 
make  themselves  liable  for  errors  of  discretion  committed  in 
good  faith  by  that  person  ;  even  for  such  errors  as  the  directors 
would  not  have  been  liable  for  had  they  themselves  committed 
them  in  the  discharge  of  their  duties.  Moreover,  if  it  is  the 
duty  of  directors  to  watch  over  the  conduct  of  each  other,  and 
of  other  agents  and  clerks  of  the  corporation,  and  they  grossly 
neglect  this  duty,  they  will  be  liable  for  the  damages  arising 
from  wrongful  acts  which,  had  it  not  been  for  their  neglect, 


1The  English  courts  have  re- 
cently expressed  themselves  as  to 
these  points  as  follows:  Directors 
are  not  to  be  held  liable  on  the 
strict  rules  applied  to  trustees  in 
the  English  Court  of  Chancery;  for 
they  are  not  in  the  position  of 
trustees  iu  whose  name  property 
stands,  and  who  deal  with  it  as 
principal  and  owner,  subject  only  to 
account  to  some  cestui  que  trust.  If 
directors   apply  funds  of    the    cor- 

626 


poration  to  clearly  ultra  vires  pur- 
poses, they  are  liable;  otherwise  a 
strong  and  clear  case  of  misfeasance 
must  be  made  out.  Faure  Electric 
Accumulator  Co.,  In  re,  40  Ch.  D. 
141;  see  Liverpool  Household  Stores 
Ass'n,  In  re,  59  L.  J.  Ch.  616;  Cul- 
lerne  v.  London,  etc.,  B'Id'g  Soc,  25 
Q.  B.  D.  485;  Masonic,  etc.,  Life 
Ass'n  Co.  v.  Sharpe  [1892],  1  Ch.  154. 
2  §  619. 


CHAP.  X.]  CORPORATION  AND  OFFICERS.  [§  626. 

the  other  directors  and  agents  would  have  been  unable  to 
commit.1 

§  625.  On  the  other  hand,  if  directors  have  been  guilty  of 
no  neglect  of  duty,  the}7  are  not  responsible  for  the  wrongful 
acts  or  omissions  of  other  directors  or  officers  of  the  corpora- 
tion ;  nor  for  the  acts  of  inferior  agents  appointed  by  them- 
selves ;  provided,  in  the  selection  of  the  last,  the}7  have  used 
due  care.  Directors  and  other  officers  are  responsible  for  the 
performance  of  their  own  duties,  and  cannot  be  held  liable  for 
wrongs  which  others  have  committed,  unless  the  commission 
of  such  wrongs  is  in  some  way  due  to  an  omission  of  duty  on 
their  own  part.2 

§  626.  The  following  admirable  statement  of  the  liability  of 
directors  for  the  acts  of  persons  other  than  themselves  is  taken 
from  Baron  Lindley's  work  on  Partnership.3  "  The  most  diffi- 
cult question  which  arises  with  reference  to  the  liability  of 
directors  is  the  extent  to  which  each  is  liable  for  the  acts  of 
the  other.  The  following  appear  to  be  the  principles  applicable 
to  this  subject : — 

"  1.  All  those  directors  who  are  actually  implicated  in  a  breach 
of  trust  by  misapplying  the  company's  money  (even  although 
they  only  sign  checks  prepared  by  others)  are  jointly  and  sev- 
erally liable  for  the  losses  arising  therefrom.4 

"  2.  Directors  who  know  of  and  sanction  such  a  breach  of 
trust  are  implicated  in  it  within  the  meaning  of  this  rule,  al- 
though they  do  not  actively  take  part  in  it.3 

"  3.  So  are  directors  who  know  of  the  breach  of  trust,  but 
take  no  steps  to  prevent  it,  beyond  writing  a  letter  of  disap- 
proval.6 

ingly  aids  the  cashier  in  abstracting 
money  from  the  bank,  is  liable  there- 
for to  the  bank,  though  he  gets  none 
of  the  money  himself.  Hobart  v. 
Dovell,  38  N.  J.  Eq.  553. 

:!  2  Lindley  on  Part.,  595,  596. 

4  Citing,  Joint  Stock  Discount  Co. 
v.  Brown,  L.  R.  8  Eq.  381;  Laud 
Credit  Co.  v.  Fermoy,  L.  R.  5  Ch. 
703. 

5  Citing,  "Land  Credit  Co.  v.  Fer- 
moy. supra. 


1  Horn  Silver  M'g  Co.  o.  Ryan,  42 
Minn.  196. 

2  Batchelor  o.  Planters'  Nat.  Bk., 
78  Ky.  435,  446;  Williams  v.  Hal- 
liard, 38  N.  J.  Eq.  373.  In  re  Den- 
ham  &  Co.,  25  Ch.  D.  752.  See 
Lewis  v.  Montgomery,  145  111.  30; 
Savings  Bank  v.  Caperton,  87  Ky. 
306;  Wallace  o.  Lincoln  S'v'gs  Bk., 
89  Tcnu.  630.  Unless  their  liability 
is  extended  by  statute;  see,  e.  g., 
Cons'n  of  California,  1879,  art.  xii. 
§  :'..     A   receiving  teller,  who  know- 1      G  Citing,  Joint  Stock  Discount  Co. 

627 


§  626.]  THE   LAW    OF   PRIVATE   CORPORATIONS.     [CHAP.  X. 

"4.  Where  the  liability  is  to  account  for  profits  improperly 
received  by  them,  they  are  only  severally  liable  for  their  own 
receipts,  and  are  not  jointly  and  severally  liable  for  each 
other's  receipts.1  But  it  is  submitted  that  their  liability  is 
joint  and  several  if  there  has  been  a  joint  receipt  by  them  all, 
and  then  a  division  amongst  themselves  of  what  they  have  all 
received  ;  or  if  they  have  all  been  implicated  in  some  joint 
breach  of  trust  resulting  in  profit  to  them  all. 

"  5.  It  has  been  decided  that  a  director  who  is  not  cognizant 
of  a  breach  of  trust  committed  by  his  co-directors  and  who 
takes  no  part  in  it  is  not  liable  for  it.2  This  point,  however, 
involves  the  question  whether  a  director  is  not  bound  to  make 
himself  acquainted  with  what  his  co-directors  are  doing,  and 
to  take  such  steps  as  may  be  in  his  power  to  prevent  them  from 
doing  wrong.  On  this  question  opinions  differ,  and  it  can 
scarcely  be  considered  as  settled.  If,  indeed  (as  often  hap- 
pens), the  constitution  of  the  company  is  such  as  to  justify  a 
director  in  leaving  certain  matters  to  his  co-directors,  or  some 
of  them,  he  is  justified  in  trusting  them  with  such  matters, 
and  is  not  responsible  for  breaches  of  trust  committed  by  them 
and  concealed  from  him.  But  in  other  cases  his  irresponsibility 
is  by  no  means  so  clear. 

"  6.  Nor,  it  seems,  is  a  director  liable  for  breaches  of  trust 
committed  by  his  co-directors  before  he  became  a  director,  but 
afterwards  discovered  by  him.  In  this  case  the  new  director's 
liability,  if  any,  can  only  be  for  the  loss  sustained  by  the  com- 
pany by  reason  of  his  omission  to  make  kuown  what  he  has 


v.  Brown,  supra.  The  statute  of 
limitations  runs  against  any  liability 
of  directors  for  the  wrongful  acts  of 
other  directors  and  officers,  from 
the  time  of  the  commission  of  the 
wrongful  acts.  Spering's  Appeal, 
71  Pa.  St.  11,  25;  Williams  v.  Hal- 
liard, 38  N.  J.  Eq.  373.  See  Link  v. 
McLeod,  194  Pa.  St.  566,  holding  that 
where  directors  are  charged  with 
having  made  an  unlawful  payment 
pursuant  to  an  unlawful  resolution 
the  statute  runs  from  the  date  of  the 
resolution.     See  §  012,  note. 

1  Citing,  Parker  v.  McKenna,  L.  R. 

628 


10Ch.  96;  General  Exchange  Bank 
v.  Horner,  L.  R.  9  Eq.  480.  If  one 
or  more  directors  improperly  dis- 
pose of  corporate  funds,  they  are  re- 
sponsible individually;  but  to  affect 
them  with  joint  responsibility,  it 
must  appear  that  the  act  complained 
of  was  done  by  the  board  or  a 
majority  thereof.  Franklin  Ins.  Co. 
v.  Jenkins,  3  Wend.  130. 

2  Citing,  Ashhurst  v.  Mason,  L.  R. 
20  Eq.  225.  Accord,  Re  Montrotier 
Asphalte  Co.,  Perry's  Case,  34  L.  T. 
N.  S.  716. 


CHAP.  X.] 


CORPORATION  AND  OFFICERS. 


[§  627. 


discovered,  and  to  compel  the  real  delinquents  to  make  good 
their  breach  of  trust ;  and  it  is  very  questionable  whether  an 
incoming  director  is  liable  in  point  of  law  for  such  omis- 
sions." 

§  627.  It  may  be  stated  as  a  general  rule  that  directors  and 
other  corporate  officers  should  do  no  acts  that  are   „ 

L  Corporate 

likely  to  render  their  personal  interests  antagonistic  officers 

to  those  of  the  corporation.1     And  when  a  corporate  place  their 

officer  finds  his  personal  interests  substantially  op-  ^'position1 

posed  to  those  of  the  corporation,  then,  not  only  on  *? those  of 

1  .  the  corpo- 

account  of  the  rights  of  the  corporation  and  his  ration, 
duties  to  it,  but  also  for  the  sake  of  his  own  security,  the 
plainest  course  for  him  is  to  resign.2  For,  under  such  circum- 
stances, every  step  he  takes  may  be  subjected  to  the  most 
searching  and  harassing  investigation  at  the  instance  of  any 
person  interested  in  the  corporate  enterprise,  and  he  will  find 
himself  seriously  hampered  in  the  assertion  of  even  his  honest 
rights,  if  such  he  happen  to  possess.  Thus,  for  instance,  it 
has  been  held  that  directors  of  a  railroad  company  cannot  ac- 
quire an  interest  in  the  profits  of  a  contract  for  the  construc- 
tion of  the  road,  that  will  give  them  a  standing  in  a  court  of 
equity  to  interpose  an  objection  to  the  consummation  of  a  com- 
promise between  the  railroad  company  and  its  contractors.3    In 


iHill  v.  Frazier,  22  Pa.  St.  320; 
Goodin  v.  Cincinnati,  etc.,  Canal  Co., 
18  Ohio  St.  169;  Attaway  v.  Nat. 
Bk.,  93  Mo.  485;  Hemingway  v.  Hem- 
ingway, 58  Conn.  443;  §559,  ante, 
ch.  9;  Brewster  v.  Stratman,  4  Mo. 
App.  41;  First  Nat.  Bk.  v.  Reed,  36 
Mich.  263.  See  In  re  Imperial  Land 
Co.,  Ex  parte  Larking,  4  Ch.  D.  566. 

"  Indeed  it  is  not  going  too  far  to 
say  that  every  director  of  a  company 
is  bound,  when  his  personal  interests 
conflict  with  his  duty  to  the  share- 
holders, to  perform  his  duty  toward 
them  at  a  sacrifice  of  his  own  inter- 
ests; and  a  transaction  in  which  a 
director  on  behalf  of  his  company  has 
in  fact  been  dealing  with  himself 
as  an  individual  cannot  stand."  2 
Lindley  on  Part.,  590;  Aberdeen  Ry. 


Co.  v.  Blakie,  1  Macq.  461.  The 
president  of  a  corporation,  to  whom 
a  bund  has  been  delivered  by  the 
board  for  sale,  cannot  convert  such 
bond  to  his  own  use  in  payment  of  a 
claim  due  him  from  the  corporation. 
Gas  Co.  v.  Reis,  54  Ohio  St.  549.  Cf. 
Hall  v.  Goodnight,  138  Mo.  576. 

2  See  Goodin  v.  Cincinnati,  etc., 
Canal  Co.,  supra. 

3  Paine  v.  Lake  Erie,  etc.,  R.  R.  Co., 
31  Ind.  283,  353.  Compare  Savings 
Bank  v.  Wulfekuhler,  19  Kan.  60. 
The  president  of  a  railroad  company 
who  is  authorized  with  two  other  di- 
rectors to  make  a  contract  for  the 
construction  of  the  road,  cannot  se- 
cretly (at  the  time  of  contracting) 
acquire  rights  in  the  contract  which 
he  can  enforce  against  the  company; 

629 


§  ti'28.]  THE    LAW    OF    PRIVATE    CORPORATIONS.       [('HAP.   \. 

another  instance,  where  on  an  execution  sale  against  a  corpora- 
tion, a  person  who  was  both  its  treasurer  and  a  shareholder 
bought  in  land  held  by  its  trustees,  it  was  held  that  his  title 
enured  to  the  benelit  of  the  corporation.1 

"  The  affairs  of  a  corporation  are  generally  intrusted  to  the 
exclusive  management  and  control  of  the  board  of  directors  ; 
and  there  is  an  inherent  obligation,  implied  in  the  acceptance 
of  such  trust,  not  only  that  they  will  use  their  best  efforts  to 
promote  the  interest  of  the  shareholders,  but  that  they  will  in 
no  manner  use  their  positions  to  advance  their  own  individual 
interest,  as  distinguished  from  that  of  the  corporation,  or  ac- 
quire interests  that  may  conflict  with  the  fair  and  proper  dis- 
charge of  their  duty."  - 

§  628.  A  director  or  other  corporate  officer  can  on  behalf  of 
his  corporation  make  with  himself  no  contract  that  will  bind 
the  corporation  ; !  nor  any  contract  in  which  he  is  personally  in- 


and  this,  whether  there  beany  fraud 
in  fact  or  not.  Flint  and  P.  M.  R  y 
Co.  v.  Dewey,  14  Mich.  477. 

1  McAllen  v.  Woodcock,  60  Mo. 
174;  see  Brewster  o.  Stratman,  t  Mo. 
App.  41. 

But  claims  against  a  corporation 
do  not  necessarily  become  extin- 
guished on  being  purchased  by  its 
agent.  The  corporation  may  there- 
upon become  indebted  to  him  for 
money  expended  in  their  purchase, 
provided  the  purchase  was  not  made 
in  violation  of  his  duties  or  instruc- 
tions. Sullivan  r.  Triunfo  Mining 
Co.,  39  Cal.  459;  Seeley  v.  San  Jose" 
Mill  Co.,  59  Cal.  22;  Merrick  r.  Peru 
Coal  Co.,  61  111.  472;  Kitchen  v.  St. 
Louis,  etc.,  R'y  Co.,  69  Mo.  224.  See 
Pacific  Railroad  o.  Ketchum,  101 
U.  S.  289;  also  §  033.  Compare 
Sandy  River  R.  R.  Co.  o.  Stubbs,  77 
Me.  594. 

2  Cumberland  C'l,  etc.,  Co.  v.  Par- 
ish, 42  Md.  598,  605;  see  Sellers  v. 
Phoenix  Iron  Co.,  13  Fed.  Rep.  20; 
Wickersham   v.  Crittenden,  93  Cal. 

630 


17;  Shepaug  Voting  Trust  Cases,  60 
Conn.  553;  Higgins  t\  Lansingh,  154 
111.  301;  Cusick  d.  Bartlett,  91  Me. 
153;  Fort  Payne  Rolling  Mill  v.  Hill. 
174  Mass.  224;  Center  Crefk  I.  Co.  r. 
Lindsay,  21  Utah,  192. 

a  Guild  v.  Parker,  43  N.  J.  L.  430; 
Port  v.  Russell,  36  Ind.  60;  Coleman 
o.  Second  Avenue  R.  R.  Co.,  3^  N.  Y. 
jni;  First  National  Bank  v.  Gifford, 
47  Iowa,  575;  First  National  Bank 
v.  Drake,  29  Kansas,  311;  Ex  parte 
Hill,  32  L.  J.  Eq.  154;  see  Butts  v. 
Wood,  37  N.  Y.  317;  Abbot  v.  Ameri- 
can Hard  Rubber  Co.,  33  Barb.  578; 
Murray  v.  Vanderbilt,  39  Barb.  140; 
Munson  v.  Syracuse,  etc.,  Ry.  Co.,  29 
Hun,  76;  Winchester  v.  Baltimore, 
etc.,  R.  R.  Co.,  4  Md.  231.  Compare 
Palmer  v.  Nassau  Bank,  78  Illinois, 
380.  But  a  single  director  can  deal 
with  the  rest  of  the  board,  when 
they,  and  not  he,  represent  the  cor- 
poration. Gamble  v.  Water  Co.,  122 
N.  Y.  91;  Crymble  v.  Mulvaney,  21 
Col.  203 ;  cf .  Warren  v.  Rubber  Co., 
166  Mass.  97. 


CHAP.  X.] 


CORPORATION  AND  OFFICERS. 


[§  629. 


terested.1     Accordingly,  a  resolution  of  the  board  of  trustees 
of  a  corporation  carried  by  the  casting  vote  of  the   ^ 

1  J  °  They  can- 

president  ratifying  an  unauthorized  act   of   his,  in   notcon- 
which  he  was  personally  interested,  is  invalid.2     And   them- 
a  board  of  directors  who  have  bartered  away  the   se  ves- 
assets  of  the  corporation  for  personal  gain,  cannot,  by  an  act 
purporting  to  be  an  acceptance  for  the  company  of  an  equiva- 
lent for  such  assets,  conclude  the  shareholders  or  a  receiver 
from  showing  that  no  equivalent  was  actually  received.3 

§  629.  Corporate  officers  may  not  buy  from  or  sell  to  their 
corporation  and  retain  any  profits  from  such  trans- 
actions, unless  the  profits  are  known  and  the  trans-   Sec™t 

1  _  profits. 

actions  acquiesced  in  by  all  who  could  claim  any 
interest  in  the  profits.4     For  all  secret  profits  derived  by  them 
from  any  dealings  in  regard  to  the  corporate  enterprise  they 
must  account  to  the  corporation,5  even  though  the  transaction 
may  have  benefited  it.6 


1  European,  etc.,  Railroad  Co.  v. 
Poor,  59  Maine,  277;  Blair  Town  Lot 
Co.  v.  Walker,  50  Iowa,  376;  Wicker- 
sham  v.  Crittenden,  93  Cal.  17;  Cur- 
tin  v.  Salmon  River,  etc.,  Co.,  130 
Cal.  345;  Smith  v.  Los  Angeles  Im. 
Association,  78  Cal.  289. 

2  Chamberlain  v.  Pac.  Wool-Grow- 
ing Co.,  54  Cal.  103.  See  Davis  v. 
Rock  Cr.  L.  F.  &  M.  Co.,  55  Cal.  359; 
Bennett  v.  St.  Louis  Car  Roofing  Co., 
19  Mo.  App.  349;  Ward  v.  Davidson, 
89  Mo.  445. 

3  Guild  v.  Parker,  43  N.  J.  L.  430. 
See  Rhodes  v.  Webb,  24  Minn.  292. 
Resolutions  passed  by  directors  mak- 
ing allowances  in  their  favor  and 
auditing  their  own  claims  are  void- 
able by  the  corporation.  Graves  v. 
Mono  Lake  Mfg.  Co.,  81  Cal.  303. 
See  Munson  v.  Magee,  161  N.  Y.  182. 

The  presumption  that  directors 
are  acquainted  with  the  affairs  of 
their  bank,  and  that  they  have  notice 
of  all  the  entries  on  its  books,  can- 
not be  relied  on  by  a  cashier  seeking 
to  show  a  ratification  of  his  wrong- 


ful appropriation  of  the  moneys  of 
the  bank.  First  Nat.  Bk.  v.  Drake, 
29  Kan.  311. 

4  See  Imperial  Mercantile  Cred. 
Ass'n  v.  Coleman,  L.  R.  6  H.  L.  189. 
Compare  Barr  v.  Glass  Co.,  17  U.  S. 
App.  124. 

5  European,  etc.,  Ry.  Co.  v.  Poor, 
59  Me.  277;  Parker  v.  Nickerson, 
112  Mass.  195;  McClure  v.  Law,  161 
N.  Y.  78;  Bent  v.  Priest,  86  Mo.  475; 
Ward  v.  Davidson,  89  Mo.  445;  Perry 
r.  Tuscaloosa  Co.,  93  Ala.  364;  San 
Francisco  Water  Co.  v.  Pattee,  86 
Cal.  623;  Keokuk  Packet  Co.  v. 
Davidson,  95  Mo.  467;  Hutchinson  v. 
Bidwell,  24  Oreg.  219;  Electric  Co. 
v.  Bates,  68  Vt.  579;  Spaulding  v. 
North  Milwaukee  T.  S.  Co.,  106  Wis. 
481.  Compare  Hazard  v.  Durant,  14 
R.  I.  25.  * 

6  Bird  Coal  Co.  v.  Humes,  157  Pa. 
St.  278;  Bent  v.  Priest,  10  Mo.  App. 
543.  An  officer  of  a  corporation  may 
act  as  trustee  for  bondholders  under 
a  mortgage  made  by  it.  Ellis  v. 
Boston,  etc.,  R.  R.  Co.,  107  Mass.  1. 

631 


§  629.] 


THE    LAW    OF   PRIVATE   CORPORATIONS.     [CHAP.  X. 


Thus,  where  the  directors  of  a  ferry  company  bought  a  steam- 
boat in  their  individual  capacity,  and  so  owning  it  bought  it  of 
themselves  for  the  company  at  a  large  advance,  it  was  held 
that  the  transaction  was  fraudulent,  and  that  their  profits  en- 
ured to  the  benefit  of  the  company,  who  might  recover  them 
with  interest.1  In  another  case  the  treasurer  of  a  bank  had 
received  authority  from  it  to  sell  certain  of  its  property,  which 
he  thereupon  sold  to  himself  and  some  of  his  brother  officers 
at  the  minimum  price  he  was  authorized  to  sell  at;  which  was 
far  below  the  market  value  of  the  property.  The  bank  was 
allowed  to  recover  of  him  the  difference  between  the  market 
value  and  the  price  at  which  he  had  sold  to  himself.2  And 
when  suit  is  brought  against  directors  to  compel  them  to  ac- 
count for  the  profits  of  transactions  wherein  they  have  acted 
on  behalf  of  the  corporation,  they  cannot  plead  that  the  trans- 
actions were  ultra  vires  the  corporation.3 


But  in  Ashuelot  R.  R.  v.  Elliot,  57 
N.  H.  397,  the  treasurer  of  a  corpo- 
ration, who  was  also  trustee  for 
bondholders,  was  held  to  account  to 
the  railroad  company  for  profits 
made  by  him  while  in  possession  as 
trustee  under  the  mortgage. 

Directors  caunot  speculate  with 
corporate  funds  or  credit  and  appro- 
priate the  profit.  Redmond  v.  Dick- 
erson,  9  N.  J.  Eq.  507.  Directors  of 
a  bank  must  give  up  to  it  all  secret 
profits  received  by  them  as  a  bonus 
to  obtain  a  loan  from  it.  Farmers', 
etc.,  Bank  v.  Downey,  53  Cal.  460. 
See,  also,  York,  etc.,  R.  R.  Co.  v. 
Hudson,  10  Beav.  485;  Parker  v. 
McKenna,  L.  R.  10  Ch.  90;  Dunston 
v.  Imperial  Gas  Co.,  3  Barn.  &  Adol. 
125;  General  Exchange  Bank  v.  Hor- 
ner, L.  R.  9  Eq.  580;  Gaskeil  v. 
Chambers,  26  Beav.  360;  Madrid 
Bank  v.  Pelly,  L.  R.  7  Eq.  442;  Eden 
c.  Ridsdales  Lamp  Co.,  23  Q.  B.  D. 
368;  Bland's  Case  [1893],  1  Ch.  012. 
When  in  pursuance  of  a  secret  agree- 
ment made  with  a  promoter  by  a 
person  about  to  become  a  director 
632 


that  the  said  promoter  would  buy 
back  said  director's  qualification 
shares  at  par— the  promoter  does 
buy  them  back  at  par  when  the 
shares  are  valueless  in  the  market, 
the  director  will  have  to  accouut  to 
the  corporation  for  the  money  re- 
ceived as  secret  profits.  North  Aus- 
tralian Territory  Co.,  In  re  [1892], 
1  Ch.  322;  2  Lindley  on  Part.,  588- 
589. 

1  Parker  v.  Nickerson,  112  Massa- 
chusetts, 195. 

2  Greenfield  Savings  Bank  v.  Si- 
mons, 133  Mass.  415. 

3  See  Hill  v.  Nisbet,  100  Ind.  341. 
Compare  §§  280-282,  where  it  is 
shown  that  even  when  affected  with 
no  estoppel  an  outsider  can  take  no 
advantage  of  the  fact  that  a  given 
transaction  was  ultra  vires  a  corpo- 
ration. Similarly  it  is  only  the  cor- 
poration, and  its  shareholders  and 
creditors,  that  can  avail  of  the  fact 
that  its  officers  were  secretly  inter- 
ested in  matters  wherein  they  acted 
for  the  corporation,  or,  as  its  agents, 
dealt  with  themselves.     In  a  recent 


CHAP.  X.] 


CORPORATION  AND  OFFICERS. 


[§  630. 


§  630.  Transactions  like  the  foregoing  are  fraudulent  as  a 
matter  of  law,  and  no  fraud  or  unfair  dealing  need   „, 

'  ...        Transac- 

be  proved  as  matter  of  fact  by  the  corporation  in  tions 
order  to  set  them  aside,  or  compel  the  officers  impli-  as  a  matter 
cated  to  account  for  the  profits  they  have  made.1  It  of  Iaw- 
has  been  held  that  an  express  contract  between  directors  and 
the  corporation  is  voidable  at  the  option  of  the  latter,  acting 
within  a  reasonable  time  ;  and  that  no  consideration  of  the 
fairness  of  the  contract  will  induce  a  court  of  law  or  equity 
to  enforce  it  against  the  resisting  cestui  que  trust,  though  as  to 
others  it  may  be  valid.2  But  such  contracts  may  be  ratified 
by  the  corporation  either  expressly,  or  by  acquiescence  for  a 
long  period  and  the  acceptance  of  the  benefits  of  the  trans- 
actions : 3  provided  the  ratification  or  acquiescence  on  the  part 
of  a  corporation  is  free  and  voluntary,  and  not  that  of  a  man 
whose  hands  are  tied. 


case  in  Iowa,  trustees  holding  lands 
in  trust  for  a  railroad  company  con- 
veyed some  of  the  lands,  under  au- 
thority of  the  board  of  directors,  to 
be  reconveyed  to  themselves  in  pay- 
ment for  their  services.  It  was  held 
that  a  person  claiming  such  lands 
under  a  title  adverse  to  that  of  the 
railroad  company  could  not  dispute 
the  validity  of  this  conveyance. 
Miller  v.  Iowa  Land  Co.,  50  Iowa, 
374. 

1  Stanley  v.  Luse,  36  Or.  25;  Green- 
field Savings  Bank  v.  Simons,  133 
Mass.  415;  Bent  v.  Priest,  10  Mo. 
A.pp.  543;  Stewart  v.  Lehigh  Valley 
R.  R.  Co.,  38  N.  J.  L.  505;  Cook  v. 
Berlin  Woollen  Mill  Co.,  43  Wis. 
433;  Duncomb  ».  New  York,  H.  & 
N.  R.  R.  Co.,  84  N.  Y.  190;  Pearson 
v.  Concord  R.  R.  Co.,  62  N.  H.  537; 
Brewing  Co.  v.  Planner,  44  La.  Ann. 
22;  compare  Davoue  v.  Fanning,  2 
Johns.  Ch.  252.  Although  there  be 
no  actual  fraud  or  unfairness,  a  cor- 
poration may  repudiate  a  contract 
entered  into  by  its  board  of  directors, 
when  one  of  them  is  interested  on 


the  other  side,  and  the  corporation 
need  not  show  that  the  influence  of 
such  director  determined  the  action 
of  the  board.  Munson  v.  Syracuse, 
etc.,  R.  R.  Co.,  103  N.  Y.  58.  See 
Aberdeen  Ry.  Co.  v.  Blakie,  2  (H.  L.) 
Eq.  1281. 

2  Stewart  v.  Lehigh  Valley  R.  R. 
Co.,  38  N.  J.  L.  505.  See,  also,  Little 
Rock  and  Fort  Smith  R'y  Co.  v. 
Page,  35  Ark.  304;  Morgan  v.  King, 
27  Colo.  539.  A  station  agent  bar- 
gained with  his  company  for  an  ex- 
cursion train,  not  letting  it  be 
known  that  he  wanted  it  for  himself. 
Held,  the  company  on  discovering 
this  could  disaffirm  the  contract. 
Pegram  v.  Charlotte,  etc.,  R.  R.  Co., 
84  N.  C.  696. 

3  Kelley  v.  Newbury' pt  Horse  R.  R., 
141  Mass.  496;  Twin-Lick  Oil  Co.  v. 
Marbury,  91  U.  S.  587;  Louisville, 
etc.,  Railway  Co.  v.  Carson,  151  111. 
444,  §  632;  Town  of  Searcy  v.  Yar- 
nell,  47  Ark.  269;  Welch  v.  Import- 
ers' Bank,  122  N.  Y.  177;  Battelle  v. 
Pavement  Co.,  37  Minn.  89. 

633 


§  630.]  THE    LAW    OF    PRIVATE   CORPORATIONS.      [CHAP.  X. 

la  Pacific  Railroad  of  Missouri  v.  Missouri  Paciiic  Railway 
Company,1  a  foreclosure  was  brought  against  a  railroad  com- 
pany, and  a  decree  of  sale  entered,  practically  by  its  consent, 
its  answer  having  admitted  the  allegations  of  the  bill.  It 
then  appealed  from  the  decree,  and  tried  to  bring  before  the 
Federal  Supreme  Court  on  appeal  facts  showing  that  its 
directors  and  its  solicitor  had  acted  fraudulently  and  in  hos- 
tility to  its  interests  in  allowing  the  decree  to  be  taken.  The 
corporate  management  seems  to  have  been  changed  shortly  after 
the  entry  of  the  decree.  The  appeal  duly  prosecuted  was  not 
decided  for  about  three  years.  The  appellate  court  found  no 
error  which  it  could  correct  on  appeal,  but  intimated  that  a 
remedy  could  be  had  in  the  court  below.-  As  soon  as  possible 
after  the  appeal  was  decided,  suit  was  brought  to  set  aside  the 
decree.  The  defendants  demurred  on  the  ground  of  laches; 
but  it  was  held,  and  sustained  on  appeal,  that  the  time  during 
which  the  appeal  was  pending  should  not  be  counted  against 
the  plaintiff.  Giving  the  opinion  of  the  court,  Justice  Blatch- 
ford  said  :  "  As  to  the  frauds  alleged  in  the  bill  respecting  the 
matters  in  the  conduct  of  the  suit,  resulting  in  the  decree,  the 
right  to  relief  is  based  on  the  view,  that  the  corporation  itself, 
the  present  plaintiff,  speaking  and  acting  now  for  its  stock- 
holders as  a  body,  was  powerless  then,  because  it  was  mis- 
represented by  unfaithful  directors,  who  did  what  was  done 
and  refused  to  do  otherwise,  and  through  whom  alone  it  could 
then  speak  and  act.  .  .  .  Under  such  circumstances  mere 
knowledge  by  or  notice  to  the  plaintiff,  or  its  directors  or 
officers,  or  more  or  less  of  its  stockholders,  is  unimportant; 
and  the  plaintiff  cannot  be  concluded  by  the  failure  of  any 
number  of  its  stockholders  to  do,  what  unfaithful  directors 
ought  to  haye  done,  unless  a  case  is  shown  of  such  acquies- 
cence, assent  or  ratification  as  would  make  it  inequitable  to 
permit  what  has  been  done  to  be  set  aside,  or  unless  the  rights 
of  innocent  purchasers  have  subsequently  intervened,  to  an 
extent  creating  an  equitable  bar  to  the  granting  of  relief. 
The  bill  in  this  case  does  not  show  such  a  state  of  things. 
While  stockholders,  more  or  less  in  number,  may  be  allowed 

i  111  U.  S.  505.  2  Reported  as  Pacific  R.  R.  Co.  v. 

I  Ketchara,  101  U.  S.  289. 

634 


CHAP.  X.j  CORPORATION  AND  OFFICERS.  [§  631. 

to  interpose,  if  they  have  the  means  or  the  inclination  to  take 
upon  themselves  the  burden  of  such  gigantic  controversies  as 
are  involved  in  the  railroad  transactions  of  the  present  day,  it 
would  so  far  to  legalize  condonation  of  such  transactions  as 
are  set  forth  in  the  bill,  if  mere  knowledge  by  helpless  stock- 
holders of  the  fraudulent  acts  of  their  directors  were  to  prevent 
the  corporation  itself  from  seeking  redress,  if  it  act  promptly 
when  freed  from  the  control  of  such  directors.  Frequently 
requesting  unfaithful  directors  to  resign  or  employ  other 
counsel,  so  far  from  throwing  on  the  stockholders  the  peril  of 
losing  their  rights,  represented  by  the  company,  if  they  do  not 
personally  assert  them  in  place  of  the  directors,  operates  of 
itself,  without  more,  only  to  aggravate  the  wrong.  At  the 
same  time  it  by  no  means  follows  that  parties  who  have  become 
interested  in  the  plaintiff's  corporation  with  knowledge  of 
matters  set  forth  in  the  bill,  are  entitled  to  the  same  standing 
as  to  relief  with  those  who  were  interested  in  the  corporation 
when  the  transactions  complained  of  occurred."  : 

§  631.  Accordingly,    when    corporate     officers    have    been 
guilty  of  a  breach  of  trust  towards  the  corporation,    Reinedies 
the  latter  may  disaffirm  the    transaction,  provided   ofthecor- 

.  «    .  -ii  •  poration. 

the  rights  or  innocent  outsiders  do  not  intervene, 
and  may  hold  the  officers  liable  for  damages;-  or  without 
disaffirming  the  transaction,  may  compel  the  officers  to  account, 
with  interest,  for  any  profits  they  have  made.3  The  corpora- 
tion cannot,  however,  adopt  in  part  and  in  part  repudiate  an 
improper  transaction  of  its  officers.4  And  the  right  of  a 
corporation  to  avoid  a  transaction  on  account  of  the  fiduciary 

1  Pacific  R.  R.  of  Missouri  v.  i  hers,  26  Beav.  360;  York,  etc.,  R'y 
Pacific  R'y  Co.,  Ill  U.  S.  505,  520.  Co.  v.  Hudson,  16  Beav.  485;  Madrid 
Compare  Graham  v.  Boston,  etc.,  R.  i  Bank  v.  Pelly,  L.  R.  7  Eq.  442;  Parker 


R.  Co.,  118  U.  S.  162. 

2  Ryan  v.  Leavenworth,  etc.,  R'y 
Co.,  21  Kan.  365.  See  also  cases  in 
last  note  but  two.  The  receiver  may 
sue.     Curtis  u.  Leavitt,  15   N.  Y.  10, 


v.  McKenna,  L.  R.  10  Ch.  96;  Buffalo, 
X.  Y.  and  Erie  R.  R.  Co.  v.  Lamp- 
son.  47  Barb.  533. 

*  Great    Luxembourg    R'y    Co.  v. 
Magnay,  25   Beav.  586;  Second    Xa- 


44.     See  High    on  Receivers,    §  316    tioual  Bank  v.   Burt,   93  N.   Y.   233. 
and  §615.  I  It  cannot  retain  the  advantages  and 

8  Parker  v.  Xickerson,   112  Mass.  !  repudiate  the    obligations    of   these 
195;  S.  C,  137  Mass.  487;  Greenfield  \  transactions.     Barr   0.  N.  Y.,   L.  E. 
Savings  Bank  v.  Simons,  133    Mass.    &  W.  R.  R.  Co.,  125  N.  Y.  263. 
415  {supra,  §  629);  Gaskell  v.  Cham- 

635 


§  633.]  THE    LAW    OF    PRIVATE   CORPORATIONS.      [CHAP.  X. 


relations  sustained  towards  it  by  the  other  party,  must  be 
exercised  within  a  reasonable  time  after  the  facts  connected 
therewith  are  known  or  could  by  due  diligence  have  been 
ascertained.1 

§  632.  Of  course,  directors  are  not  excluded  from  deriving 
profit  from  the  corporate  enterprise  which  is  shared 
directors'  by  the  (other)  shareholders ;  as,  for  instance,  they 
corporation.  maY  receive  their  proportion  of  dividends.  Direct- 
ors may  also  loan  money  to  the  corporation  if  the 
terms  are  as  favorable  to  the  corporation  as  the  most  favorable 
terms  on  which  the  directors  could  borrow  money  for  it  from 
outsiders.2 

Thus,  in  Twin-Lick  Oil  Co.  v.  Marbury,3  the  Federal  Su- 
preme Court  held  that  there  was  no  rule  forbidding  one  di- 
rector among  several  from  loaning  money  to  the  corporation,  if 
the  money  is  needed  and  the  transaction  is  open  and  other- 
wise free  from  blame ;  and  that  he  might  purchase  its  property 
at  a  fair  public  sale,  made  by  a  trustee  under  a  deed  of  trust 
executed  to  secure  the  payment  of  his  debt.  The  property  in 
controversy  was  oil  land  of  a  fluctuating  value ;  the  director 
committed  no  actual  fraud ;  and  at  the  time  of  the  sale  the 
shareholders  knew  all  the  facts,  and  refused  to  join  him  either 
in  the  purchase  or  in  paying  assessments  on  their  shares.  It 
was  held,  that  four  years  afterwards,  when  by  his  skill  and 
energy  he  had  made  the  property  profitable,  the  corporation 
could  not  have  the  sale  set  aside  or  an  accounting  for  profits.4 

§  633.  The  facts  of  another  important  case  were  as  follows  : 


1  Twin-Lick  Oil  Co.  v.  Marbury, 
91  U.  S.  587.  See  Stewart  v.  Lehigh 
Valley  R.  R.  Co.,  38  N.  J.  L.  525. 

2  Campbell's  Case,  4  Ch.  D.  470; 
Santa  Cruz  R.  R.  Co.  v.  Spreckles, 
65Cal.  193;  Sutter  St.  R.  R.  Co.  v. 
Baum,  66  Cal.  44;  Richardson  v. 
Green,  133  U.  S.  30;  Holtu.  Bennett, 
146  Mass.  437;  Neal's  Appeal,  129  Pa. 
St.  64;  Beach  v.  Miller,  130  111.  162; 
Roseboom  v.  Whittaker,  132  111.  81 ; 
Mullanphy  Svgs.  Bk.  v.  Schott,  135 
111.655;  Jones  v.  Hale,  32  Or.  465; 
Patterson  v.  Portland  Smelting 
Works,    34    Or.    96.     An   owner  of 

636 


property  may  sell  it  to  a  corporation 
of  which  he  is  an  officer,  provided 
he  does  not  act  on  behalf  of  the  cor- 
poration in  the  matter.  Gamble  v. 
Water  Co.,  122  N.  Y.  91.  See  Crym- 
ble  v.  Mulvaney,  21    Col.    203. 

3  91  U.  S.  587. 

4  Accord,  Addison  v.  Lewis,  75 
Va.  701,  720;  Harts  v.  Brown,  77 
111.  226;  Saltmarsh  v.  Spaulding, 
147  Mass.  224;  New  Memphis  Gas 
Light  Co.  Cases,  105  Tenu.  268; 
Singer  v.  Salt  Lake  Copper  M'f'g 
Co.,  17  Utah,  143.  See  Seely  v.  San 
Jose  Mill  Co.,  59  Cal.  22;  Humphrey 


CHAP.  X.] 


CORPORATION  AND  OFFICERS. 


[§  633. 


A.,  who  at  the  time  was  the  president  of  a  railroad  company, 
but  not  a  shareholder,  made  advances  to  it  in  perfect  good 
faith  of  eighty-one  thousand  dollars  to  aid  it  in  constructing 
its  road.  At  a  meeting  of  the  executive  committee  of  the 
board,  consisting  of  himself  and  two  other  directors,  who  were 
guarantors  on  a  note  to  him  for  a  portion  of  his  claim,  a  resolu- 
tion was  passed  directing  the  treasurer  to  deliver  to  him  eight 
hundred  and  ten  thousand  dollars  of  its  bonds  as  collateral 
security.  This  action  the  board  subsequently  sanctioned.  The 
company  afterwards  became  insolvent ;  the  trustee  for  the 
bondholders  brought  suit  to  foreclose  the  mortgage  given  to 
secure  the  bonds  ;  and  on  appeal  taken  from  an  order  entered 
in  the  suit,  determining  the  relative  rights  and  priorities  of 
certain  of  the  bondholders,  A.  was  allowed  to  prove  his  bonds 
to  the  full  amount,  and  share  in  the  distribution  of  the  assets 
of  the  compan}^  to  the  extent  of  its  real  indebtedness  to  him.1 
On  a  former  appeal  of  the  same  case,  Judge  Finch  said : 
"Where  the  trustee's  act  consists,  not  in  possessing  himself  of 
the  property  of  the  beneficiary  as  owner,  but  in  taking  col- 
lateral security  for  a  debt  honestly  due  him  or  a  liability  justly 
incurred,  the  rule  [that  the  beneficiary  may  as  of  course  avoid 
the  contract]  can  have  no  application,  since  the  payment  of 
the  debt  or  the  discharge  of  the  liability  is  an  essential  prere- 
quisite of  the  avoidance.  And  this  is  true  whether  the  pledge 
is  taken  for  a  present  or  precedent  debt."2 

Nevertheless,  in  the  appeal,  from  which  the  preceding  citation 
is  taken,  it  is  said  that  as  a  general  rule  a  director  buys  cor- 
porate bonds  below  par  only  at  the  peril  of  their  avoidance  by 


v.  Patrons'  Mercantile  Assn.,  50  Iowa, 
607;  Hill  v.  Nisbet,  100  Ind.  341; 
Lusk's  Appeal,  108  Pa.  St.  152. 

1  Duncomb  v.  New  York,  H.  and 
N.  R.  R.  Co.,  88  N.  Y.  1. 

2  Duncomb  ».  New  York,  H.  and 
N.  R.  R.  Co.,  84  N.  Y.  190,  199. 
See,  also,  Budd  v.  Walla  Walla  Print- 
ing Co.,  2  Wash.  Ter.  347;  Harpend- 
ing  v.  Munson,  91  N.  Y.  650;  Weihl 
v.  Atlanta  Furniture  Co.,  89  Ga.  297. 
The  language  here  of  the  learned 
judge,  perhaps,  is  somewhat  broad. 
The  money  loaned  may  indeed   have 


been  advanced  in  good  faith  for 
the  benefit  of  the  corporation;  but 
under  some  circumstances,  to  force 
the  corporation  to  pay  its  debt  be- 
fore demanding  back  its  security, 
might  be  very  oppressive.  In  the 
case  in  the  text,  the  court  laid  stress 
on  the  fact  that  the  security  taken 
was  not  under  the  circumstances 
excessive;  and  that  the  corporation 
was  not  insolvent  at  the  time  it  was 
taken.  Compare  Hope  v.  Val.  City 
Salt  Co.,  25  W.  Va.  789;  Richardson 
v.  Green,  133  U.  S.  30. 

637 


§  633.]  THE   LAW    OF    PRIVATE   CORPORATIONS.      [CHAP.  X. 

the  courts  at  the  suit  of  the  corporation.1  Yet  it  has  been  held 
that  the  treasurer  of  a  corporation  may  with  his  own  money 
purchase  its  notes  at  a  discount  and  collect  their  face  value 
from  the  corporation,  provided  that  at  the  time  of  the  pur- 
chase he  was  under  no  duty  to  the  corporation  to  purchase  or 
pay  the  notes  in  its  behalf.2  But  it  has  also  been  held  that 
directors  cannot,  when  the  corporation  is  insolvent,  buy  up 
claims  against  it  at  a  discount,  and  then  prove  them  at  their 
face  on  the  winding  up  of  the  corporation.3  The  following  is 
a  recent  utterance  of  the  New  York  Court  of  Appeals :  "  The 
rule  [forbidding  a  trustee  to  purchase  obligations  of  his  cestui 
at  less  than  par  and  enforcing  them  at  par]  is  founded  upon 
the  unwillingness  of  the  law  to  uphold  contracts  which  bring 
into  collision  the  trust  duty  and  the  personal  interests,  and  it 
is  because  of  that  collision,  and  the  temptations  which  surround 
it,  that  it  declares  the  contract  voidable  at  the  election  of  the 
beneficiary  without  investigating  the  good  or  the  bad  faith  of 
the  trustee.  The  entire  basis  of  the  rule  consists  in  this  col- 
lision between  trust  duty  and  personal  interest,  and  the  equi- 
table prohibition  has  no  application  where  there  is  no  such  pos- 
sible inconsistency.  There  is  no  such  conflict  in  the  ordinary 
case  of  the  purchase  by  a  director  in  a  going  corporation  of  its 
outstanding  obligations." 4 


i  Duncomb  v.  N.  Y.,  H.  &  N.  R.  R. 
Co.,  84  N.  Y.  190.  See  Fitzgerald  v. 
Fitzgerald,  etc.,  Co.,  41  Neb.  374. 
If  a  director,  by  agreement  with  his 
co-directors,  take,  directly  from  bis 
company,  its  bonds  below  par  on  bis 
private  account  and  sell  tbem  at  an 
advance,  he  may  be  compelled  to 
account  for  the  profits  for  tbe  benefit 
of  the  corporation,  its  shareholders, 
or  creditors;  and  this,  although  he 
acted  in  good  faith.  Widrig  v.  New- 
port St.  Ry.  Co.,  S2  Ky.  511.  But 
when  suit  is  brought  to  foreclose  a 
mortgage  made  to  secure  bonds  is- 
sued to  directors,  they  will  not  be 
declared  void  at  the  instance  of  a 
subsequent  lienor,  when  the  corpo- 
ration does  not  defend.  Bassett  v. 
Monte  Christo  M.  Co.,  15  Nev.  393. 
638 


2  St.  Louis,  etc.,  R.  R.  Co.  v.  Waller, 
30  Kan.  51;  Glenwood  M'f'g  Co.  ». 
Syme,  109  Wis.  355. 

3  Linglu  v.  Nat.  Ins.  Co.,  45  Mo. 
109;  In  re  Imperial  Land  Co.,  Ex 
parte  Larking,  4  Ch.  D.  566;  Patrick 
v.  Boonville  Gas  Light  Co.,  17  Mo. 
App.  402.  See  §  759.  Compare  Iu- 
glehart  v.  Thousand  Islands  Hotel 
Co.,  32  Hun  (N.  Y.),  377.  The  ques- 
tion is,  whether  the  director  has 
acted  fairly  for  the  interest  of  the 
corporation  in  buying  the  securities 
at  a  discount.  Higgius  v.  Lansingh, 
154  111.  301,  380.  In  this  case  he  was 
not  allowed  to  enforce  them  at  their 
face. 

4  Seymour  v.  Cemetery  Ass'n,  144 
N.  Y.  333,  344.  Opin.  of  court  per 
Finch,  J. 


CHAP.  X.] 


CORPORATION  AND  OFFICERS. 


[§  636. 


§  634.  The  following  rules  regarding  loans  to  a  corporation 
from  its  officers  seem  deducible  from  the  preceding  and  other 
cases.  Directors  or  other  officers  may,  when  they  honestly  deem 
it  for  the  interest  of  the  corporation  to  borrow,1  advance  it  money 
on  terms  as  favorable  as  any  on  which  they  could  have  pro- 
cured the  money  for  it  from  other  sources  ;  and  they  may  take 
from  the  corporation  security  for  their  loan.2  But  they  cannot 
— at  least  when  the  corporation  is  insolvent — take  advantage 
of  their  inside  position  to  secure  their  existing  debts  to  the  in- 
jury of  other  creditors  of  the  corporation;3  and  no  more  in 
recovering  their  debts  or  enforcing  their  security  than  in  the 
original  transaction  of  loaning  the  money,  can  they  disregard 
the  interests  of  the  corporation.4  Under  such  circumstances 
not  only  may  they  not  avail  themselves  of  their  control  over 
the  affairs  of  the  corporation  to  oppress  it,  but  they  cannot 
make  unconditional  and  unrestricted  use  of  legal  means  open 
to  outside  creditors.5 

§  635.  Exceedingly  difficult  and  complicated  questions  arise 
in  regard  to  transactions  in  which  corporate  officers,  while 
personally  interested  adversely  to  their  corporation,  contract 
on  its  behalf  with  outsiders,  whose  interests  in  the  transac- 
tion may  be  the  same  as  the  personal  interests  of  the  contract- 
ing officers ;  and  also  in  regard  to  transactions  in  which  the 
same  officers  act  for  two  adversely  interested  corporations. 

§  636.     Every  person,  even  though  he  act  in  good  faith,  is 


i  See  Harts  v.  Brown,  77  111.  226; 
Illinois  Steel  Co.  v.  O'Donnell,  156 
111.  624.  See  Rylander  v.  Sheffield, 
108  Ga.  Ill,  where  the  text  is  cited. 
In  this  case  an  injunction  to  prevent 
directors  from  foreclosing  a  mort- 
gage held  by  them  was  refused. 

2  McMurtry  u.  Temple  Co.,  86  Ky. 
206;  Foster  p.  Sugar  Co.,  118  Mo. 
238;  Jones  v.  Hale,  32  Or.  465.  But 
if  the  terms  of  the  loan,  the  rate  of 
interest  and  security  taken,  are  op- 
pressive or  exorbitant,  they  may  be 
disaffirmed  by  the  corporation  and 
set  aside  on  repayment  of  the  amount 
loaned  with  legal  interest.  Sutter 
St.  R.  R.  Co.  v.  Baum,  66  Cal.  44. 

3  See  §  759. 


4  Hallam  v.  Indianola  Hotel  Co. 
(Sup.  Ct.  Iowa),  21  Am.  Law  Reg. 
N.  S.  443.  See  Butler  Paper  Co.  v. 
Bobbins,  151  111.  588. 

5  See  Hallam  v.  Indianola  Hotel 
Co.,  supra.  But  see  McMurtry  v. 
Temple  Co.,  86  Ky.  206.  In  matters 
in  no  way  relating  to  his  official  po- 
sition, however,  a  director  may  sue 
a  corporation  just  as  a  shareholder 
or  any  other  person  having  a  cause 
of  action  against  it.  Burbank  v. 
West  Walker  Ditch  Co.,  13  Nev.  431. 
And  it  has  been  held  that  a  director 
can  plead  to  a  recovery  of  interest 
on  a  loan  from  his  bank  to  himself, 
that  the  interest  was  agreed  on  in 
contravention  of  the  National  Bank- 

639 


§  637.]         THE  LAW   OF   PRIVATE   CORPORATIONS.      [CHAP.  X. 

invalidity     affected  with  notice  of  the  ireneral  rule  of  law  that 

of  tnutsac-  ° 

tiona  in  an  officer  cannot  bind  his  corporation  by  a  contract 
officers  are  in  which  he  is  personally  interested.  Thus,  a  gen- 
interested.  eral  aatilority  to  a  bank  president  to  certify  checks 
drawn  on  it  does  not  extend  to  checks  drawn  by  himself. 
Consequently,  the  face  of  the  check  showing  the  president's 
attempt  to  use  his  official  character  for  his  private  interest, 
every  one  taking  it  is  put  on  his  inquiry  ;  and  when  the  certi- 
fication is  false,  no  one  can,  as  a  bona  fide  holder  of  the  check, 
recover  against  the  bank  on  the  certification.1 

Accordingly,  the  first  question  will  ordinarily  be,  did  the 
person  contracting  with  the  corporation  through  its  officers, 
know,  or  have  reason  to  know,  that  in  the  same  transaction 
the  officers  were  personally  interested  in  a  way  that  might  lead 
them  to  regard  their  own  interests  rather  than  those  of  the 
corporation?  If  this  be  answered  in  the  negative,  and  the 
other  contracting  parties  acted  in  good  faith,  they  will  be  pro- 
tected, having  acted  on  the  reasonable  assumption  that  the  cor- 
porate officers  were  not  violating  their  duty.2 

§  637.  In  many  cases  of  this  nature,  however,  that  have  come 
before  the  courts,  the  outside  parties  have  occupied  no  such 
favorable  and  honest  position ;  but  have  acted  with  their  eyes 
only  too  open,  and  often  have  actively  combined  with  the  offi- 
cers to  defraud  the  corporation.     Under  such  circumstances, 


ing  Act.  Bank  v.  Slemmons,  34  Ohio 
St.  142;  compare  Lester  v.  Howard 
Bk.,  33  Md.  558. 

1  Claflin  v.  Farmers'  and  Citizens' 
Bk.,  25  N.  Y.  293.  See,  also,  West 
St.  Louis  Bank  v.  Shawnee  County 
Bank,  95  U.  S.  557;  McKee  v.  Grand 
Rapids,  etc.,  Ry.  Co.,  41  Mich.  274; 
Smith  v.  Los  Angeles  Im.  Ass'n,  78 
Cal.  289;  cf.  Rochester  &  C.  T.  R. 
Co.  v.  Paviour,  104  N.  Y.  281;  Ran- 
dall v.  Rhode  Isl.  Lumber  Co.,  20 
R.  I.  625;  Hebbard  u.  So.  Land  & 
Cattle  Co.,  55    X.  J.  Eq.  18. 

But  it  is  held  that  if  a  person  take 
a  note  of  a  corporation  executed  and 
indorsed  by  its  president  in  such  a 

640 


way  as  to  put  the  purchaser  on  his 
inquiry,  the  purchaser  may  recover 
if  he  can  show  that,  had  he  made  in- 
quiry, the  facts  which  he  would 
have  discovered  would  have  pro- 
tected him;  as,  for  instance,  if  the 
note  indicates  that  the  president 
was  about  to  use  the  proceeds  for 
his  own  benefit,  plaintiff  is  protected 
if  there  was  in  fact  a  resolution  of 
the  board  of  directors  authorizing 
the  president  so  to  use  the  note. 
Wilson  v.  Metropolitan  El.  R'y  Co., 
120  N.  Y.  145. 

2  Genesee  Savings  Bank  v.  Michi- 
gan Barge  Co.,  52  Mich.  438.  See 
§204. 


CHAP.  X.] 


CORPORATION  AND  OFFICERS. 


[§  638. 


they  will  be  liable  to  account  to  the  corporation  equally  with 
its  guilty  officers.1 

Thus,  in  an  English  case,  the  plaintiff,  a  stock  company, 
made  with  the  defendant,  also  a  stock  company,  a  contract 
which  gave  the  plaintiff  the  option  of  having  a  telegraph  cable 
manufactured  and  laid  by  the  defendant ;  the  cable  to  be  paid 
for  in  instalments,  payable,  after  the  first,  as  the  work  was 
certified  to  by  the  plaintiff's  engineer.  The  option  was  exer- 
cised, and  the  first  instalment  paid  to  the  defendant,  the 
plaintiff  also  paying  a  commission  to  its  own  engineer.  It 
then  discovered  that  its  engineer  had  a  secret  sub-contract 
with  the  defendant  company  to  lay  the  cable  himself.  The 
court  held  the  plaintiff  entitled  to  have  the  contract  set  aside, 
and  the  instalment  and  commission  returned  to  it.2 

§  638.  In  the  United  States  it  is  not  uncommon  for  the 
directors  of  a  railroad  companv,  whose  road  is  in 

Railroad 

process  of  construction,  to  join   with  other  persons   constmc- 
in  forming  a  construction  company ;   and  then,  on   panies0m" 
behalf   of   their  railroad,  make  contracts  with  the 
construction  company  most  favorable  to  the  latter  and  them- 
selves.    Such  dishonest  transactions  the  courts    will  set  aside, 
and  by  compelling  accountings  for  profits,  or  awarding  dam- 
ages  against  the  guilty  directors,  restore,  as  far  as  possible, 
the  railroad  company  to  its  property  and  rights.3     Under  such 
circumstances,  it  is  not  necessary  for  the  railroad  corporation 


1Ryan  v.  Leavenworth,  etc.,  R'y 
Co.,  21  Kan.  365;  see,  also,  Kersey 
Oil  Co.  v.  Oil  Creek,  etc.,  R.  R.  Co., 
12  Phila.  (Pa.)  374. 

When  a  board  of  mining  directors 
lease  a  mine  to  a  party  acting  in  the 
interests  of  the  minority  of  share- 
holders, in  order  to  withdraw  it  from 
the  control  of  a  board  about  to  be 
elected,  and  thereby  perpetuate  the 
control  of  the  minority,  the  corpo- 
ration may  set  the  lease  aside  by  a 
bill  in  equity.  Mahany  Mining  Co. 
v.  Bennett,  5  Sawyer,  141.  A  court 
of  equity,  however,  will  not  set  aside 
these  improper  contracts  at  the  suit 

41 


of  parties  (shareholders  and  direct- 
ors) to  them.  Weed  v.  Little  Falls, 
etc.,  R.  R.  Co.,  31  Minn.  154. 

2  Panama,  etc.,  Telegraph  Co.  v. 
India  Rubber,  etc.,  Telegraph  Works 
Co.,  32  L.  T.  N.  S.  517. 

3  Ryan  v.  Leavenworth,  etc.,  R'y 
Co.,  21  Kan.  305 ;  Gilman,  etc.,  R. 
R.  Co.  v.  Kelly,  77  111.  426  ;  Wardell 
v.  Railroad  Co.,  103  U.  S.  651 ;  Thomas 
v.  Brownsville,  etc.,  Ry  Co.,  1  Mc- 
Crary,  392.  See  Abbot  v.  American 
Hard  Rubber  Co.,  33  Barb.  578.  Cf. 
Santa  Fe  E.  Co.  v.  Hitchcock,  9  N. 
Mex.  156;  Barnes  v.  Lynch,  9  Okl. 
156. 

641 


§  639.]  THE   LAW   OF   PRIVATE   CORPORATIONS.      [CHAP.  X. 

to  prove  actual  fraud,  or  that  the  transaction  was  against  its 
interest.1 

§  G39.  Wardell  v.  Railroad  Co.2  is  a  leading  and  instruc- 
tive case  in  connection  with  this  subject.  There  the  president 
of  the  Union  Pacific  Railroad,  by  order  of  the  executive 
committee  of  the  board  of  directors,  entered  into  a  contract  to 
allow  one  Wardell  and  another  to  work  coal  lands  belonging 
to  the  company,  agreeing  that  the  railroad  company  would 
purchase  coal  of  them  for  fifteen  years  at  prices  which  secured 
them  high  profits.  Thereupon  a  coal  company  was  formed,  in 
which  six  of  the  railroad  directors  owned  a  majority  of  stock, 
and,  in  pursuance  of  a  previous  secret  arrangement,  the  con- 
tract was  assigned  to  it  without  consideration.  The  court  held 
the  contract  a  fraud  on  the  railroad  company,  and  that 
Wardell  could  sustain  no  claim  against  that  company  for  its 
repudiation  of  the  contract.  "  All  arrangements  by  directors 
of  a  railroad  company,  to  secure  an  undue  advantage  at  its 
expense,  by  the  formation  of  a  new  company  as  auxiliary  to 
the  original  one,  with  an  understanding  that  they,  or  some  of 
them,  shall  take  stock  in  it,  and  then  that  valuable  contracts 
shall  be  given  it,  in  the  profits  of  which  they,  as  stockholders 
of  the  new  company,  are  to  share,  are  so  many  unlawful 
devices  to  enrich  themselves  to  the  detriment  of  the  stock- 
holders and  creditors  of  the  original  company,  and  will  be  con- 
demned whenever  properly  brought  before  the  courts  for 
consideration."3 


1  Oilman,  etc.,  R.  R.  Co.  v.  Kelly, 
77  111.  426.  Compare  Union  Pac. 
R.  R.  Co.  v.  Credit  Mobilier,  135 
Mass.  367. 

2  103  U.  S.  651.  See,  also,  Union 
Pacfic  R.  R.  Co.  v.  Credit  Mobilier, 
135  Mass.  367,  376. 

3  Wardell  v.  Railroad  Co.,  103 
U.  S.  651,  658.  Opinion  of  the  court 
per  Justice  Field.  In  a  later  case  in 
the  Federal  Supreme  Court,  the  di- 
rectors of  a  railroad  had  made  a 
contract,  in  which  two  of  them  were 
personally  interested,  for  the  con- 
struction of  the  road,  and  had  issued 
the  bonds   of    the   company  to   the 

642 


contractors;  suit  was  brought  to 
foreclose  the  mortgage  made  to  se- 
cure the  bonds,  and  the  corporation 
allowed  judgment  to  be  taken  against 
it  by  default.  Thereupon  certain 
shareholders  intervened,  and  the 
court  held  that  the  contract  could 
not  be  enforced,  nor  the  bonds  either 
which  had  not  come  into  the  hands 
of  innocent  holders  for  value.  But 
the  court  also  held  that  the  share- 
holders seeking  equity  must  do 
equity,  and  that  the  bondholders 
were  entitled  to  be  reimbursed  the 
sums  which  they  had  actually  ex- 
pended, and  to  be  paid  the  fair  value 


CHAP.  X.] 


CORPORATION  AND  OFFICERS. 


[§  642. 


§  640.    The  class  of  cases  just  discussed  must  carefully  be 
distinguished — and   this   in   practice   will   often    be   Transac- 
raost  difficult — from   cases  which  have  arisen  con-   t101?8,"1 

winch  om- 

cerning  the  contracts  between  two  corporations,  the   ceis  act  for 
validity  of  which  is  contested  on  the  ground  that   verseiy  in- 
some  of  the  officers  of  one  corporation  are  officers   COrpo-e 
of  the  other.  rations- 

These  latter  contracts  may  be  set  aside  on  the  ground  of 
fraud  like  other  contracts,1  and  they  are  especially  open  to  the 
suspicion  that  one  corporation  has  been  unfairly  favored  at  the 
expense  of  the  other.  Moreover,  a  contract  of  this  character 
is  voidable  if  the  common  officers  making  it  have  personal 
interests  in  the  transaction  which  decidedly  lead  them  to  favor 
one  rather  than  the  other  of  the  contracting  parties.2  But  in 
such  case  the  contract  would  be  set  aside,  not  on  the  ground 
that  a  common  agent  represented  two  principals,  but  because 
it  is  a  contract  in  which  he  was  personally  interested. 

§  641.  Another  preliminary  consideration  to  be  borne  care- 
fully in  mind  is  that  the  acts  and  declarations  of  the  agent 
while  acting  as  agent  of  one  of  the  corporations,  cannot  create, 
at  least  in  favor  of  that  corporation,  an  estoppel  binding  on 
the  other  corporation,  whom  he  may  also  represent.3  Likewise, 
that  the  two  companies  have  some  common  directors  or  a  com- 
mon solicitor,  does  not  affect  one  company  with  notice  of  acts 
done  or  knowledge  possessed  by  the  common  directors  or  solic- 
itor as  directors  or  solicitor  of  the  other  company.4 

§  642.  It  may  be  asserted   with  nearly  as  much  safety  as 


of  their  services  and  materials  fur- 
nished; this  value,  however,  not  to 
be  estimated  by  the  prices  mentioned 
in  the  contract.  Thomas  v.  Brown- 
ville,  etc.,  R.  R.  Co.,  109  U.  S.  522. 
See,  also,  McGourkey  v.  Toledo, 
etc.,  R.  R.  Co.,  146  U.  S.  536,  565. 

1  See,  especially  on  this  point, 
Goodin  v.  Cincinnati,  etc.,  Canal  Co., 
18  Ohio  St.  169,  cited  at  length  in  § 
559.  Also  Fitzgerald  v.  Fitzgerald, 
etc.,  Co.,  41  Neb.  374;  Rear  River  V. 
O.  Co.  v.  Hanley,  15  Utah,  506. 

2  Galley  v.  National  Exchange  Bk., 
41  Mich.  169.     Compare  San  Oiego 


v.  San  Diego,  etc.,  Railroad  Co.,  44 
Cal.  106. 

3  Pennsylvania  R.  R.  Co.'s  Appeal, 
80  Pa.  St.  265.  In  such  cases  it  may 
be  often  difficult  to  determine  for 
whom  the  agent  was  acting  when  he 
made  the  declaration,  but  it  is  safe 
to  assume  that  under  such  circum- 
stances no  court  would  favor  an  es- 
toppel. 

4  In  re  Marseilles  Extension  Rail- 
way Co.,  20  W.  R.  254;  DeKay  v. 
Hackensack  Water  Co.,  38  N.  J.  Eq. 
158;  Benton  v.  Bank,  122  Mo.  332. 
Compare  Kersey  Oil  Co.  v.  Oil  Creek, 

643 


§  612.]  THE   LAW   OF  PRIVATE   CORPORATIONS.     [CHAP.  X. 

will  attend  the  assertion  of  any  exceedingly  general  negative 
legal  proposition,  that  there  is  no  rule  of  law  preventing  an 
agent  or  functionary  from  representing  and  binding  two 
adverse  principals  by  ministerial  acts  involving  no  discretion. 
For  instance,  the  same  person  acting  as  broker  may  bind  both 
buyer  and  seller  by  a  bought  and  sold  note,1  and  at  auctions 
the  auctioneer  may  be  the  agent  of  both  parties.2  It  is  also 
said  that  there  is  no  presumption  that  the  common  agent  of 
two  adverse  principals  will  act  unfairly  towards  either.3 

Accordingly,  it  has  been  held  that  a  common  treasurer  may 
adjust  the  accounts  of  debtor  and  creditor  corporations;4  and 
also  that  when  resolutions  have  been  properly  passed  authoriz- 
ing a  deed  from  one  corporation  to  another,  it  is  no  objection 
that  the  officer  authorized  to  make  the  specific  deed  was  an 
officer  of  both  corporations.5  It  has  further  been  held,  though 
with  questionable  propriety,  that  a  common  agent  may  on  be- 
half of  one  company  sell  and  on  behalf  of  the  other  buy  the 
same  property.6  Moreover,  it  has  been  expressly  decided  in 
more  than  one  state  after  full  consideration,  that  a  contract 
between  two  corporations,  made  by  their  respective  boards  of 
directors,  is  not  invalidated  or  rendered  voidable  at  the  election 
of  one  of  the  parties  thereto,  from  the  mere  circumstance  that 
a  minority  of  its  board  of  directors  are  also  directors  of  the 
other  company.7 


etc.,  R.  R.  Co.,  12  Phila.  (Pa.)  374; 
Martin  v.  South  Salem  Land  Co.,  94 
Va.  28;  see,  also,  §  210. 

1  Butler  v.  Thomson,  92  U.  S.  412. 

2  Pugh  v.  Chesseldine,  11  Ohio, 
109,  123. 

3  Adams  Mg.  Co.  v.  Senter,  26 
Mich.  73;  Booth  v.  Robinson,  55  Md. 
419.  See  Clark  ».  Trust  Co.,  100  U. 
S.  149. 

4  Bradley  v.  Richardson,  23  Vt. 
720.  Compare  Chicago  &  N.  W.  R. 
R.  Co.  v.  Northern  Line  Packet  Co., 
70  111.  217. 

5  Leathers  u.  Janney,  41  La.  Ann. 
1120. 

6  Adams  Mining  Co.  v.  Senter,  26 
Mich.  73.     Approved  Pauly  v.  Pauly, 

644 


107  Cal.  8.  See  Roberts  v.  Bank,  11 
Wash.  550.  But  see  San  Diego  d.  San 
Diego,  etc.,  R.  R.  Co.,  44  Cal.  106; 
Memphis,  K.  &  C.  R.  R.  Co.  v.  Par- 
sons Town  Co.,  26  Kan.  503,  509. 

7  United  States  Rolling  Stock  Co. 
v.  Atlantic  and  Great  Western  Rail- 
road Co.,  34  Ohio  St.  450;  Mayor, 
etc.,  of  Griffin  v.  Inman,  57  Ga.  370; 
Hagerstown  M'fg  Co.  u.  Keedy,  91 
Md.  640;  see,  also,  Booth  r.  Robinson, 
55  Md.  419;  Union  Parific  R.  R.  Co. 
v.  Credit  Mobilier,  135  Mass.  367, 
377;  Wallace  v.  Long  Island  R.  R. 
Co.,  12  Hun  (N.  Y.),  460.  Accord, 
Foster  u.  Oxford,  etc.,  Ry.  Co.,  13  C. 
B.  200,  203.  Compare  Manufactur- 
ers' SVgs  B'k  v.  Iron  Co.,  97  Mo.  38; 


CHAP.  X.]  CORPORATION  AND  OFFICERS.  [§  644. 

§  643.  In  United  States  Rolling  Stock  Co.  v.  Atlantic  and 
Gt.  Western  R.  R.  Co.,  it  was  said  by  Judge  Boynton,  giving 
the  opinion  of  the  Supreme  Court  of  Ohio  : *  "  We  have  not, 
upon  the  most  diligent  research,  been  able  to  find  a  case  hold- 
ing a  contract  made  between  two  corporations  by  their  respec- 
tive boards  of  directors  invalid,  or  voidable  at  the  election  of 
one  of  the  parties  thereto,  from  the  mere  circumstance  that  a 
minority  of  its  board  of  directors  are  also  directors  of  the  other 
company,  nor  do  we  think  such  a  rule  ought  to  be  adopted. 
There  is  no  just  reason,  where  a  quorum  of  directors,  sustain- 
ing no  relation  of  trust  or  duty  to  the  other  corporation,  are 
present  participating  in  the  action  of  the  board,  why  such 
action  should  not  be  binding  upon  the  company,  in  the  absence 
of  such  fraud  as  would  lead  a  court  of  equity  to  undo  or  set 
aside  the  transaction.  If  the  mere  fact  that  a  minority  of  one 
board  are  members  of  the  other  gives  the  company  an  option  to 
avoid  the  contract  without  respect  to  its  fairness,  the  same 
result  would  follow  where  such  minority  consisted  of  but  one 
person,  and  notwithstanding  the  board  might  consist  of  twenty 
or  more.  In  our  judgment,  where  a  majority  of  the  board  are 
not  adversely  interested,  and  have  no  adverse  employment,  the 
right  to  avoid  the  contract  or  transaction  does  not  exist  with- 
out proof  of  fraud  or  unfairness  ;  and  hence  the  fact  that  five 
of  the  defendant's  board  of  directors  were  members  of  the 
plaintiff's  board,  whatever  may  have  been  its  effect  on  the 
defendant's  right  to  disaffirm  or  repudiate  the  contract,  if 
exercised  within  a  reasonable  time,  did  not  disable  the  de- 
fendant from  subsequently  affirming  the  contract  if  satisfied 
with  its  terms,  or  rejecting  it  if  not,  nor  did  it  relieve  it  from 
the  duty  to  exercise  its  election  to  avoid  or  rescind  within  a 
reasonable  time,  if  not  willing  to  abide  by  its  terms." 

§  644.  On  the  other  hand,  it  may  be  said   that   common 


Salina  Nat.  B'k  v.  Prescott,  60  Kas. 
490.  Contra,  Metropolitan  El.  R.  R. 
Co.  v.  Manhattan  El.  R.  R.  Co.,  11 
Daly  (N.  Y.),  373,  503,  and  semble 
contra,  San  Diego  v.  San  Diego,  etc., 
R.  R.  Co.,  44  Cal.  106,  a  case  in 
which,  it  seems  to   the  writer,  the 


personal  interests  of  the  common 
agent  decidedly  leaned  towards  one 
of  his  adversely  interested  principals; 
also  Bill  v.  Western  Un.  Tel.  Co.,  16 
Fed.  Rep.  14;  Ashnelot  R.  R.  Co.  v. 
Elliot,  57  N.  H.  397. 
i  34  Ohio  St.  450,  466. 

645 


§  644.]  THE   LAW   OF   PRIVATE   CORPORATIONS.     [CHAP.  X. 

directors  cannot  take  part  in  the  making  of  impor- 
boardsof  tant  contracts  between  two  adversely  interested 
irectors.  corporations  when  the  action  of  the  common  direct- 
ors is  an  essential  factor  in  the  transactions.1  And  it  has 
been  finally  held,  and  with  such  propriety  of  reasoning  as  to 
lead  one  to  believe  that  the  rule  will  remain  fixed,  that  when 
common  directors  constitute  a  majority  in  each  board,  the  two 
boards  of  directors  cannot  in  the  same  transactions  validly 
represent  two  adversely  interested  corporations.2  In  Pearson 
v.  Concord  R.  R.  Co.,  the  contracts  made  by  the  common 
boards  were  set  aside,  and  the  court  appointed  a  trustee  for  the 
company,  whose  shareholders  were  suing  to  enjoin  their  direct- 
ors from  taking  the  contemplated  action,  to  represent  it  in  the 
transactions.  Giving  the  opinion  of  the  court  Judge  Smith 
said  :  "  Their  interests  being  conflicting,  it  was  impossible  for 
common  directors  to  procure  the  lowest  rates  for  one  party  and 
the  highest  rates  for  the  other.  '  No  man  can  serve  two  mas- 
ters.' They  were  not  arbitrators  called  in  to  adjust  con- 
flicting claims,  nor  were  they  disinterested.  The  referee  has 
found  that  the  purchase  of  Concord  stock  at  prices  largely  in 
excess  of  its  market  value  wTas  made  with  the  intent  and 
purpose  of  obtaining  control  of  the  Concord,  and  thereby  to 
secure  more  favorable  contracts  for  the  business  of  the  upper 
companies  over  the  lower.  The  plan  was  formed,  the  purchase 
was  made,  the  control  of  the  Concord  was  obtained,  and  more 
favorable  contracts  were  secured.  By  taking  the  control  of 
the  Concord,  the  upper  companies  disabled  it  as  a  contracting 
party.     In  fixing  the  rates  of  that  company  for  their  business, 


1  Metropolitan  Telephone  Co.  v. 
Domestic  Telephone  Co.,  44  N.  J. 
Eq.  569;  Metropolitan  El.  R.  R.  Co. 
v.  Manhattan  El.  R.  R.  Co.,  11  Daly 
(N.  Y. ),  373,  503.  A  common  direct- 
or cannot  execute  an  assignment  by 
debtor  corporation  to  creditor  corpo- 
ration when  the  former  is  insolvent. 
Sweeny  v.  Sugar  Co.,  30  W.  Va.  443. 
But  see  Pauly  v.  Pauly,  107  Cal.  8. 

2  Memphis,  etc. ,  R.  R.  Co.  v.  Woods, 
88  Alabama,  641;  O'Connor  Mining 
Co.  v.  Coosa  Furnace  Co.,  95  Alabama, 

646 


614;  Pearson  v.  Concord  R.  R.  Co., 
62  N.  H.  537;  Fitzgerald  v.  Fitz- 
gerald, etc.,  Co.,  44  Neb.  463,  490. 
And  see  Bill  v.  Western  Union  Tel. 
Co.,  16  Fed.  Rep.  14;  and  compare 
Wallace  ».  Long  Island  R.  R.  Co., 
12  Hun  (N.  Y.),  460.  But  such  trans- 
actions can  be  attacked  by  creditors 
only  on  the  ground  of  actual  fraud 
on  creditors.  O'Connor  Mining  Co. 
v.  Coosa  Furnace  Co..  95  Alabama, 
614. 


CHAP.  X.]  CORPORATION  AND  OFFICERS.  [§  645. 

they  were  contracting  with  themselves.  When  a  transaction 
is  a  fraud  in  law,  it  is  unnecessary  to  prove  a  fraud  in  fact, 
nor  is  it  permissible  to  show  that  the  transaction  was  an 
honest  one.  The  justness  of  the  contracts  made  with  them- 
selves, and  of  the  votes  they  passed  as  directors  of  the  Concord 
Eailroad,  for  their  own  benefit,  does  not  impart  any  validity 
or  legality  to  those  contracts  or  votes.  If  such  contracts  were 
to  stand  until  shown  to  be  fraudulent  and  corrupt,  the  result, 
as  a  general  rule,  would  be  that  they  must  be  enforced  in  spite 
of  fraud  and  corruption.  ...  In  the  making  of  these  con- 
tracts and  in  the  settlement  of  these  claims,  the  stockhold- 
ers of  the  Concord  have  the  legal  right  to  the  services  of  di- 
rectors whose  interests  are  not  hostile  to  their  interests.  A 
director  or  stockholder  in  the  Northern  company  is  not  such  a 
director.  It  may,  for  some  purposes,  be  convenient  and  desira- 
ble that  the  same  person  or  persons  should  act  as  directors  of 
two  or  more  roads  forming  part  of  a  continuous  line.  For 
many  purposes  their  interests  are  not  adverse.  The  harmoni- 
ous working  of  the  several  parts,  when  a  large  portion  of  its 
business  is  the  transportation  of  goods  and  passengers  over 
the  whole  line,  requires  unity  of  purpose  and  management. 
But,  however  this  may  be,  the  right  of  the  stockholders  of  a 
single  road,  that  it  shall  be  operated  primarily  in  their  own 
interest,  cannot  be  overridden  or  displaced  by  directors  occu- 
pying inconsistent  relations." ' 

It  is,  however,  held  that  contracts  made  by  boards  of  direct- 
ors where  a  majority  are  common  to  the  two  corporations  are 
only  voidable,  and  may  be  ratified  by  a  majority  vote  at  a 
shareholders'  meeting.2 

§  645.  So  far  the  discussion  has  been  of  the  duties  of  directors. 
Thev  have,  however,  certain  rights  :  and,  in  the  first   ~. 

J  ',  °  Directors' 

place,  the  right  or  authority,  within  the  scope  of  their   authority; 

....  ,  „    .         their  right 

discretionary  powers,  to  manage  the  corporate  affairs   toindemni- 
in  accordance  with  their  sound  discretion,  exempt  from     catlon- 
any  interference,  except  perhaps  the  controlling  action  of  a  ma- 
jority of  shareholders  in  a  corporate  meeting.3     Further,  they 


1  Pearson  v.  Concord  R.  R.  Co.,  62 
N.  H.  537,  545,  etc.  But  see  xeiuble 
contra,  Evansville,  etc.,  Co.  v.  Bauk, 
144  Ind.  34. 


2  San  Diego,  etc.,  R.  R.  Co.  v.  Pac. 
Beach  Co.,  112  Cal.  53;  Burden  v.  Bur- 
den. 159  N.  Y.  287. 

3  See  Railway  Co.  v.  Ailing.  99  U.  S. 

647 


§  645.]  THE   LAW    OF    PRIVATE   CORPORATIONS.     [CHAP.  X. 

have  a  right  to  be  indemnified  by  the  corporation  from  any  per- 
sonal liability  which  may  attach  to  them  by  reason  of  proper  acts 
on  their  part ;  or  which  they  may  have  with  propriety  assumed  on 
its  behalf  while  acting  within  their  authority.1  The  English  courts 
have  gone  further.  In  Exparte  Chippendale2  it  was  decided  that 
when  directors  who  had  no  authority  to  borrow  money  on  behalf 
of  the  company  did  in  fact  borrow  money  and  make  advances 
themselves  in  good  faith,  and  apply  it  all  to  the  benefit  of  the 
company,  they  were  entitled,  having  themselves  repaid  the 
money  borrowed,  to  be  reimbursed  by  the  shareholders  the 
whole  amount  borrowed  and  advanced.  The  equities  of  the 
directors  wrere  very  strong  in  this  case ;  the  money  was  urgently 
needed  to  prevent  great  loss  to  the  company,  and  the  share- 
holders were  kept  informed  of  the  transactions.  This  decision, 
however,  was  used  as  a  precedent  in  cases  going  beyond  it,3 
till  the  danger  of  extending  its  principles  was  recognized  by 
the  courts,  and  their  application  restricted  to  cases  where 
money  had  been  applied  to  the  discharge  of  debts  for  which 
the  company  was  liable.4  It  is  obvious  that  any  extension  of 
the  doctrine  of  Ex  parte  Chippendale  is  incompatible  with  the 
security  of  persons  interested  in  the  corporate  funds ;  for  the 
liability  of  these  funds  to  the  directors  for  moneys  expended 
or  liability  assumed  by  them  would  thereby  become  measured 
not  by  the  authority  which  the  directors  had  received,  but 
only  by  their  discretion.  It  is  certainly  safer  to  adhere  to  the 
"  sensible  rule  that  agents  are  not  entitled  to  any  indemnity 


463;  Elkins  v.  Camden,  etc.,  R.  R. 
Co.,  36  N.  J.  Eq.  241;  §  684.  When 
the  mauagement  of  the  business  is 
by  statute  confided  to  the  directors, 
the  corporation  cannot  by  a  vote  join 
another  officer  who  is  not  a  director 
with  them,  or  compel  them  to  act 
with  liim  in  managing  its  business. 
Charleston  Boot,  etc.,  Co.  u.  Duns- 
more,  60  N.  H.  85. 

1  See  In  re  Court  Grange  M'g  Co., 
Ex  parte  Sedgwick,  2  Jur.  N.  S.  494. 
"As  members  they  [directors]  are 
entitled  to  contribution  in  respect  of 
such  debts  and  liabilities  of  the  com- 
pany as  they  may  be  compellable  or 

648 


have  been  compelled  to  pay;  and  aa 
agents  and  trustees  they  are  entitled 
to  be  indemnified  by  the  company 
from  all  losses  and  expenses  bona 
fide  sustained  and  incurred  by  them 
in  the  exercise  of  the  trust  imposed 
on  them."     2  Lindley  on  Part.,  760. 

2  4  De  G.,  M.  &  G.  19. 

8  See  In  re  Norwich  Yarn  Co.,  Ex 
parte  Bignold,  22  Beav.  143;  In  re 
Nat.  Patent  Fuel  Co.,  Baker's  Case, 
1  Dr.  &  Sm.  54;  Troup's  Case,  29 
Beav.  353;  Hoare's  Case,  30  Beav. 
225. 

4  See  In  re  Natl.  Bldg.  Soc'y,  Ex 
parte  Williamson,  L.  R.  5  Ch.  309. 


CHAP.  X.] 


CORPORATION  AND  OFFICERS. 


[§  647. 


from   their  principals   in    respect   of    unauthorized    expendi- 
tures." * 

§  64:6.  In   the   absence   of   some   express    provision   in   the 
constitution  or  bv-laws  of  the  corporation,  a  director   compensa- 

•1-1  •  o  1     •  rv.  ti0Q  °f  di" 

is  not  entitled  to  any  compensation  for  his  official  rectors  and 
services.2  He  cannot  recover  on  a  quantum  meruit  agents. 
for  his  services  as  director;3  and,  moreover,  to  entitle  him  to 
compensation,  the  by-law  or  resolution  providing  for  his  com- 
pensation must  have  been  passed  before  his  services  as  di- 
rector were  rendered.4  Because  a  subsequent  vote  to  pay  a  di- 
rector for  his  official  services  is  without  consideration,  and  he 
cannot  recover  on  it  against  the  corporation.5 

§  647.  Neither  can  a  president  recover  for  his  services  as 
such  except  under  the  same  circumstances  and  conditions  as 


1  2  Lindley  on  Part.,  765;  where 
(pp.  760-768)  will  be  found  an  in- 
teresting discussion  of  these  cases. 
See,  also,  In  re  Worcester  Corn  Ex- 
change Co.,  3  De  G.,  M.  &  G.  180  ; 
Ex  parte  Cropper,  1  De  G-.,  M.  &  G. 
147. 

2  Burns  v.  Commencement  Bay, 
etc.,  Co.,  4  Wash.  558;  Martin  dale 
v.  Wilson  Cass  Co.,  134  Pa.  St.  348; 
Illinois  Linen  Co.  v.  Hough,  91  111. 
63;  American  Central  Railway  Co.  v. 
Miles,  52  111.  174;  Maux  Ferry  Gravel 
Road  Co.  v.  Branegan,  40  Ind.  361 ; 
Smith  v.  Putnam,  61  New  Hamp.  632. 
See  Mather  v.  Mower  Co.,  118  N.  Y. 
629,  632. 

3  Citizens'  Nat.  Bank  v.  Elliott,  55 
Iowa,  104;  Brown  o.  Republican  M'n 
Mines,  17  Col.  421.  See  cases  in  pre- 
ceding note. 

4  Lafayette,  etc.,  Railway  Co.  v. 
Cheeney,  87  111.  446;  S.  C,  68  111. 
570;  Ellis  D.Ward,  137  111.  509.  Com- 
pare Barstow  v.  City  R.  R.  Co.,  42 
Cal.  465.  But  see  St.  Louis,  etc., 
Railroad  Co.  v.  Tiernan,  37  Kansas, 
607;  Wickersham  v.  Crittenden,  110 
Cal.  332. 

s  Loan  Association  v.  Stonemetz, 
29  Pa.  St.  534.     See  Carr  u.  Cbartiers 


Coal  Co.,  25  Pa.  St.  337.  Directors 
cannot  make  tbemselves  allowances 
for  tbeir  services.  Maux  Ferry 
Gravel  Road  Co.  v.  Branegan,  40  Ind. 
361;  Gardner  v.  Butler,  30  N.  J.  Eq. 
702,  721 ;  Blatchford  v.  Rose,  54  Barb. 
42;  Jones  v.  Morrison,  31  Minn.  140. 
See  Butts  v.  Wood,  37  N.  Y.  317.  Di- 
rectors cannot  fix  their  own  salaries 
as  president,  secretary,  etc.  Kelsey 
».  Sargent,  40  Hun  (N.  Y.),  150; 
Bennett  v.  St.  Louis  Car  Roofing  Co., 
19  Mo.  App.  349;  Wickersbam  v. 
Crittenden,  93  Cal.  17;  106  Cal.  327; 
Mallory  v.  Mallory  Wheeler  Co.,  61 
Conn.  131. 

"  Trustees"  of  benefit  associations 
cannot  vote  themselves  back  pay. 
State  v.  Benefit  Association,  42  Ohio 
St.  579.  But  it  has  been  held  that  a 
board  of  directors  may  vote  a  salary 
to  one  of  its  number  (he  not  voting) 
for  acting  as  attorney  during  two 
yeai's  past — for  there  rose  on  his  ap- 
pointment as  attorney  an  implied 
contract  to  pay  the  reasonable  worth 
of  his  special  services.  Ten  Eyck  v. 
R.  R.  Co.,  74  Mich.  226.  See,  also, 
Clark  v.  American  Coal  Co.,  86  Iowa, 
436. 

649 


§  647. J  THE   LAW   OF   PRIVATE   CORPORATIONS.     [CHAP.  X. 

an  ordinary  director.1  But  a  director,  or  a  president,  who 
renders  services  outside  of  the  scope  of  his  regular  duties, 
may,  according  to  a  number  of  decisions,  recover  the  fair 
worth  of  such  services  in  the  absence  of  any  resolution  provid- 
ing for  his  compensation.2  Agents  and  servants  of  the  cor- 
poration, other  than  the  directors,  president,  and  perhaps 
treasurer,  may  recover  the  value  of  their  regular  or  extraor- 
dinary services  on  a  quantum  meruit? 


1  Holland  v.  Lewiston  Falls  Bk.,  52 
Maine,  564;  McAvity  v.  Pulp  Co.,  82 
Maine,  504;  Kilpatrick  v.  Penrose 
Ferry  Bridge  Co.,  49  Pa.  St.  118; 
Sawyer  v.  Pawner's  Bk.,  6  Allen,  207; 
Merrick  v.  Peru  Coal  Co.,  61  111.  472; 
Gridley  >:.  Lafayette,  etc.,  Ry.  Co.,  71 
111.  200;  Emporium  R'l  Estate  Co.  v. 
Emrie,  54  111.  345;  St.  Louis,  A.  &  S. 
R.  Co.  v.  O'Hara,  177  111.  525;  Santa 
Clara  M'g  Ass'n  d.  Meredith,  49  Md. 
389;  Citizens'  Nat.  Bk.  v.  Elliott,  55 
Iowa,  104;  see  Banigan  v.  U.  S.  Rub- 
ber Co.,  22  R.  I.  452;  Wood's  Sons 
Co.  v.  Schaefer,  173  Mass.  445.  Same 
principles  held  to  apply  to  a  treasurer 
in  Kilpatrick  v.  Penrose  Ferry  Bridge 
Co.,  supra  ;  Holder  v.  Lafayette,  etc., 
Ry.  Co.,  71  111.  106.  Same  rule  ap- 
plies to  a  vice-president.  Blue  v. 
Bank,  145  Ind.  518.  A  vice-president 
performing  the  duties  of  the  presi- 
dent is  not  entitled  to  the  salary  at- 
tached to  the  office  of  president, 
unless  so  provided  in  the  by-laws. 
Brown's  Executor  v.  Galveston  Whai'f 
Co.,  92  Tex.  520. 

2  Santa  Clara  M'g  Ass'n  v.  Mere- 
dith, 49  Md.  389;  Cheeney  v.  Lafay- 
ette, etc.,  Ry.  Co.,  68  111.  570;  S.  C, 
87  111.  446;  Rockford,  etc.,  R.  R.  Co. 
v.  Sage,  65  111.  328;  Bagley  v.  Car- 
thage R.  R.  Co.,  165  N.  Y.  179;  Jack- 
son v.  New  York  Cent.  R.  R.  Co., 
2  T.  &  C.  (N.  Y.)  653;  Gardner  v. 
Butler,  30  N.  J.  Eq.  702,  721;  Shack- 
elford v.  New  Orleans,  etc.,  R.  R. 
Co.,  37  Miss.  202;  Citizens'  Nat.  Bk. 

650 


v.  Elliott,  55  Iowa,  104;  Rogers  v. 
Hastings,  etc.,  Ry.  Co.,  22  Minn.  25; 
Missouri  River  R.  R.  Co.  v.  Richards, 
8  Kan.  101;  Mitchell  v.  Holman,  3 
Oregon,  280;  Flynn  v.  Columbus 
Club,  21  R.  I.  534;  Bassett  v.  Fair- 
child,  132  Cal.  637;  Lowe  v.  Ring,  106 
Wis.  647.  See  Henry  v.  Rutland, 
etc.,  R.  R.  Co.,  27  Vt.  435;  Hodges 
i>.  Same,  29  Vt.  220;  Greensboro,  etc., 
T.  Co.  v.  Stratton,  120  Ind.  294;  Bart- 
lett  v.  Mystic  R'r  Co.,  151  Mass.  433; 
Severson  v.  Bi-Metallic  Co.,  18  Mont. 
13.  Contra,  Levisee  v.  Shreveport 
City  R.  R.  Co.,  27  La.  Ann.  641;  Pew 
v.  Gloucester  Nat.  Bk.,  130  Mass.  391; 
Ruby  Chief  M.  &  M.  Co.  v.  Prentice, 
25  Colo.  4.  Compare  McCarthy  v. 
Mt.  Lecarte,  etc.,  Co.,  Ill  Cal.  328; 
Security  Co.  v.  Bennington  Mon. 
Ass'n,  71  Vt.  201. 

8  E.  g.,  a  superintendent  can.  Bee 
v.  San  Francisco,  etc.,  R.  R.  Co.,  46 
Cal.  248;  or  a  secretary,  who  is  not 
a  trustee,  or  stockholder.  Smith 
v.  Long  Island  R.  R.  Co.,  102  N.  Y. 
190.  Compare  Eagle,  etc.,  M'f'g  Co. 
v.  Brown,  58  Ga.  240. 

A  corporation  may  agree  to  pay 
an  agent  for  his  labor  in  obtaining 
stock  subscriptions.  Cincinnati,  I. 
and  C.  R.  R.  Co.  v.  Clarkson,  7  Ind. 
595.  Or  for  such  services  a  person 
may  recover  on  an  implied  promise. 
Hall  v.  Vermont  and  Mass.  R.  R.  Co., 
28  Vt.  401;  Low  v.  Connecticut,  etc., 
R.  R.  Co.,  45  N.  H.  370.  A  treasurer, 
secretary,  or  cashier  is  prima  facie 


CHAP.  X.] 


CORPORATION  AND  OFFICERS. 


[§  650. 


§  648.  It  has  recently  been  held  in  Xew  York  that  when  a 
life  insurance  company  has  contracted  with  a  person  to  act  as 
its  general  agent  for  a  stipulated  number  of  years  at  a  speci- 
fied yearly  salary,  and  the  company  is  dissolved  by  the  action 
of  the  state,  and  its  affairs  placed  in  the  hands  of  a  receiver, 
before  the  expiration  of  the  term  for  which  the  agent  was 
hired,  he  cannot  recover  from  the  funds  in  the  hands  of  the 
receiver  his  stipulated  salary  for  the  unexpired  term  of  ser- 
vice, as  damages  for  not  continuing  the  employment.  The 
contract  was  ended  with  the  corporate  dissolution  by  the 
action  of  the  state,  a  contingency  which  the  parties  on  con- 
tracting were  held  to  have  contemplated ;  and  was  not  broken 
by  the  company  itself.1 

§  649.  Whether,  by  whom,  and  on  what  grounds  a  cor- 
porate officer  mav  be  removed  from  office  is  not 

t     t    i  i  '  i        •   •       o      rm  i  •  •    •      i      i  Removal  of 

settled  by  the  authorities/  lhat  his  original  elec-  officers. 
tion  was  invalid  is  undoubtedly  a  good  ground.3 
But  this  ground  has  nothing  to  do  with  the  good  or  bad  con- 
duct of  the  officer  himself,  and  invalidates  his  original  title. 
Undoubtedly,  agents  who  hold  office  merely  at  the  pleasure  of 
superior  officers  may  be  removed  by  the  latter :  and  without 
cause.4  And  the  by-laws  may,  and,  to  avoid  controversy,  cer- 
tainly should  provide  for  removals  from  office.5 

§  650.  Whatever  implied  power  to  remove  officers  for  cause 
there  may  be  in  a  corporation,  would  seem  to  exist  in  that  body 
which  appointed  or  elected  the  officer  in  question.     Thus  very 


entitled  to  compensation:  but  if  he 
agrees  to  perform  the  services  gratis. 
this  controls.  First  Xat.  B*k  r. 
Drake,  29  Kans.  311.  In  the  absence 
of  express  agreement,  a  treasurer  is 
not  entitled  to  compensation  for  in- 
dorsing notes  of  his  corporation,  so 
that  they  can  be  discounted.  Parker 
B.  Xickerson,  137  Mass.  487. 

1  People  i\  Globe  Mutual  Ins.  Co., 
91  N.  Y.  174;  seinble  contra,  Rose- 
baum  v.  Credit  System  Co.,  61  X.  J. 
L.  543. 

2  In  Angell  and  Ames  on  Corp., 
§§  425  et  spq.,  is  given  a  summary 
of  the  causes  that  have  been  held 


grounds  for  removing  officers  of  mu- 
nicipal corporations.  How  far  these 
cases  might  be  held  applicable  to 
stock  corporations  is  a  question. 

3  See  §§  577-581. 

4  Hunter  o.  Sun  Mutual  Ins.  Co., 
26  La.  Ann.  13. 

5  See  Hunter  v.  Sun  Mutual  Ins. 
Co.,  supra;  In  re  Griffin  Iron  Co., 
63  X.  J.  L.  16S.  A  person  entering 
the  service  of  a  corporation  as  secre- 
tary is  affected  with  notice  of  its  by- 
laws relating  to  removals  from  office. 
Douglass  c.  Merchants'  Ins.  Co.,  118 
X.  Y.  484. 

651 


§  050.]  THE    LAW    OF    PRIVATE   CORPORATIONS.     [CHAP.  X. 

likely  any  officer  appointed  by  the  board  of  directors  or  trustees 
could  for  cause  be  removed  by  them  from  the  office  to  which 
they  had  appointed  him.  But  a  board  of  directors  has  no  im- 
plied power,  it  would  seem,  to  remove  one  of  their  own  number, 
even  for  cause  ;  or  exclude  him  from  taking  part  in  their  pro- 
ceedings.1 It  would  seem,  however,  that  for  good  grounds  the 
majority  of  shareholders  in  a  duly  summoned  meeting  of  the 
corporation  should  be  competent  to  remove  a  director.  But 
in  the  ordinary  case  of  directors  elected  annually  to  serve  for  a 
year,  there  is  no  power  in  the  corporation  to  remove  them  ar- 
bitrarily before  the  expiration  of  their  term  of  office.2 


1  See  §  808. 

2  Imperial  Hydropathic  Hotel  Co. 
v.  Harnpson,  23  Cli.  Div.  1.  Officers 
of  a  corporation  who,  on  the  expira- 
tion of  their  term  of  office,  refuse  to 
deliver  to  their  successors  its  books, 

652 


etc.,  may  be  compelled  by  mandamus. 
Fasnacht  v.  German  Literary  Ass'n, 
99  Ind.  133.  In  Ward  v.  Davidson, 
89  Mo.  445,  directors  were  removed 
by  the  court  for  misconduct. 


CHAP.  XI.]  CORPORATION  AND  CREDITORS. 


[§  651. 


CHAPTER  XI. 


LEGAL  RELATIONS  BETWEEN  THE  CORPORATION  AND 
ITS  CREDITORS. 


How  they  arise.  General  view, 
§§  651,  652. 

Creditors  have  no  voice  in  the  cor- 
porate management,  §653. 

Corporate  assets  a  trust  fund  for 
creditors?  §§  654,  655. 

Creditors  may  follow  them,  §  656. 

Transfer  of  assets  to  a  new  corpora- 
tion, §  657. 

Right  of  creditors  to  restrain  their 
misapplication,  §§  658,  659. 

Rights  of  creditors  regarding  debts 
due  the  corporation.  Unpaid 
stock  subscriptions,  §§660,  661. 

Creditors  may  enjoin  wrongs  threat- 
ening the  corporation,  §  662. 

Creditors  of  an  insolvent  corpora- 
tion not  entitled  to  a  receiver  as 
a  matter  of  course,  §  663. 

Creditors  cannot  prevent  dissolution, 
§664. 

No  alteration  of  charter;  nor  con- 
solidation. Survival  of  creditors' 
lien,  §665. 


Liability  of  consolidated  corpora- 
tion, §  666. 

Liability  of  corporation  succeeding 
the  debtor  corporation,  §  667. 

Insolvent  assignments,  §  668. 

Relative  rights  of  creditors,  §  669. 

Set-off,  §  670. 

Corporate  property,  when  exempt 
from  execution,  §  671. 

Relations  between  a  bank  and  de- 
positors, §  672. 

Lien  of  bank,  §  673. 

Bondholders,  §674. 

Equitable  mortgages,  §  675. 

Railroad  mortgages.  Rolling  stock, 
§676. 

Invalid  provisions  in  corporate 
securities,  §  677. 

May  not  invalidate  the  securities, 
§678. 

Corporate  bonds  negotiable,  §  679. 

Coupons,  §  680. 

Rights  of  bondholders,  §  681. 

Remedies  of  bondholders,  §  682. 


How  they 
arise. 
General 
view. 


§  651.  The  legal  relations  between  a  creditor  and  the 
corporation  are  occasioned  either  by  a  contract 
binding  on  the  latter,  or  by  a  tort  for  which  it  is 
responsible.  Before  the  claims  of  a  creditor  arise, 
and  during  the  transaction  itself  on  which  his 
claims  are  based,  the  creditor  is  simply  an  outsider  towards 
whom  the  corporation,  or  the  corporate  agent l  with  whom  the 
creditor  contracts,  owes  no  duty  not  due  to  members  of  the 
public  at  large.  And  creditors  will  rarely  have  any  standing 
in  court  to  object  to  acts  of  the  corporation  done  before  their 


1See§§  752-755. 


653 


§  653.]  THE    LAW    OF   PRIVATE   CORPORATIONS.   [CHAP.  XI. 


claims  arose.1  From  the  moment,  however,  that  a  person 
becomes  a  creditor,  the  corporation  owes  it  to  him  to  satisfy 
his  claim  from  the  corporate  funds,  and  is  under  a  duty 
towards  him  which  he  may  enforce,  not  to  waste  the  corporate 
funds,  or  divert  them  from  the  purposes  for  which  they  were 
set  apart,  so  as  to  prevent  the  satisfaction  of  his  claim.2  From 
that  moment  the  corporation,  having  in  charge  funds  in  regard 
to  which  the  creditor  has  rights,  occupies,  because  it  has  such 
funds  in  charge,3  a  position  of  trust  towards  him.  Moreover, 
when  subsequently  the  corporation  or  its  representatives  deal 
with  persons  who  are  not  yet  creditors,  they  represent  the 
creditors,  whose  rights  have  already  arisen,  to  this  extent, 
that  the  rights  of  the  latter  in  the  corporate  funds  are  ordinarily 
bound  by  the  acts  of  the  corporation  or  its  representatives.4 

§  652.  The  classes  and  legal  characteristics  of  the  acts  which 
are  binding  on  the  corporation,  as  representative  of  the  inter- 
ests of  all  persons  in  the  corporate  enterprise,  are  discussed  in 
Chapter  VII. ,  the  chapter  devoted  to  the  treatment  of  the  ef- 
fect of  acts  done  by  or  on  behalf  of  a  corporation  in  occasion- 
ing legal  relations  between  it  and  persons  with  whom  it  deals. 
The  present  chapter  is  taken  up  with  the  discussion  of  the 
rights  of  creditors  who  by  some  transaction  have  acquired  a 
valid  claim  on  the  corporate  funds. 

§  653.  The  corporate  constitution  specifies,  among  other 
things,  the  objects  of  incorporation,  to  which  the 
corporate  funds  are  to  be  applied.  To  the  applica- 
tion of  the  corporate  funds  to  these  objects  in 
accordance  with  the  constitution  a  creditor  cannot 
object.  As  long  as  the  affairs  of  the  corporation 
are  being  carried  on  in  good  faith  and  in  accordance  with  the 


Creditors 
have  no 
voice  in  the 
corporate 
manage- 
ment. 


1  When  a  corporation,  solvent  at 
the  time,  with  no  actual  intent  to 
defraud  its  creditors,  conveys  its 
lands  for  an  inadequate  considera- 
tion, its  subsequent  creditors  cannot 
question  the  transaction.  Graham 
v.  Railroad  Co.,  102  U.  S.  148  ;  cf.  Nix 
v.  Miller,  26  Colo.  203. 

2  As  against  its  creditors,  a  corpo- 
ration has  no  right  to  apply  its  prop- 

654 


erty  to  the  payments  of  debts  (e.  g., 
of  its  officers)  which  it  is  not  bound 
to  pay.  Nat.  Tube  Works  Co.  v. 
Machine  Co.,  118  Mo.  305  ;  ace.  State 
v.  Shapleigh  Hardware  Co.,  147  Mo. 
366. 

3  See  §§  41-47. 

4  See  §525;  also    Railway    Co.    v. 
Ailing,  99  U.  S.  463. 


CHAP.  XI.]  CORPORATION  AND  CREDITORS. 


[§  655. 


constitution,  a  creditor  cannot  interfere  in  the  corporate  man- 
agement. 

§  654.  It  is  not  to  be  inferred,  however,  that  the  only  rights 
of  a  general  creditor  are  to  sue  for  his  debt,  and,  on 
recovery  of  a  judgment,  levy  a  fruitless  execution   CorP°rate 
on  the  departed  funds  of  an  insolvent  corporation.    "  trust 
He  has  many  important  rights,  all  more  or  less  based   creditors? 
on  or  related  to  the  fundamental  doctrine  that  the 
purposes  for  which  corporate  funds  are  set  apart  include  the 
payment  of  the  corporate    indebtedness ;  and  that    for    this, 
among  other  purposes,  these  funds  are  held  in  trust. 

§  655.  This  doctrine  was  first  formulated  by  Justice  Story 
in  "Wood  v.  Dummer,  where  the  learned  justice  said:1  "It 
appears  to  me  very  clear,  upon  general  principles,  as  well  as 
the  legislative  intention,  that  the  capital  stock  of  banks  is  to 
be  deemed  a  pledge  or  trust  fund  for  the  payment  of  debts 


1S  Mason,  308,  311.  It  seems  best 
to  leave  the  "  trust  fund"  doctrine 
as  stated  in  the  text;  but  recent 
cases  are  tending  to  minimize  if  not 
to  impugn  it.  "While,  it  is  true, 
language  has  been  frequently  used  to 
the  effect  that  the  assets  of  a  corpo- 
ration are  a  trust  fund  held  by  a  cor- 
poration for  the  benefit  of  creditors, 
this  has  not  been  to  convey  the  idea 
that  there  is  a  direct  and  express 
trust  attached  to  the  property.  .  .  . 
When  a  court  of  equity  does  take  into 
its  possession  tbe  assets  of  an  insol- 
vent corporation,  it  will  administer 
them  on  the  theory  that  they  in 
equity  belong  to  the  creditors  and 
stockholders,  rather  than  to  tbe  cor- 
poration itself.  In  other  words,  and 
that  is  the  idea  which  underlies  all 
these  expressions  in  reference  to 
'trust'  in  connection  with  the  prop- 
erty of  a  corporation,  the  corpora- 
tion is  an  entity,  distinct  from  its 
stockholders  as  from  its  creditors. 
Solvent,  it  holds  its  property  as  any 
individual  holds  his,  free  from  the 
touch  of  a  creditor  who  has  acquired 
no  lien;  free  also  from  the  touch  of 


a  stockholder  who,  though  equitably 
interested  in,  has  no  legal  right  to, 
the  property.  Becoming  insolvent, 
the  equitable  interest  of  the  stock- 
holders in  the  property,  together 
with  their  conditional  liability  to  the 
creditors,  place  the  property  iu  a 
condition  of  trust,  first,  for  the  credit- 
ors, and  then  for  the  stockholders. 
Whatever  of  trust  there  is  arises  from 
the  peculiar  and  diverse  equitable 
rights  of  the  stockholders  as  against 
the  corporation  in  its  property,  and 
their  conditional  liability  to  its  cred- 
itors. It  is  rather  a  trust  in  the  ad- 
ministration of  the  assets  after  pos- 
session by  a  court  of  equity  than  a 
trust  attaching  to  the  property,  as 
such,  for  the  direct  benefit  of  either 
creditor  or  stockholder."  Hollins  v. 
Brierfield  Coal,  etc.,  Co.,  150  U.  S. 
371,  382-3S3.  See  Worthen  v.  Grif- 
fith, 59  Ark.  562;  Marvin  v.  Ander- 
son, 111  Wis.  387;  Plow  Co.  v.  Rude, 
GO  Kas.  145;  Kelly  o.  Clark,  21  Mont. 
291;  Schufeldtu.  Smith,  131  Mo.  280; 
Corey  v.  Wadsworth,  118  Ala.  488. 
See,  also,  §§  702a,  7026. 

655 


§  655.]      THE   LAW    OF    PRIVATE   CORPORATIONS.        [CHAP.  XI. 

contracted  by  the  bank.  The  public  as  well  as  the  legislature 
have  always  supposed  this  to  be  a  fund  appropriated  for  such 
purpose.  The  individual  stockholders  are  not  liable  for  the 
debts  of  the  bank  in  their  private  capacities.  The  charter 
relieves  them  from  personal  responsibility,  and  substitutes  the 
capital  stock  in  its  stead.  Credit  is  usually  given  to  this  fund 
by  the  public  as  the  only  means  of  repayment.  During  the 
existence  of  the  corporation  it  is  the  sole  property  of  the  cor- 
poration, and  can  be  applied  only  according  to  the  charter ; 
that  is,  as  a  fund  for  the  payment  of  its  debts,  upon  the  se- 
curity of  which  it  may  discount  and  circulate  notes.  Why 
otherwise  is  any  capital  required  by  our  charters?  If  the 
stock  may  the  next  day  after  it  is  paid  in  be  withdrawn  by  the 
stockholders  without  payment  of  the  debts  of  the  corporation, 
why  is  its  amount  so  strenuously  provided  for,  and  its  pay- 
ment by  the  stockholders  so  diligently  required  ?  To  me  this 
point  appears  so  plain  upon  principles  of  law  as  well  as  com- 
mon sense,  that  I  cannot  be  brought  into  any  doubt  that  the 
charters  of  our  banks  make  the  capital  stock  a  trust  fund  for 
the  payment  of  all  the  debts  of  the  corporation." 

Again,  in  Sanger  v.  Upton,  giving  the  opinion  of  the  Federal 
Supreme  Court,  Justice  Swayne  said:1  "The  capital  stock  of 
an  incorporated  company  is  a  fund  set  apart  for  the  payment 
of  its  debts.  It  is  a  substitute  for  the  personal  liability  which 
subsists  in  private  co-partnerships.  When  debts  are  incurred, 
a  contract  arises  with  the  creditors  that  it  shall  not  be  with- 
drawn or  applied,  otherwise  than  upon  their  demands,  until 
such  demands  are  satisfied.  The  creditors  have  a  lien  upon  it 
in  equity.2  If  diverted  they  can  follow  it  as  far  as  it  can  be 
traced,  and  subject  it  to  the  payment  of  their  claims,  except 
as  against  holders  who  have  taken  it  bona  fide  for  a  valuable 
consideration,  and  without  notice.  It  is  publicly  pledged  to 
those  who  deal  with  the  corporation  for  their  security.  Un- 
paid stock  is  as  much  a  part  of  this  pledge,  and  as  much  a 
part  of  the  assets  of  the  company,  as  the  cash  which  has  been 
paid  in  upon  it.  Creditors  have  the  same  right  to  look  to  it 
as  to   anything  else,  and  the  same  right  to  insist  upon  its 

i  91  U.  S.  5G,  60.  I  First  Nat.   Bk.    v.    Dovetail  Co.,  143 

2  But  no  "  specific"  lien.  Electric  I  Ind.    550;    Atlas   National   Bank    v. 

Co.  v.  Electric  Co.,  116   N.  C.    112;  I  Moran  Co.,  138  Mo.  59. 
656 


CHAP.  XI.]  CORPORATION  AND  CREDITORS. 


[§  656. 


payment  as  upon  the  payment   of  any   other  debt  due   the 
company."  ' 

§  656.  If  the  corporate  funds  are  trust  funds  for  the  dis- 
charge of  the  corporate  indebtedness,  it  follows  on  Creditors 
well-grounded  principles  of  equity  jurisprudence,  may  follow 
that  the  beneficiaries  of  the  trust,  shareholders  or 
creditors,  can  claim  such  funds  in  the  hands  of  any  one  who 
has  not  in  good  faith  given  value  for  them  without  notice  of 
a  violation  of  the  trust.2  And,  moreover,  every  one  receiving 
corporate  funds  knowing  them  to  be  such,  is  affected  with 
notice  of  the  purposes  for  which  they  are  held  in  trust.  That 
corporate  funds  may  be  tracked  by  creditors  into  the  hands  of 
any  person  to  whom  they  have  been  transferred  without  con- 


1  Accord,  Bartlett  v.  Drew,  57  N. 
Y.  587;  Hastings  v.  Drew,  76  N.  Y. 
9;  County  of  Morgan  v.  Allen,  103 
U.  S.  498;  Richardson  v.  Green,  133 
U.  S.  30;  Coleman  v.  Howe,  154  111. 
458;  Singer  v.  Hutchinson,  183  111. 
606;  Corey  v.  Wads  worth,  99  Ala.  68; 
Bruner  v.  Brown,  139  Ind.  600;  South 
Bend,  etc.,  Co.  v.  Ins.  Co.,  4  S.  Dak. 
173;  Adamant  Mfg.  Co.  v.  Wallace, 
16  Wash.  614;  Thompson  v.  Reno 
Sav's  Bk.,  19  Nev.  103;  Bucku.  Ross, 
68  Conn.  29;  Marshall  Foundry  Co. 
v.  Killian,  99  N.  C.  501;  Bell's  App., 
115  Pa.  St.  88;  Lee  v.  Imbrie,  13  Oreg. 
510;  Lane's  App.,  105  Pa.  St.  491; 
Thompson-Houston  Elec.  Co.  v. 
Murray,  60  N.  J.  L.  20;  Van  Pelt  v. 
Gardner,  54  Neb.  702;  and  cases  in 
succeeding  notes. 

The  doctrine  is  sometimes  embod- 
ied in  a  statute.  "  No  association 
or  any  member  thereof,  shall  during 
the  time  it  shall  continue  its  banking 
operations  withdraw  or  permit  to  be 
withdrawn,  either  in  the  form  of 
dividends  or  otherwise,  any  portion 
of  its  capital.  If  losses  have  at  any 
time  been  sustained  by  any  such  as- 
sociation, equal  to  or  exceeding  its 
undivided  profits  then  on  hand,  no 
dividend  shall  be  made;  and  no  divi- 

42 


dend  shall  ever  be  made  by  any  as- 
sociation, while  it  continues  its 
banking  operations,  to  an  amount 
greater  than  its  net  profits  then  on 
hand,  deducting  therefrom  its  losses 
and  bad  debts."  U.  S.  Rev.  Stat., 
§  5204.  The  trust  fund  doctrine  was 
disapproved.  O' Bear  Jewelry  Co.  u. 
Volfer,  106  Ala.  205;  Corey  v.  Wads- 
worth,  118  Ala.  488.  The  point  held, 
was  that  the  mere  insolvency  of  a 
corporation  does  not  engraft  a  trust 
upon  its  property  in  favor  of  credit- 
ors, ib. ;  and  Barret  &  Co.  v.  Pollak  & 
Co.,  108  Ala.  390;  Pollak  &  Co.  v. 
Muscogee  Mfg.  Co..  ib.  467.  But 
compare  Age-Herald  Co.  o.  Potter, 
109  Ala.  675. 

2  Cole  v.  Millerton  Iron  Co.,  133  N. 
Y.  164.  The  property  of  a  corpora- 
tion "  is  so  far  regarded  as  in  the 
nature  of  trust  property  that  it  can 
be  recovered  by  the  company  from 
any  person  who  has  obtained  it  from 
the  directors  with  notice  that  they 
are  acting  beyond  their  powers."  2 
Liudley  on  Part.,  593.  See  Bryson 
o.  AVurwich,  etc.,  Canal  Co.,  4  De  G. 
M.  &  G.  711;  Ernst  v.  Croysdill,  2 
De  G.  F.  &  J.  175;  Hardy  v.  Metro- 
politan Land,  etc.,  Co.,  L.  R.  7  Ch. 
427. 

657 


§  057.]  THE    LAW    OF   PRIVATE   CORPORATIONS.    [CHAP.  XI. 


Transfer  of 
assets  to  a 
new  corpo- 
ration. 


sideration   is   a  proposition    supported    unanimously    by   the 
authorities.1 

§  657.  Accordingly,  a  corporation  cannot  place  its  assets 
beyond  the  reach  of  its  creditors,  merely  by  going 
through  a  process  of  re-incorporation,  taking  a  new 
name,  transferring  without  consideration  the  assets 
of  the  old  corporation  to  the  new  one,  and  issuing 
shares  in  the  capital  stock  of  the  new  corporation  to  holders  of 
shares  in  the  capital  stock  of  the  old/1  And  if  the  share- 
holders of  one  corporation  organize  another,  and  transfer  to  it 
all  the  property  of  the  former  without  paying  the  former's 
debts,  the  obligations  of  the  old  company  may  be  enforced 
against  the  new  one  to  the  extent  of  the  assets  transferred  to 
it.3     It  is  held,  however,  that  before  a  creditor  has  a  standing 


1  Wood  v.  Dummer,  3  Mason,  308; 
Wright  v.  Petrie,  1  Sm.  &  M.  Ch. 
(Miss.)  282;  Marr  v.  Bk.  of  West 
Tennessee,  4  Coldw.  (Tenu.)  471; 
Tinkham  v.  Borst,  31  Barb.  407; 
Goodwin  v.  McGehee,  15  Ala.  232; 
Jones  v.  Arkansas  Mechanical  Co., 
38  Ark.  17;  Union  Nat.  Bank  v. 
Douglass,  1  McCrary,  86.  See  Cur- 
ran  v.  State,  15  How.  304,  307;  Rail- 
road Co.  v.  Howard,  7  Wall.  393,  409. 
Montgomery,  etc.,  R.  R.  Co.  v. 
Branch,  59  Ala.  139.  These  princi- 
ples would  apply  to  fraudulent 
leases  of  its  property  by  a  heavily 
indebted  corporation.  See  Chicago, 
etc.,  Ry.  Co.  v.  Chicago  Bank,  134 
U.  S.  276. 

2  San  Francisco,  etc.,  R.  R.  Co.  v. 
Bee,  48  Cal.  398;  Hancock  v.  Hol- 
brook,  40  La.  Ann.  53.  See  Cole  v. 
Millerton  Iron  Co.,  133  N.  Y.  164; 
Hurd  v.  N.  Y.  &  C,  etc.,  Co.,  1(57 
N.  Y.  89;  Montgomery  Web  Co.  v. 
Dieuelt,  133  Pa.  St.  585;  Vance  v. 
McNabb  Coal  Co.,  20  S.  W.  Rep. 
(Tenn.)  424;  Ewing  v.  Composite 
Brake  Shoe  Co.,  169  Mass.  72;  cf. 
White  v.  New  Bedford  Cotton  Waste 
Corp.,  178  Mass.  20. 

3  Hibernia  Ins.  Co.  v.  St.    Louis, 

658 


etc.,  Transportation  Co.,  13  Fed.  Rep. 
516;  Booth  v.  Bunce,  33  N.  Y.  139; 
Barclay  v.  Quicksilver  MTg  Co.,  9 
Abb.  Pr.  N.  S.  (N.  Y.)  283;  Same 
v.  Same,  6  Lans.  (N.  Y.)  25;  Kelly 
v.  Mariposa  Land,  etc.,  Co.,  4  Hun 
(X.  Y.),  632;  Brum  v.  Merchants' 
Mut.  Ins.  Co.,  16  Fed.  Rep.  140. 
National  B'k  v.  Texas  Investm't  Co., 
74  Tex.  421;  Grennell  v.  Detroit  Gas 
Co.,  112  Mich.  70;  Santa  Fe  E.  Co.  v. 
Hitchcock,  9  N.  Mex.  156.  Com- 
pare Fort  Worth  Pub.  Co.  v.  Hitsou, 
80  Tex.  216;  Chase  v.  Michigan  Tel. 
Co.,  121  Mich.  631.  Unsecured  cred- 
itors of  a  corporation  have  a  lien  on 
its  property  transferred  to  a  suc- 
ceeding corporation  superior  to  the 
lien  of  bondholders  under  a  mort- 
gage executed  by  the  succeeding  cor- 
poration; the  succeeding  corporation 
having  given  only  its  own  stock  in 
payment  for  such  property.  Mont- 
gomery, etc.,  R.  R.  Co.  v.  Branch,  59 
Ala.  139.  When,  however,  a  railroad 
corporation  under  authority  of  its 
charter  sells  all  its  property  and 
franchises  to  another  corporation  for 
value,  the  general  creditors  of  the 
vendor  have  no  lien  on  such  prop. 
erty,  and  the  vendee  takes  free  from 


CHAP.  XI.]  CORPORATION  AND  CREDITORS. 


[§  659. 


in  court  to  inquire  into  a  transfer  of  assets  made  by  his  debtor 
corporation  he  must  have  obtained  judgment  against  it.1 

§  658.  On  the  principle  that  the  funds  of  a  corporation  are 
held  in  trust  for  its  creditors,  is  also  based  the  only   Risht  of 

'  J      creditors  to 

right  of  the  latter  to  interfere  with  the  management  restrain 
of  the  corporate  affairs.  If  the  corporate  funds  are  application, 
being  dissipated  or  applied  to  purposes  beyond  the 
scope  of  the  corporate  objects  in  such  a  way  as  to  imperil  the 
solvency  of  the  corporation  and  the  lien  of  the  creditors  on  its 
funds,  a  creditor  can  restrain  the  misapplication.*2  This  would 
seem  to  follow  a  fortiori  from  the  rule  that  a  creditor  can 
follow  corporate  funds  into  the  hands  of  any  one  receiving 
them  with  notice  of  their  misapplication ;  and  the  remedy  of 
the  creditor  is  to  a»pply  for  an  injunction  and  the  appointment 
of  a  receiver.3 

§  659.  In  Kearns  v.  Leaf,  and  Aldebert  v.  Kearns,4  two 
English  cases  decided  together,  a  policy-holder  in  a  joint- 
stock  insurance  company,  the  shareholders  of  which  were  not 
subject  to  personal  liability,  and  whose  funds,  by  provisions 
in  the  company's  deed  and  in  the  plaintiff's  policy,  were 
liable  for  the  sum  insured,  was  granted  an  injunction  restrain- 
ing the  company  from  transferring  its  assets  to  another  com- 


their  claims.  Chesapeake,  O.  &  S. 
R.  R.  Co.  v.  Griest,  85  Ky.  619.  It 
would  seem  to  be  simply  a  question 
of  the  honesty  of  the  transaction. 

A  judgment  against  the  prior  cor- 
poration, recovered  on  a  claim  for 
personal  injuries  occurring  after  the 
transferial  of  its  property  to  a  suc- 
ceeding corporation,  cannot  be  en- 
forced against  that  property  in 
possession  of  the  succeeding  corpo- 
ration. Gray  v.  National  Steamship 
Co.,  115  U.  S.  116. 

1  Tawas,  etc.,  R.  R.  Co.  v.  Circuit 
Judge,  44  Mich.  479.  See,  also, 
Smith  v.  Railroad  Co.,  99  U.  S.  398. 

2  The  English  cases  do  not  recog- 
nize as  fully  as  the  American  the 
doctrine  that  corporate  funds  are 
held  in  trust  for  creditors.  In  Eng- 
land there  has  never  been  the  same 


necessity  for  the  doctrine,  as  Eng- 
lish companies  are  more  apt  to 
be  of  unlimited  personal  liability. 
Accordingly,  the  last  proposition  in 
the  text  may  not  be  law  in  England. 
See  Mills  v.  Northern  R'y  Co.,  L.  R. 
5  Ch.  621. 

8  Conro  v.  Gray,  4  How.  Pr. 
(N.  Y.)  166.  There  the  court  said 
that  it  could  appoint  a  receiver  or 
require  security  for  the  due  preser- 
vation and  appropriation  of  the 
property.  See  Fisk  v.  Union  Pacific 
R.  R.  Co.,  10  Blatchf.  518  ;  Innes  v. 
Lansing,  7  Paige  (N.  Y.),  583;  Whit- 
comb  v.  Fowle,  7  Abb.  N.  C.  (N.  Y.) 
295;  Irons  v.  Manufacturers'  Nat. 
B'k,  6  Biss.  301;  Lothrop  v.  Stedman, 
13  Blatchf.  134.  Compare  Bank  of 
St.  Mary's  v.  St.   John,  25  Ala.  506. 

*  1  Hem.  &  Mil.  681. 

659 


§  660.]  THE  LAW   OF   PRIVATE   CORPORATIONS.    [CHAP.  XI. 

pany,  without  first  providing  for  the  payment  of  the  plaintiff's 
policy.  Vice-Chancellor  Page-Wood  said :  "  I  apprehend  that 
under  these  stipulations  the  policy-holders  have  no  right  to 
meddle  with  anything,  wise  or  unwise,  which  the  company 
may  do  in  accordance  with  the  deed.  For  example,  if  the 
company  invest  in  a  hazardous  or  even  ruinous  security,  the 
policy-holders  are  not  entitled  to  interfere.  It  would  be 
extremely  mischievous  to  allow  such  interference.  Still,  the 
conduct  of  the  company  might  reach  a  point  of  absolute  waste 
of  the  assets  in  contravention  of  the  provisions  of  the  deed,  at 
which  the  right  of  the  policy-holders  to  intervene  might  be 
considered  to  arise.  .  .  .  The  principle  on  which  the  plaintiff's 
case  is  founded  here,  is,  that  the  fund  which  was  held  out 
to  him  as  his  security,  and  to  which  he  has  himself  con- 
tributed, shall  not  be  misapplied  contrary  to  the  provisions 
of  the  deed.  He  says  that  he  comes  here  to  prevent  a  waste 
of  the  assets.  His  position  is  somewhat  analogous  to  that  of 
a  person  having  a  contingent  debt  against  a  testator's  estate, 
who  may  come  into  this  court  to  prevent  the  estate  being  paid 
away  to  legatees,  or  wasted,  or  thrown  away  by  the  executors. 
The  argument  of  the  company,  as  I  understand  it,  goes  this 
length,  that  the  policy-holder  is  simply  a  contingent  future 
creditor  minus  the  personal  remedy.  If  that  were  the  whole 
of  the  contract,  it  would  be  very  different  from  what  persons 
who  insured  in  the  company  must  have  supposed.  They  could 
not  have  imagined  that  it  was  to  be  in  the  power  of  the 
directors  of  the  company  to  destroy  all  their  interests  under 
their  policies,  leaving  them  without  redress  until  their  policies 
should  have  matured  by  death.  ...  In  my  opinion  the  plain- 
tiff did  acquire  under  that  contract  such  a  species  of  interest  in 
the  fund  as  would  entitle  him  to  interfere  to  save  the  property 
from  being  wasted  contrary  to  the  provisions  of  the  deed." 1 

§  660.  Not  only  has  a  creditor  the  right  to  restrain  an 
Rights  of  improper  dissipation  of  funds  of  the  corporation 
regarding  actually  in  its  possession,  but  he  has  the  further 
thecorpol     r'lght,  ^  these  do  not  suffice  for  the  payment  of  the 


i  1    Hem.    &    Mil.    707-708.      See, 
also,  Evans  i\  Coventry,  5  De  G.,  M. 
&  G.  911;  In  re  State  Fire  Ins.  Co., 
1  Hem.  &  Mil.  457. 
660 


An  insurance  company  has  no 
right  to  turn  its  policy-holders  over 
to  another  company  against  their 
consent,  and  policy-holders  are  un- 


CHAP.  XI.]  CORPORATION  AND  CREDITORS. 


[§  661. 


debt  due  him,  to  compel  the  debtors  of  the  corpora- 
tion to  pay  their  debts.1     This  right  of  the  creditors   Unpaid 
also  is  usually  rendered  effective  through  the  ap-  scriptions. 
pointment  of  a  receiver,  who  will  be  competent  to  collect  all 
debts  owing  the  corporation,  for  the  benefit  of  persons  inter- 
ested, shareholders  or  creditors.     Especially  is  it  competent 
for  the  receiver  or  assignee  in  insolvency  to  collect — and  in- 
cumbent on  him  to  do  so — all  unpaid  stock  subscriptions.2 

§  661.  As  stated  in  Sanger  v.  Upton,3  unpaid  stock  subscrip- 
tions, just  as  much  as  subscriptions  actually  paid  in,  constitute 
part  of  the  capital  of  the  corporation,  of  the  trust  fund  devoted 
to  the  discharge  of  its  indebtedness.  Ordinarily,  as  long  as  the 
corporation  is  a  going  concern  under  the  management  of  its 
regular  officers,  a  call  duly  made  by  the  board  of  directors  is  a 
condition  precedent  to  the  liability  of  a  shareholder  to  pay  any 
part  of  his  unpaid  subscription.4  If  the  directors  fail  to  make 
a  call  when  the  unpaid  subscriptions  are  needed  to  pay  the  debts 
of  the  corporation,  a  court  of  equity,  on  the  suit  of  a  creditor, 
will  compel  them  to  do  so.5  Ordinarily,  however,  to  apply  for 
the  appointment  of  a  receiver  is  the  course  pursued. 

der  no  obligation  to  protest,  in  order 
to  preserve  their  rights.  An  insur- 
ance company  contracts  to  keep  on 
hand  the  funds  required  by  law  for 
the  security  of  its  patrons;  and  also 
to  continue  its  business  so  as  to  keep 
in  a  condition  to  perform  its  engage- 
ments. People  v.  Empire  Mut.  Life 
Ins.  Co.,  92  N.  Y.  105. 

1  Before  an  alleged  creditor  of  a 
railroad  company  can  file  a  creditor's 
bill  to  obtain  from  one  of  its  debtors 
the  satisfaction  of  his  claim,  he  must 
establish  his  debt  by  a  judgment  in 
an  action  at  law.  Smith  v.  Railroad 
Co.,  99  U.  S.  398.  A  judgment  cred- 
itor can  garnishee  a  shareholder  (on 
a  judgment  against  the  corporation) 
for  unpaid  calls  due  the  corporation. 
Meints  v.  East  St.  Louis,  etc.,  Mill 
Co.,  89  111.  48;  Hall  &  Farley,  Trus- 
tees, v.  Henderson,  114  Ala.  601;  Ro- 
man v.  Dimmick,  115  Ala.  233;  Pick- 
ering v.  Townsend  et  al.,  118  Ala.,  351 ; 


Lea  v.  Iron  Bell  Mercantile  Co.,  119 
Ala.  271;  Cooper  v.  Adel  Security 
Co.,  122  N.  C.  463:  Martin  v.  South 
Salem  Land  Co.,  94  Va.  28.  See  Da- 
vis Bros.  13.  Montgomery,  etc.,  Co., 
101  Ala.  127.  But  cannot  garnishee 
a  shareholder  for  unpaid  subscrip- 
tions for  which  no  calls  have  been 
made.  Teague,  Barnett  &  Co.  v.  Le 
Grand,  85  Alabama,  493. 

2  See  §542.  A  creditor  cannot 
maintain  an  action  to  reach  a  debt 
due  to  the  corporation,  when  the 
corporation  is  in  the  hands  of  a  re- 
ceiver. First  Nat.  Bk.  v.  Dovetail, 
etc.,  Co.,  143  Ind.  534. 

8  §  655. 

'See  §§703,  517,  543. 

8Germantown  Passenger  Ry.  Co.  v. 
Fitler,  60  Pa.  St.  124;  Ward  e.  Gris- 
woldville  Mfg.  Co.,  16  Conn.  593,  601; 
Glenn  v.  Williams,  60  Md.  93;  Sco- 
ville  v.  Thayer,  105  U.  S.  143,  155; 
Salmon  v.  Hamborough  Co.,  1  (Eng.) 

661 


§  663.]  THE   LAW    OF    PRIVATE   CORPORATIONS.    [CHAP.  XI. 

§  662.  In  cases  of  urgent  necessity  where  the  corporation 

fails  to  protect  itself  from  threatened  wrongs,  it  is 

may  enjoin    competent  for  a  creditor,  when  the  wrong  if  accom- 

threatening  plished   would   injure    his   vested   rights,  to   enjoin 

tnecorpo-     ^e  wroncr.i     And,  under  such  circumstances,  it  would 

ration.  °  '  ' 

seem  that  the  principle  that  a  shareholder  cannot 
maintain  a  bill  in  equity  against  a  wrong-doer  to  prevent  an 
injury  to  the  corporation  unless  he  shows  that  the  corporation 
has  refused  to  take  measures  to  protect  itself,  does  not  apply 
to  a  bill  filed  in  good  faith  by  a  creditor.2 

§  663.  The  insolvency  of  a  corporation  so  long  as  it  con- 
tinues to  carry  on  its  business  in  an  honest  manner, 
Creditors  of  c|oes  not  under  all  circumstances  give  the  creditors 

an  insolvent 

corporation  an  absolute  right  to  the  appointment  of  a  receiver 
toareceiver  of  the  corporate  assets.3  Any  such  absolute  right 
of  cours"er  might  often  prove  very  oppressive,  and,  like  other 
peculiarly  equitable  remedies,  the  appointment  of  a 
receiver  is  usually  a  matter  within  the  discretion  of  the  court.4 
Thus,  according  to  a  Massachusetts  decision,  the  allegations 
that  a  corporation  is  insolvent,  that  all  its  property  is  mort- 
gaged to  trustees  for  the  benefit  of  one  class  of  creditors  ;  that 
it  owes  large  amounts  to  other  creditors,  one  of  which  has 
attached  its  property  ;  that  it  is  about  to  execute  a  lease  for 
nine  hundred  and  ninety-nine  years  to  said  attaching  creditor, 
will  not  sustain  a  bill  in  equity  brought  by  creditors  of  the 


Chan.  Cas.  204;  see  Ogilvie  v.  Knox 
Ins.  Co.,  2  Black,  539;  S.  C,  22  How. 
380;  Allen  v.  Montgomery  R.  R.  Co., 
11  Ala.  437;  Adler  v.  Milwaukee  Pat- 
ent Brick  Mfg.  Co.,  13  AVis.  57;  Dal- 
ton,  etc.,  R.  R.  Co.  v.  McDaniel,  56  Ga. 
191;  2  Lindley  on  Part.,  628;  com- 
pare Reg.  v.  Victoria  Park  Co.,  1 
Q.  B.  288.  Or  the  court  will  make 
the  call.  Marson  v.  Deither,  49  Minn. 
423. 

1  Newby  v.  Oregon  Central  R.  R. 
Co.,  Deady,  609. 

2  Lothrop   v.   Stedman,    42   Conn. 
583;  S.  C,  13  Blatchf.  141. 

8  See  Catlin  v.   Eagle  Bk.,  6  Conn. 
233;  Pondville  Co.  v.  Clarke,  25  Conn. 

662 


97;  Bishop  v.  Brainerd,  28  Conn.  289, 
301;  Hoyt  v.  Shelden,  3  Bosw.  (N. 
Y.)  267;  Curtis  v.  Leavitt,  15  N.  Y. 
10,  198;  Hollins  v.  Brierfield  Coal, 
etc.,  Co.,  150  U.  S.  371;  Falmouth 
Nat.  Bk.  v.  Canal  Co.,  160  Mass.  550. 
4  But  not  always;  see  Railroad  Co. 
v.  Soutter,  2  Wall.  510.  A  receiver 
canuot  be  appointed  ex  parte  in  a 
proceeding  (a  hill  in  ecmity)  brought 
by  a  creditor  to  wiud  up  an  insolvent 
corporation,  pending  the  decision 
on  a  demurrer  putting  in  issue  the 
creditor's  right  to  file  the  bill.  Cook 
v.  Detroit,  etc.,  R.  R.  Co.,  45  Mich. 
453. 


CHAP.  XI.]  CORPORATION  AND  CREDITORS. 


[§  664. 


corporation  to  enjoin  it  from  doing  business  and  for  the  ap- 
pointment of  receivers.1  But  a  judgment  creditor  is  entitled 
to  a  receiver  on  showing  that  there  is  danger  that  a  corpora- 
tion, admittedly  insolvent,  will  misappropriate  its  assets  to 
his  injury.2 

It  follows,  moreover,  since  it  is  only  to  protect  their  claims 
that  creditors  are  ever  entitled  to  interfere  in  the  corporate 
affairs,  that  they  can  object  to  no  action,  authorized  or  unau- 
thorized, on  the  part  of  the  corporate  management,  which  does 
not  injure  their  interests.  Thus,  a  court  of  equity  will  not, 
on  the  petition  of  a  general  creditor,  restrain  a  corporation 
from  converting  its  assets  into  money  by  a  sale  to  a  share- 
holder, when  no  shareholder  objects,  and  the  sale  is  honestly 
made  for  an  adequate  price,  with  intent  to  apply  the  proceeds 
pro  rata  to  the  payment  of  the  corporate  indebtedness.3 

§  664.    Accordingly,    a   creditor    cannot    prevent    the   dis- 
solution of  a  corporation.4     For   the   obligation   of 
contracts  entered  into  by  the  corporation  survives 
the  dissolution  ;  and  creditors  may  still  enforce  their 
claims  against  any  corporate  property  which  has  not 


Creditors 
cannot  pre- 
vent disso- 
lution ; 


1  Pond  v.  Framingham,  etc.,  R.  R. 
Co.,  130  Mass.  194.  Compare  Mer- 
chants', etc.,  Bank  v.  Trustees,  63  Ga. 
549.  Still  at  the  suit  of  a  judgment 
creditor  a  court  of  equity  has  power 
to  take  possession  of  the  property 
(a  bridge)  of  a  corporation,  and  ap- 
point a  receiver  to  collect  the  tolls 
and  pay  them  into  court,  for  the 
purpose  of  paying  the  judgment. 
Covington  Drawbridge  Co.  u.  Shep- 
herd, 21  How.  112.  A  creditor  may 
enforce  his  claims,  though  he  be 
also  a  shareholder.  Brinham  v.  Wel- 
lersburg  Coal  Co.,  47  Pa.  St.  43. 

2  Turnbull  v.  Prentiss  Lumber  Co., 
55  Mich.  387.  It  has  been  held  that 
in  the  case  of  a  corporation  which  is 
insolvent  and  which  has  been  aban- 
doned by  its  officers  and  directors,  a 
simple  contract  creditor  can  main- 
tain an  action  for  the  appointment 
of  a  receiver  and  the  administration 
of  its  assets.     Nunnally  v.  Strauss, 


94  Va.  255,  following  Finney  v.  Ben- 
nett, 27  Gratt.  305. 

3  Barr  v.  Bartram  M'f'g  Co.,  41 
Conn.  506.  Compare  Swepson  v. 
Bank,  9  Lea  (Tenn. ),  713.  A  general 
creditor  cannot  secure  the  appoint- 
ment of  a  receiver  in  an  action  to 
prevent  a  corporation  from  fraudu- 
lently disposing  of  its  property.  Int. 
Trust  Co.  v.  United  Coal  Co.,  27 
Colo.  246. 

4  Mum  ma  v.  Potomac  Co.,  8  Pet. 
2S1  ;  Smith  v.  Chesapeake,  etc., 
Canal  Co.,  14  Pet.  45;  Currant.  State, 
15  How.  310;  Mobile  R.  R.  Co.  v.  State, 
29  Ala.  586.  Neither  will  a  court 
forfeit  the  corporate  franchises  at 
the  suit  of  creditors,  although  acts 
constituting  a  ground  of  forfeiture 
have  been  done.  Gaylord  v.  Ft. 
Wayne,  etc.,  R.  R.  Co.,  6  Biss.  286. 
See  Cole  v.  Knickerbocker  Life  Ins. 
Co.,  23  Hun,  255. 

663 


§   665.]  THE    LAW    OP    I'UIVATE    CORPORATK  )NS.    [CHAP.  XI. 


passed  into  the  hands  of  bon  a  fide  purchasers.1  "A  corpora- 
tion, by  the  very  terms  and  nature  of  its  political  existence,  is 
subject  to  dissolution,  by  a  surrender  of  its  corporate  fran- 
chises and  by  a  forfeiture  of  them  for  wilful  misuser  and 
non-user.  Every  creditor  must  be  presumed  to  understand  the 
nature  and  incidents  of  such  a  body  politic,  and  to  contract 
with  reference  to  them.  And  it  would  be  a  doctrine  new  in 
the  law  that  the  existence  of  a  private  contract  of  the  corpora- 
tion should  force  upon  it  perpetuity  of  existence  contrary  to 
public  policy  and  the  nature  and  objects  of  its  charter."  2 
§  665.  Neither  can  creditors  prevent  the  alteration  or 
repeal  of  the  charter  of  a  corporation,3  as  under  such 
circumstances  the  capital  of  the  corporation  remains 
charged  with  their  equitable  liens.4  And  finally, 
creditors  cannot  prevent  a  consolidation  of  their 
debtor  corporation  with  another.  But  a  corporation 
cannot  compel  its  creditors  to  give  up  their  lien  on 
its  funds,  and  accept  in  lieu  thereof  the  personal  liability  of 
the  consolidated  cor] (oration.5  The  equitable  lien  of  the 
creditors   of   a   consolidating   corporation   survives,  and  they 


Nor  altera^ 
tiou  of 
charter; 
liDi-  consoli- 
dation. 
Survival  of 
creditors' 
lien. 


1  Mumnia  0.  Potomac  Co.,  8  Pet. 
281,  286;  Howe  v.  Robinson,  20  Fla. 
352.  See  Panhandle  Nat.  B'k  v. 
Emery,  78  Tex.  498.  But  it  has  been 
held  that  the  plaintiff  in  a  suit  in 
equity  may  enjoin  a  corporation,  de- 
fendant in  the  suit,  which  might  be 
held  liable  to  respond  pecuniarily  to 
the  plaintiff,  and  which  had  made 
one  attempt  to  procure  its  dissolu- 
tion, from  dissolving,  or  having  a 
receiver  appointed,  or  distributing 
its  assets  among  its  shareholders  or 
from  making  any  disposition  of  its 
property.  Fisk  v.  Union  Pacific  R. 
R.  Co.,  10  Blatchf.  518. 

2  Mumma  v.  Potomac  Co.,  8  Pet. 
281,  287,  opinion  of  the  court  per 
Story,  J. 

A  corporation,  composed  of  two 
other  corporations,  had  been  dis- 
solved after  the  recovery  of  a  judg- 
ment against  it.  By  the  dissolution, 
the  two  original  companies  resumed 

664 


their  corporate  existence.  It  was 
held  that  such  dissolution  did  not 
affect  the  rights  of  the  judgment 
creditor,  nor  the  validity  of  his  judg- 
ment; and  tbat  upon  notice  to  the 
two  companies  he  was  entitled  to  an 
execution  against  them.  Ketcham  v. 
Madison,  etc.,  R.  R.  Co.,  20  Ind.  2G0. 
8  Road  ij.  Frankfort  Bank,  23  Me. 
318.  See  Pennsylvania  College  Cases, 
13  Wall.  190,  218-220;  Lothrop  v. 
Stedman,  13  Blatchf.  184,  143.  As 
to  the  repeal  of  provisions  inserted 
in  a  charter  specially  for  the  benefit 
of  creditors,  see  Hawthorne  v.  Calef, 
2  Wall.  10,  and  §§  500,  501. 

4  See  cases  in  preceding  note. 

5  In  re  Manchester,  etc.,  Life  Ass. 
Ass'n,  L.  R.  9  Eq.  643;  In  re  Family 
Endowment  Society,  L.  R.  5  Cb.  118; 
Griffith's  Case,  L.  R.  6  Ch.  374;  In  re 
India,  etc.,  Life  Ass.  Co.,  L.  R.  7  Ch. 
G51.  Compare  Terhune  u.  Potts,  47 
N.  J.  L.  218.     See  §§  425-427. 


CHAP.  XI.]  CORPORATION  AND  CREDITORS. 


[§  ™6. 


may  obtain  satisfaction  from  its  property  after  the  same  has 
passed  to  the  consolidated  corporation.1  And  where  a  suit  is 
pending  against  a  corporation  at  the  time  of  its  consolidation, 
the  plaintiff  may  still  treat  it  as  having  a  separate  existence 
for  the  purpose  of  maintaining  his  action  against  it.2 

§  666.  The  consolidated  company  is  in  most  cases  held  to 
assume  a  personal  liability  for  the  obligations  of  the 
prior  corporations  whose  property  it  has  acquired,   coraoli-   ° 
and  of  which  it  may  be  regarded  as  the   result.3  juration!1" 
Accordingly,    an   action    at  law    may   be    brought 
against  the  consolidated  company  on  the  obligation  of  one  of 
the  prior   companies.4    "When,  however,  at   the  time  of  the 
consolidation,  a  suit  against  one  of  the  former  companies  is 


Still  it  has  been  held  that  after  a 
railroad  company  has  consolidated 
with  another  as  authorized  by  their 
charters,  and  confirmed  by  legisla- 
tion conferring  all  rights,  powers, 
and  privileges  belonging  to  either 
on  the  new  corporation,  liabilities 
of  either  of  the  old  companies  can 
be  enforced  only  against  the  new 
corporation.  Indianola  R.  R.  Co.  v. 
Fryer,  56  Tex.  609.  Compare  Hous- 
ton, etc.,  R.  R.  Co.  v.  Shirley,  54 
Tex.  125;  People  v.  Empire  Mut. 
Life  Ins.  Co.,  92  N.  Y.  105;  §  659. 

1  Powell  v.  North  Missouri  R.  R. 
Co.,  42  Mo.  63.  See  Hamilton  v. 
Railroad  Co.,  144  Pa.  St.  34.  Thus, 
of  course,  a  mortgage  lien  may  be 
enforced  against  property  covered 
by  it,  after  the  consolidation.  Eaton, 
etc.,  R.  R.  Co.  v.  Hunt,  20  Ind.  457. 
See  Racine,  etc.,  R.  R.  Co.  v.  Farmers1 
Loan  and  Trust  Co.,  49  111.  331. 
Likewise,  a  maritime  lien  on  a  ves- 
sel remains  after  the  consolidation 
of  the  corporation  owning  the  vessel. 
The  Key  City,  14  Wall.  653. 

2Shackleford  v.  Mississippi  Cen- 
tral R.  R.  Co.,  52  Miss.  159;  Balti- 
more  and  Susquehanna  R.  R.  Co.  v. 
Musselman,  2  Grant's  Cas.  (Pa.) 
348;  East  Tennessee,  etc.,  R.  R.  Co. 


v.  Evans,  6  Heisk.  (Tenn.)  607.  See 
Bruffet  v.  Gt.  Western  R.  R.  Co.,  25 
111.  353,  357. 

It  would  seem,  nevertheless,  that 
if — as  is  usually  the  case — the  con- 
solidation effects  a  dissolution  of 
the  former  corporations  (see  §421), 
some  change  or  substitution  of 
parties  would  be  necessary:  for  on 
dissolution  suits  against  a  corpora- 
tion eo  nomine  abate.  See  §  435,  and 
see  Indianola  R.  R.  Co.  v.  Fryer, 
supra. 

3  Indianapolis,  etc.,  R.  R.  Co.  v. 
Jones,  29  Ind.  465;  Columbus,  etc., 
R'yCo.  u.Powell,  40  Ind.  37;  Thomp- 
son v.  Abbott,  61  Mo.  176;  Miller  v. 
Lancaster,  5  Coldw.  (Tenn.)  451, 
520.  See  Houston,  etc.,  R.  R.  Co.  v. 
Shirley,  54  Tex.  125;  Warren  v. 
Mobile,  etc.,  R.  R.  Co.,  49  Ala.  582; 
§  425.  But  see  Shaw  v.  Norfolk 
County  R.  R.  Co.,  16  Gay,  407;  com- 
pare Chase  v.  Vanderbilt,  5  J.  &  S. 
(N.  Y.)334. 

This  is  frequently  provided  for 
by  the  statute  authorizing  the  con- 
solidation. See  Western  Union  R. 
R.  Co.  v.  Smith,  75  111.  496. 

4  Columbus,  etc.,  R'y  Co.  v.  Skid- 
more,  69  111.  566;  Langborne  v.  Ry. 
Co.,  91  Va.  369. 

665 


§  668.]  THE   LAW    OF   PRIVATE   CORPORATIONS.  [CHAP.  XI. 


pending,  the  consolidated  company  must  be  substituted  in  the 
action  or  in  some  way  properly  brought  into  court,  before  a 
judgment  against  it  can  be  taken.1 

§  667.  When  there  has  been  no  consolidation  of  a  debtor 
corporation  with  another,  the  creditors  of  the  former 
^rporation  w^  ^ave  n0  right  to  enforce  their  claims  personalty 
succeeding  against  the  latter  merely  because  it  has  acquired  the 
corporation,  assets  of  the  former,2  unless  the  succeeding  corpora- 
tion is  merely  a  continuance  of  the  old  one  or  a 
revival  of  it  under  a  new  charter.3  Moreover,  that  the  name, 
and  the  major  part  of  the  shareholders  and  officers,  of  the  old 
corporation  were  the  same  as  those  of  the  new,  does  not  estab- 
lish conclusively  that  the  latter  is  a  mere  continuance  of  the 
former.4  "  To  ascertain  whether  a  charter  creates  a  new 
corporation,  or  merely  continues  the  existence  of  an  old  one, 
we  must  look  to  its  terms,  and  give  them  a  construction  con- 
sistent with  the  legislative  intent  and  the  intent  of  the  corpo- 
rators." 5 

§  668.  To  allow  an  insolvent  corporation  to  make  an 
assignment  of  its  property,  giving  preferences  to  a 
portion  of  its  creditors  over  the  others,  is  unjust,  as 
well  as  utterly  repugnant  to  the  doctrine  that  cor- 
porate property  is  a  trust  fund,  on  the  credit  of  which  persons 
contract   with  the  corporation.     If  such  property  constitutes 


Insolvent 
assign- 
ments. 


1  Selma,  etc.,  R.  R.  Co.  v.  Harbin, 
40  Ga.  706.  Compare  Ketcham  v. 
Madison,  etc.,  R.  R.  Co.,  20Ind.  260. 

2  Bellows  v.  Hallowell,  etc.,  B'k,  2 
Mason,  31;  Wyman  v.  Same,  14  Mass. 
58;  Bruffett  v.  Gt.  Western  R.  R.  Co., 
25  111.  353.  See  §  415.  But  creditors 
may  under  some  circumstances  fol- 
low the  property  of  their  debtor  cor- 
poration.    See  §  657. 

3  Mayor,  etc.,  of  Colchester  v.  Sea- 
ber,  3  Burr.  1S66;  see  Broughton  v. 
Pensacola,  93  U.  S.  266;  Montgom- 
ery Web  Co.  v.  Dienelt,  133  Pa.  St. 
585 ;  and  §  657. 

Thus,  when  a  state  bank  is  reor- 
ganized iuto  a  national  bank,  under 
provisions  of  the  National  Banking 
Act,  the  national  bank  is  liable  for 

666 


I  the  obligations  of  the  state  bank. 
Coffey  v.  National  Bank,  46  Mo.  140. 
Compare  State  v.  National  Bank,  33 
Md.  75.  A  corporation  is  not  liable 
for  the  debts  of  a  firm,  though  the 
members  of  the  firm  constitute  the 
shareholders,  and  the  firm  assets 
have  been  transferred  to  the  corpo- 
ration. McLellan  v.  Detroit  File 
Works,  56  Mich.  579.  See  Georgia 
Co.  v.  Castleberry,  43  Ga.  187. 

4  See  cases  in  last  note  but  one. 

5  Story,  J.,  in  Bellows  v.  Hallowell 
B'k,  2  Mason,  31,  44.  See,  also,  Mil- 
ler v.  English,  21  N.  J.  Law,  317; 
People  v.  Marshall,  1  Gilman  (111.), 
672;  Goulding  v.  Clark,  34  N.  H. 
148. 


CHAP.  XI.]  CORPORATION  AND  CREDITORS. 


[§  668. 


such  a  fund,  it  is  clearly  held  in  trust  for  the  benefit  of  one 
creditor  just  as  much  as  another,1  and  to  prefer  one  creditor  to 
another  is  evidently  beyond  the  authority  of  the  trustee.  This 
view  is  well  supported  by  authority.2  Thus  a  deed  of  general 
assignment  to  trustees  to  procure  a  loan,  and  then  to  pay  certain 
debts  of  the  corporation  (a  bank),  and  then  others  pro  rata,  the 
trustees  receiving  large  salaries  for  their  services,  has  been  held 
void  as  against  a  non-consenting  creditor.3  Still  there  is  no 
doubt  that  an  insolvent  corporation,  unless  forbidden  by  stat- 
ute, may  make  a  valid  assignment  for  the  benefit  of  its  cred- 
itors;4 and  a  number  of  cases  have  held  that  an  insolvent 
corporation  may  make  such  an  assignment  with  preferences.5 


1  Dabney  v.  Bk.  of  S.  Caro.,  3  S.  C. 
124;  Cook  v.  Moody,  18  Wash.  114. 
This  doctrine  repudiated  in  Mis- 
souri. Schufeldt  v.  Smith,  131  Mo. 
280. 

2  Rouse  v.  Merchants'  Nat.  Bk.,  46 
Ohio  St.  493;  Lang  v.  Dougherty,  74 
Tex.  226;  Robins  v.  Embry,  1  Sm.  & 
M.  Ch.  (Miss.)  207,  258  et  seq.;  Bod- 
ley  v.  Goodrich,  7  How.  276;  Swep- 
son  v.  Bk.,  9  Lea  (Teun.),713;  Ford 
v.  Bank,  87  Wis.  363;  Biddle  Pur.  Co. 
v.  Steel  Co.,  16  Wash.  681;  Conno- 
ver  v.  Hull,  10  Wash.  673;  Compton  v. 
Schwabacher,  15  Wash.  306;  Trades- 
man Pub.  Co.  v.  Wheel  Co.,  95  Tenn. 
634;  Hardware  Co.  v.  Mfg.  Co.,  86 
Tex.  143;  Cook  v.  Moody,  18  Wash. 
114;  Van  Brocklin  v.  Queen  City 
Printing  Co.,  19  Wash.  552;  Stough 
v.  Ponca  Mills  Co.,  54  Neb.  500. 
(Court  in  part  relied  on  certain  stat- 
utes limiting  the  powers  of  corpora- 
tions and  those  given  them  in  ena- 
bling acts. )  A  creditor  cannot  secure 
any  advantage  by  attaching  the  funds 
of  an  insolvent  corporation  which  has 
ceased  to  do  business.  Shoe  Co.  v. 
Thompson,  89  Tex.  501 ;  Carriage  Co. 
v.  Grain  Co.,  ib.  511.  Semble  contra, 
Ballin  v.  Bank,  89  Wis.  278.  See  Ford 
v.  Hill,  92  Wis.    188;  Hightower  v. 


Mustian,  8  Ga.  506;  Marr  v.  Bk.  of 
West.  Tenn.,  4  Cold w.  (Tenn.)  471; 
Richards  v.  New  Hamp.  Ins.  Co.,  43 
N.  H.  263.  Certain  corporations,  as, 
e.  g.,  national  banks,  are  expressly 
forbidden  by  their  constitutions  to 
make  preferences  after  or  in  contem- 
plation of  insolvency.  U.  S.  Rev. 
Stat.,  §  5242. 

When  an  insolvent  national  bank 
is  making  illegal  preferential  pay- 
ments, a  court  will  appoint  a  receiver 
at  the  suit  of  a  depositor.  Irons  v. 
Manuf'rs  Nat.  Bk.,  6  Biss.  301.  A 
statute  forbidding  corporations  to 
make  assignments  in  contemplation 
of  insolvency  does  not  impose  on  the 
directors  the  duty  of  taking  active 
measures  to  see  that  no  creditor,  by 
superior  diligence  in  suing,  obtains  a 
preference  over  others.  The  statute 
calls  for  no  affirmative  action  on  the 
part  of  the  corporation,  nor  need  the 
insolvent  corporation  defend  a  suit 
against  itself  in  order  to  defeat  a 
preference.  Varnum  v.  Hart,  119 
N.  Y.  101.  See  French  v.  Andrews, 
145  N.  Y.  441;  Lopez  v.  Campbell, 
163  N.  Y.  340. 

3  Bodley  v.  Goodrich,  7  How.  276. 
Compare  Age-Herald  Co.  v.  Potter, 
109  Ala.  675. 


*  For  note  4  see  page  668. 


5  For  note  5  see  page  668. 

667 


§  C69.] 
§  669. 

Kelative 
rights  of 
creditors. 


THE   LAW   OF   PRIVATE  CORPORATIONS.  [CHAP.  XL 

A  court  of  equity,  however,  will  regard  the  relative 
rights  of  different  creditors,  and  will  restrain  one 
creditor  from  absorbing,  after  the  corporation  has 
become  insolvent,  its  available  assets  to  the  unjust 


4  Ardesco  Oil  Co.  v.  North  Am., 
etc.,  Co.,  66  Pa.  St.  375;  State  v. 
Bank  of  Md.,  6  Gill  &  J.  (Md.)  205; 
Union  Bk.  v.  Ellicott,  ib.  363;  Shock- 
ley  v.  Fisher,  75  Mo.  498;  Lionberger 
v.  Broadway  Sav'gs  Bk.,  10  Mo.  App. 
499;  Lamb  v.  Cecil,  25  W.  Va.  288; 
Chamberlain  v.  Bromberg,  83  Ala. 
576;  Kendall  v.  Bishop,  76  Mich. 
634;  Boynton  v.  Roe,  114  Mich.  401. 
The  board  of  directors  of  an  insol- 
vent corporation  may  make  the  as- 
signment.    See  §  225. 

5  Ringo  v.  Biscoe,  13  Ark.  563; 
Savings  Bk.  v.  Bates,  8  Conn.  505; 
Whitwell  v.  Warner,  20  Vt.  425;  Ar- 
thur v.  Commercial,  etc.,  Bk.,  17 
Miss.  394;  Wilkinson  v.  Bauerle,  41 
N.  J.  Eq.  635;  Vail  v.  Jameson,  41 
N.  J.  Eq.  648;  Warfield  v.  Marshall 
County  Canning  Co.,  72  Iowa,  666; 
Rolling  v.  Shaver  Wagon  Co.,  80 
Iowa,  380;  Pyles  t>.  Furniture  Co., 
30  W.  Va.  123;  Foster  v.  Mullanphy 
Planing  Mill  Co.,  92  Mo.  79;  Butler 
Paper  Co.  ».  Robbins,  151  111.  588; 
Worthen  v.  Griffith,  59  Ark.  562 
(preferences  are  now  forbidden  by 
statute  in  Arkansas);  Sells  v.  Gro- 
cery Co.,  72  Miss.  590;  Albergher  v. 
Bank,  123  Mo.  313.  See  Cat! in  v. 
Eagle  Bk.,  6  Conn.  233;  Plow  Co. 
v.  Rude,  60Kas.  145;  Ames  &  Frost 
v.  Heslet,  19  Mont.  188;  Wyeth,  H. 
&  M.  Co.  v.  James  Spencer  B.  Co., 
15  Utah,  110.  Compare  Hopkins  v. 
Gallatin  Turnpike  Company,  4  Hump. 
(Tenn.),  403;  Pope  v.  Brandon,  2 
Stew.  (Ala.)  401;  Coats  v.  Donnell, 
94  N.  Y.  168;  Bergen  v.  Fishing  Co., 
42  N.  J.  Eq.  397;  Bank  v.  Cot.  Mills, 
115  N.  C.  507;  Henderson  v.  Indiana 
T.  Co.,  143  Ind.  561;  Shaw  v.  Robin- 

668 


son,  50  Neb.  403;  Wallachs  v.  Same, 
ib.  469;  Campbell,  etc.,  Co.  v.  Mar- 
der,  ib.  283;  German  Nat.  Bank  v. 
First  Nat.  Bank,  55  Neb.  86;  Seeds 
Dry  Plate  Co.  v.  Heyn  Photo-Supply 
Co.,  57  Neb.  214;  Conway  v.  Smith 
Mercantile  Co.,  6  Wyo.  468. 

In  the  absence  of  lien  created  by 
contract,  or  rights  created  by  legal 
proceedings,  the  officers  of  a  corpo- 
ration may  exercise  a  reasonable  and 
proper  discretion  as  to  the  order  in 
which  debts  of  the  corporation  shall 
be  paid.  Newport,  etc.,  Bridge  Co. 
v.  Douglass,  12  Bush  (Ky.),  73.  An 
insolvent  corporation  has  a  right  to 
secure  one  creditor  in  preference  to 
another.  Glover  v.  Lee,  140  III.  102; 
Bank  v.  Salt  Co.,  90  Mich.  345 ;  Prouty 
v.  Prouty,  etc.,  Shoe  Co.,  155  Pa.  St. 
112.  But  after  a  judgment  creditor's 
bill  has  been  filed  the  officers  cannot 
go  on  converting  corporate  assets 
into  money  and  paying  creditors,  giv- 
ing preferences.  Turnbull  v.  Pren- 
tiss Lumber  Co.,  55  Mich.  387.  Com- 
pare Prentiss  v.  Nicholas,  100  U.  S. 
227. 

Proof  that  at  the  time  of  the  de- 
livery of  a  mortgage  by  a  corpora- 
tion, the  corporation  was  insolvent, 
as  a  matter  of  fact,  is  not  conclusive 
evidence  that  the  transfer  (mort- 
gage) was  made  "in  contemplation 
of  the  insolvency  of  such  company  " 
within  the  meaning  of  a  statute  (1 
N.  Y.  R.  S.,  603,  §  4)  declaring  such 
transfers  unlawful;  to  come  within 
the  prohibition  of  the  statute,  the 
act  must  have  been  induced  by  the 
existing  or  contemplated  insolvency 
of  the  company.  (The  creditor  in 
this  case  was  not  an  officer.)     Pauld- 


CHAP.  XI.]  CORPORATION  AND  CREDITORS. 


[§  670. 


exclusion  of  other  creditors.1  Thus,  the  property  of  a  national 
bank  attached  at  the  suit  of  a  creditor,  after  the  bank  has  be- 
come insolvent,  cannot  be  subjected  to  sale  for  the  payment  of 
a  demand,  as  against  the  claim  for  the  property  by  a  receiver 
of  the  corporation  subsequently  appointed.2  And  a  suit 
against  a  national  bank  to  collect  a  debt  is  abated  by  a  decree 
of  a  Federal  District  Court  dissolving  the  corporation  and  for- 
feiting its  franchises,  rendered  upon  an  information  against  the 
bank  tiled  by  the  comptroller  of  the  currency.3 

§  670.  A  person  who  is  a  debtor  to  the  corporation  on  one 
account  and  its  creditor  on  another,  may  ordinarily 
set  off  against  what  he  owes  the  corporation  the  debt 
which  the  corporation  owes  him.  Thus,  a  banker  who  was  a 
director  in  an  insurance  company,  can  set  off  against  its  de- 
mand for  money  deposited  with  him,  bearing  interest  and  pay- 
able on  call,  the  amount  due  on  its  policies  issued  to  and  held 
by  him.  And,  the  company  having  been  adjudged  bankrupt, 
his  right  to  such  a  set-off  is  equally  available  against  its  as- 
signee.4 But  a  shareholder  cannot  set  off  a  debt  owing  him 
from  the  corporation,  if  the  latter  is  insolvent,   against  his 


ing  v.  Chrome  Steel  Co.,  94  N.  Y. 
334.  See,  also,  Dutcher  v.  Importers 
and  Traders'  Bk.,  59  N.  Y.  5.  Com- 
pare Robinson  v.  Bk.  of  Attica,  21 
N.  Y.  406;  and  Haxtum  v.  Bishop,  3 
Wend.  13.  An  offer  to  allow  judg- 
ment to  be  entered  against  it  by  a 
corporation  is  a  transfer  of  its  prop- 
erty within  the  meaning  of  this  stat- 
ute. Kingsley  v.  First  National  Bk., 
31  Hun  (N.  Y.),  329.  As  to  the  rule 
when  the  preferred  creditors  are  also 
officers  of  the  corporation,  see  §§  759, 
760. 

iSee  Pfohl  v.  Simpson,  74  N.  Y. 
137;  Whittlesey  v.  Delaney,  73  N.  Y. 
571;  Turnbull  v.  Prentiss  Lumber 
Co.,  supra.     §  813. 

In  a  foreclosure  suit  a  court  of 
equity  will  prevent,  if  possible,  the 
sale  of  the  central  portion  of  a  rail- 
road which  would  leave  the  two  ends 


valueless.     Chicago,    Danville,    etc., 
R'y  Co.  v.  Loewenthal,  93  111.  533. 

2  National  Bank  v.  Colby,  21  Wall. 
609. 

3  National  Bank  v.  Colby,  supra. 
Compare  Bank  of  Bethel  v.  Pahquio- 
que  Bank,  14  Wall.  383.  Under  the 
National  Banking  Act,  a  creditor  of 
a  national  bank  who  establishes  his 
debt  by  suit  and  judgment  after 
refusal  of  the  comptroller  of  the 
currency  to  allow  it,  is  entitled  to 
share  in  dividends  on  his  debt  (and 
on  the  interest  then  due)  so  estab- 
lished as  of  the  day  of  the  failure  of 
the  bank;  and  not  upon  the  basis  of 
the  judgment,  if  the  judgment  in- 
cludes interest  subsequent  to  that 
date.  White  v.  Knox,  111  U.  S. 
784. 

4Scammon  v.  Kimball,  92  U.  S. 
362.  See  Scott  v.  Armstrong,  146 
U.  S.  499. 

669 


§  072.]      THE   LAW   OF   PRIVATE   CORPORATIONS.       [CHAP.  XI. 


Corporate 
property, 
when  ex- 
empt from 
execution. 


liability  for  unpaid  subscriptions.1  And  in  all  cases,  in  order 
to  entitle  a  debtor  of  the  corporation  to  set  off  a  claim  against 
it,  the  claim  must  have  been  acquired  before  the  assets  of  the 
corporation  have  come  under  the  control  of  a  court  of  equity.2 
§  671.  When  a  corporation  is  created  in  order  to  subserve 
some  public  purpose,  its  creditors  may  not  be  per- 
mitted, for  reasons  of  public  policy,  to  enforce  their 
rights  in  a  manner  that  would  render  the  corpora- 
tion incapable  of  fulfilling  its  public  duty.  Thus, 
a  corporate  franchise  to  take  tolls  on  a  canal  cannot  be  seized 
and  sold  under  an  execution,  unless  express  authority  to  that 
effect  exists  in  some  statute  of  the  state  granting  the  charter.3 
Neither  can  lands  or  works  essential  to  the  enjoyment  of  a 
franchise  be  separated  from  it,  and  sold  under  such  process.4 
But  lands  belonging  to  a  railroad  company,  which  are  not  used 
for  corporate  purposes,  nor  necessary  to  the  full  enjoyment  and 
exercise  of  the  corporate  franchises,  may  be  sold  on  execution 
against  the  corporation.5 

The  relations   between   a   corporation   and   certain   special 

classes  of  its  creditors  may  now  be  more  particularly  referred  to. 

§  672.  When  an  ordinary  deposit  is  received  by  a  bank  and 

placed  to  the  credit  of  the  depositor,  the  relation 

between  a     neither   of  principal  and  agent,  nor  of   bailor  and 


i See  §  729. 

2  Smith  v.  Mosby,  9  Heisk.  (Tenn.) 
501;  Lanier  v.  Gayoso  Savings  Inst., 
ib.  506.  See  §§810,  811.  When  a 
corporation  places  its  funds  in  the 
hands  of  its  general  manager  as 
trustee  for  safe-keeping  and  to  use 
in  the  affairs  of  the  corporation, 
such  trustee  cannot,  in  the  event 
of  the  corporation's  insolvency,  set 
off  a  debt  owing  him  from  the  cor- 
poration against  the  claim  of  its  as- 
signee for  creditors  for  such  moneys. 
First  National  Bank  v.  Barnum  Wire 
Works,  58  Mich.  124. 

8  Gue  v.  Tide  Water  Canal  Co.,  24 
How.  257.  See,  also,  State  v.  Rives, 
5    Ired.    L.    (N.    C.)   297;    State   v. 

670 


Middletown  Turnpike  Co.,  65  N.  J. 
L.  73. 

4  Gue  v.  Tide  Water  Canal  Co., 
supra  ;  East  Alabama  R'y  Co.  v. 
Doe,  114  U.  S.  340;  Youngman  v. 
Elmira,  etc.,  R.  R.  Co.,  65  Pa.  St. 
278;  Louisville,  N.  A.,  etc.,  R'y  Co. 
v.  Boney,  117  Ind.  501;  Overton 
Bridge  Co.  v.  Means,  33  Neb.  857. 
See  Bank  v.  Tanning  Co.,  170  Pa.  St. 
1.  See,  also,  in  regard  to  personal 
property  belonging  to  a  railroad, 
Philips  v.  Winslow,  18  B.  Mon.  (Ky.) 
431,  where  the  same  principle  was 
applied.     Compare  §  334. 

6  Plymouth  R.  R.  Co.  v.  Colwell,  39 
Pa.  St.  337.  See  Shamokiu  Valley 
R.  R.  Co.  v.  Livermore,  47  Pa.  St. 
465. 


CHAP.  XT.]  CORPORATION  AND  CREDITORS. 


[§  672. 


bailee  is  created,  but  that  of  debtor  and  creditor.1  bank  and 

,  depositors. 

Consequently  the  bank  has  the  right  to  apply  the 
money  to  the  payment  of  any  legal  demand  it  may  have  at  the 
time  against  the  depositor ;  and,  on  the  other  hand,  will  be 
liable  to  the  depositor  for  any  loss  of  the  money,  although 
occurring  without  any  fault  on  the  part  of  the  bank  or  its 
servants.2  When,  however,  a  person  deposits  drafts  in  a  bank 
known  at  the  time  to  its  managers  to  be  insolvent,  receiving 
the  deposit  is  a  fraud  on  the  depositor,  and  he  may  reclaim 
the  drafts  or  their  proceeds,  so  long  as  they  have  not  come 
into  the  hands  of  bona  fide  holders  for  value ;  thus  rescinding 
what  would  otherwise  have  been  the  ordinary  contract  between 
a  depositor  and  the  bank,  i  e.,  that  the  bank  should  become 
the  owner  of  the  drafts  and  debtor  for  their  equivalent.3 
There  is  no  special  trust  relation  between  a  bank  and  its  de- 
positors. But  the  bank  is  bound  to  know  their  signatures,  and 
is  liable  to  them  for  all  moneys  paid  out  on  forged  checks ; 4 


i  Phoenix  Bank  v.  Risley,  111  U. 
S.  125;  Davis  v.  Smith,  29  Minn.  201; 
Hardy  v.  Chesapeake  Bank,  51  Md. 
562;  Ward  v.  Johnson,  5  111.  App. 
30;  Perth  Amboy  G.  L.  Co.  v.  Middle- 
sex Co.  Bank,  60  N.  J.  Eq.  84; 
Ilarter  v.  Mechanics  Nat.  B'k,  63  N. 
J.  L.  578;  Colton  v.  Drovers  Bldg. 
Assn.,  90  Md.  85;  Taft  v.  Quinsi- 
gamond  Nat.  Bk.,  172  Mass.  363; 
Pacific  Coast  Sav.  Soc.  v.  San  Fran- 
cisco, 133  Cal.  14;  and  cases  in  fol- 
lowing notes.  Depositors  in  savings 
banks  stand  in  the  same  relation  to 
the  assets  of  the  bank  as  share- 
holders in  banks  of  discount.  Cogs- 
well v.  Rockingham  Ten  Cents  SVgs 
B'k,  59  N.  H.  43;  Hallu.  Paris,  ib.  71. 

2  Commercial  Bank  v.  Hughes,  17 
Wend.  94;  Marsh  v.  Oneida  Central 
Bank,  34  Barb.  298;  ^Etna  Nat.  B'k 
v.  Fourth  Nat.  B'k,  46  N.  Y.  82; 
Boy  den  v.  B'k  of  Cape  Fear,  65  N.  C. 
13;  In  re  B'k  of  Madison,  5  Biss. 
515;  Knecht  v.  United  States  S'v'gs 
Ins'n,  2  Mo.  App.  563. 

But  a  bank  when  sued  by  a  depos- 


itor for  his  deposit  cannot  show  that 
the  deposit  really  belonged  to  third 
persons  indebted  to  the  bank,  and 
set  off  its  claim  against  them.  First 
Nat.  B'k  v.  Mason,  95  Pa.  St.  113. 
Compare  Swartwout  v.  Mechanics' 
Bank,  5  Denio,  555.  Nor  can  a  bank 
hold  the  balance  of  a  customer's 
deposit,  to  apply  it  on  his  indebted- 
ness to  the  bank  not  yet  matured. 
Jordan  v.  Nat.  Shoe  and  Leather 
B'k,  74  N.  Y.  467. 

3Cragie  v.  Hadley,  99  N.  Y.  131; 
Perth  Amboy  G.  L.  Co.  v.  Middlesex 
Co.  Bank,  60  N.  J.  Eq.  84;  Higgins 
v.  Hayden,  53  Neb.  61. 

4  Leavitt  v.  Stanton,  Lalor  (N.  Y. ), 
413;  Morgan  v.  Bank  of  the  State  of 
New  York,  11  N.  Y.  404;  Weisser  i>. 
Denison,  10  N.  Y.  68;  Commercial 
and  Farmers'  Nat.  B'k  v.  First  Nat. 
B'k,  30  Md.  11;  Harter  v.  Mechanics' 
B'k,  63  N.  J.  L.  578;  First  Nat.  B'k 
of  Belmont  v.  First  Nat.  B'k  of 
Barnesville,  58  Oh.  St.  207.  Com- 
pare Neal  v.  Coburn,  92  Me.  139. 
That  the  forger  is  the  confidential 

671 


§  673.]  THE   LAW   OF   PRIVATE   CORPORATIONS.    [CHAP.  XI. 


while  the  depositor  is  under  no  duty  to  the  bank  to  examine 
his  pass  book  and  vouchers  for  the  purpose  of  detecting  for- 
geries.1 

In  defending  the  interests  of  a  depositor  against  a  third 
person  claiming  the  deposit,  the  bank  will  not  be  liable  for 
neglect  of  its  duty,  if  it  takes  reasonable  legal  measures  in 
defence,  and  notifies  the  depositor  of  the  suit.  Under  such 
circumstances  it  is  not  incumbent  on  the  bank  to  make  a  stren- 
uous defence  or  try  to  put  the  case  off.2 

§  673.  The  facts  of  a  carefully  considered  case  decided  not 
Lien  of  long  ago  in  the  Federal  Supreme  Court  were  as 
bank.  follows:3  A  bank  account  was  opened  in  the  name 

of  a  depositor  known  to  the  bank  to  be  the  general  agent 
of  an  insurance  company,  and  whose  chief  business,  as  the 
bank  also  knew,  was  to  conduct  the  insurance  agency. 
The  words  "  gen'l  ag't "  were  attached  to  the  depositor's  name 
in  the  account.  The  bank  further  knew  that  the  account  was 
opened  to  facilitate  the  business  of  the  agency,  and  was  used 
by  the  depositor  as  a  means  of  accumulating  premiums  col- 
lected by  him  for  the  company,  and  making  payments  to  it  by 
checks.  It  was  held  that  the  bank  was  chargeable  with  notice 
of  the  equitable  rights  of  the  insurance  company,  although  the 
depositor  had  deposited  other  moneys  in  the  same  account,  and 
had  drawn  checks  against  it  for  his  private  use  ;  and  that  the 
company  might  enforce  in  equity  its  beneficial  ownership 
against  the  bank,  which  on  its  side  set  up  a  lieu  on  the  fund 
for  a  debt  due  from  the  depositor  individually  to  it.     Justice 


clerk  of  the  depositor  is  no  defence, 
if  the  latter  has  himself  done  noth- 
ing to  lead  the  bank  to  suppose  the 
check  authentic.  Frank  v.  Chemical 
Nat.  B'k,  84  N.  Y.  209;  Hardy  v. 
Chesapeake  Bank,  51  Md.  562.  Com- 
pare U.  S.  Bank  v.  Bank  of  Georgia, 
10  Wheat.  333;  Dedham  Nat.  B'k  r. 
Everett  Nat.  B'k,  177  Mass.  392.  A 
bank  is  liable  for  money  paid  on 
altered  checks.  Crawford  ».  West 
Side  B'k,  100  N.  Y.  50. 

1  Welsh      v.    German     American 
Bank,  73   N.    Y.    424;   see  Frank  v. 
Chemical  Nat.   Bank,  84  N.   Y.  209; 
672 


contra,  Myers  v.  Bank,  193  Pa.  St.  1. 
As  to  the  liability  of  savings  banks 
for  moneys  paid  out  on  forged 
checks  or  orders,  see  §§  199,  245. 
The  statute  of  limitations  does  not 
run  against  the  claim  of  a  depositor 
until  demand  and  refusal.  Branch 
v.  Dawson,  33  Minn.  399.  See  Viets 
v.  Union  National  Bank,  101  N.  Y. 
563. 

2  Detroit  Savings  Bank  v.  Burrows, 
34  Mich.  153. 

3  National  Bauk  v.  Insurance  Co., 
104  U.  S.  54. 


CHAP.  XI.]  CORPORATION  AND  CREDITORS.  [§  674. 

Matthews  said,  giving  the  opinion  of  the  court :  "  The  contract 
between  a  bank  and  a  depositor  is  that  the  former  will  pay- 
according  to  the  checks  of  the  latter,  and  when  drawn  in 
proper  form,  the  bank  is  bound  to  presume  that  the  trustee  (if 
such  it  knows  its  depositor  to  be)  is  in  the  course  of  lawfully 
performing  his  duty,  and  to  honor  them  accordingly.  But 
when  against  a  bank  account,  designated  as  one  kept  by  the 
depositor  in  a  fiduciary  character,  the  bank  seeks  to  assert  its 
lien  as  a  banker  for  a  personal  obligation  of  the  depositor, 
known  to  have  been  contracted  for  his  private  benefit,  it  must 
be  held  as  having  notice  that  the  fund  represented  by  the 
account  is  not  the  individual  property  of  the  depositor,  if  it  is 
shown  to  consist,  in  whole  or  in  part,  of  funds  held  by  him  in 
a  trust  relation."1  .... 

"  Although  the  relation  between  a  bank  and  its  depositor  is 
that  merely  of  debtor  and  creditor,  and  the  balance  due  on 
the  account  is  only  a  debt,  yet  the  question  is  always  open,  to 
whom  in  equity  does  it  beneficially  belong  ?  If  the  money 
deposited  belongs  to  a  third  person,  and  was  held  by  the 
depositor  in  a  fiduciary  capacity,  its  character  is  not  changed 
by  being  placed  to  his  credit  in  his  bank  account." 2 

.  .  .  .  "  Ordinarily  the  banker's  lien  attaches  in  favor  of  the 
bank  upon  the  securities  and  moneys  of  the  customer  deposited 
in  the  usual  course  of  business,  for  advances  which  are  sup- 
posed to  be  made  upon  their  credit.  It  attaches  to  such 
securities  and  funds  not  only  against  the  depositor,  but  against 
the  unknown  equities  of  all  others  in  interest,  unless  modified 
or  waived  by  some  agreement,  express  or  implied,  or  by  con- 
duct inconsistent  with  its  assertion.  But  it  cannot  be  permitted 
to  prevail  against  the  equity  of  the  beneficial  owner,  of  which 
the  bank  has  notice,  either  actual  or  constructive."  3 

§  674.  Of  special  classes  of  corporate  creditors,  bondholders 
constitute  the  most  important.     Their  rights  for  the 
most  part  depend  on  the  terms  of  the  trust  deed  or   ^s.n(ho 
mortgage  usually  made  by  the  corporation  to  secure 
the  payment  of  the  bonds.4     With  notice  of  the  terms  of  this 

1  National  Bank  v.  Insurance  Co.,  I  104  U.  S.  71.  See,  also,  Bank  of  Me- 
104  U.  S.  64.  tropolis  v.    New    England    Bank,    1 

3  lb.  66.  How.  234. 

8  National    Bank  v.  Insurance  Co.,  I      4  A  law  depriving  mortgage   cred- 

43  673 


§  076.]  THE   LAW   OF   PRIVATE   CORPORATIONS.    [CHAP.  XI. 


instrument  bondholders  are  of  course  affected ;  and  by  express 
stipulation  often  it  is  made  a  part  of  the  bonds  themselves. 
Should,  however,  provisions  in  the  mortgage  or  trust  deed  be 
inconsistent  with  those  contained  in  the  bonds,  the  terms  of 
the  latter  control,  since  the  bonds  constitute  the  principal  debt 
or  the  best  evidence  of  the  corporate  obligation,  for  the  pay- 
ment of  which  debt  or  obligation  the  trust  deed  or  mortgage  is 
but  a  security.1 
§  675.  In  order  that  bonds  should  constitute  a  lien  on  the 
property  of  a  corporation,  it  is  not  necessar}^  that  a 
mortgages,  formal  mortgage  should  be  given  (though,  of  course, 
under  the  various  recording  acts,  a  mortgage  or 
trust  deed  duly  executed  and  recorded  is  essential  to  the 
security  of  bondholders) ;  for  it  has  been  held  that  bonds 
issued  by  a  corporation  pledging  its  real  and  personal  property 
for  the  pa}Tment  of  the  debt  and  interest,  and  containing  other 
corresponding  stipulations,  will  be  treated  by  a  court  of  equity 
as  a  mortgage,  and  enforced  according  to  the  intention  of  the 
contracting  parties.2 

§  676.  As  against  a  railroad  company  and  its  privies,  a 
railroad  mortgage,  although  given  before  the  road 
is  completed,  attaches  to  the  road  as  fast  as  built, 
and  to  all  property  covered  by  the  terms  of  the 
mortgage  as  such  property  comes  into  the  owner- 
ship of  the  railroad  company.3    And  thus  a  mortgage  by  a 

tion.  White  Mountains  R.  R.  Co. 
v.  White  Mountains  R.  R.  Co.,  50 
N.  H.  50. 

1  Railway  Co.  v.  Sprague,  103  U. 
S.  756. 

2  White  Water  Valley  Canal  Co. 
v.  Vallette,  21  How.  414.  See,  also, 
Miller  v.  Rutland,  etc.,  R.  R.  Co., 
36  Vt.  452;  In  re  Strand  Music 
Hall  Co.,  3  I)e  G.,  J.  &  S.  147,  158; 
Ketchum  v.  Pacific  R.  R.  Co.,  4  Dill. 
78,  86.  Compare  Dillon  v.  Barnard, 
1  Holmes,  386;  Brunswick  and  Q. 
R.  R.  Co.  v.  Hughes,  52  Ga.  557; 
Thomas  v.  N.  Y.  &  G.  L.  R.  Co.,  139 
N".  Y.  163;  Hamilton  Trust  Co.  v. 
Clemes,  163  N.  Y.  423. 

3  Galveston  Railroad  v.  Cowdrey, 


Railroad 
mortgages 
Rolling 
stock. 


itors  of  their  rights  against  the  cor- 
poration would  impair  the  obligation 
of  a  contract.  Montgomery,  etc.,  R. 
R.  Co.  v.  Branch,  59  Ala.  139.  But 
the  legislature  may  constitutionally 
pass  a  law  providing  that  unless  a 
creditor  of  an  embarrassed  corpora- 
tion expresses  his  dissent  from  meas- 
ures deemed  essential  to  the  common 
welfare  of  the  corporation  and  its 
creditors,  he  shall  be  held  to  have 
assented  to  them.  Union  Canal  Co. 
v.  Gilfillin,  93  Pa.  St.  95;  S.  C, 
aff'd,  109  U.  S.  401.  Compare,  also, 
Baltimore  v.  Baltimore  Railroad,  10 
Wall.  543.  But  a  legislature  cannot 
confirm  a  fraudulent  sale  of  the 
mortgaged    property  of  a  corpora- 

674 


CHAP.  XI.]  CORPORATION  AND  CREDITORS. 


[§  676. 


railroad  company,  which  in  terras  covers  "  all  the  following, 
present,  and  future  to  be  acquired  property,"  mentioning 
engines,  cars,  and  machinery,  carries  not  only  engines  and 
cars  that  existed  when  the  mortgage  was  made,  but  also  such 
as  subsequently  take  their  place  or  are  added  by  the  time  of 
the  foreclosure.1  Moreover,  a  railroad  company  owning  the 
whole  of  a  long  railroad  and  all  the  rolling  stock  upon  it,  may 
assign  particular  portions  of  the  rolling  stock  to  particular 
divisions  of  the  road,  and  mortgage  such  portions  with  such 
divisions  respectively.  Whether  the  company  has  mortgaged 
its  rolling  stock  in  this  manner,  is  a  question  of  intention.2 


11  Wall.  459;  Thompson  v.  Valley 
R.  R.  Co.,  132  U.  S.  68;  Phila.,  Wil. 
and  Balto.  R.  R.  Co.  v.  Woelpper, 
64  Pa.  St.  366.  See  Pierce  v.  Emery, 
32  N.  H.  484;  compare  Dinsmore  v. 
Racine,  etc.,  R.  R.  Co.,  12  Wis.  649. 
See  §  817.  But  see  Henshaw  v. 
Bank  of  Bellows  Falls,  10  Gray 
(Mass.),  568;  Howe  v.  Freeman,  14 
Gray  (Mass.),  566;  Mississippi  Val- 
ley Co.  v.  Chicago,  etc.,  R.  R.  Co., 
58  Miss.  896;  Reed  v.  Ginsburg,  64 
Oh.  St.  11.  Seems  special  author- 
ity is  not  necessary  to  enable  a  rail- 
road company  to  include  in  a  mort- 
gage after-acquired  property.  City 
of  Quincy  v.  Chicago,  B.  and  Q.  R.  R. 
Co.,  94  111.  537. 

iShawr.  Bill,  95  U.  S.  10;  Ham- 
lin v.  Jerrard,  72  Me.  62. 

It  is  held  that  mortgages  of  future 
acquired  property  are  to  be  liberally 
construed.  Little  Rock,  etc.,  R'y 
Co.  v.  Page,  35  Ark.  304.  See  State 
v.  Northern  Central  Ry.  Co.,  18  Md. 
193.  "  After-acquired  clause  "  covers 
equitable  rights  and  interests  subse- 
quently acquired  by  or  for  the  rail- 
road company.  Wade  v.  Chicago, 
S.,  etc.,  R.  R.,  149  U.  S.  327;  Cen- 
tral Trust  Co.  v.  Kneeland,  138  U.  S. 
414.  Brady  v.  Johnson,  75  Md. 
445.  But  the  enumeration  of  cer- 
tain classes  of  "  property "  may 
exclude  other  "property"  not  men- 


tioned. Thus  a  railroad  company 
mortgaged  its  then  and  after  to  be 
acquired  "  property,  that  is  to  say," 
and  then  described  various  species 
of  property  mortgaged.  It  was 
held  that  certain  municipal  bonds 
issued  to  aid  in  building  the  road, 
and  not  embraced  in  the  enumeration 
of  articles  mortgaged,  did  not  pass 
by  the  use  of  the  general  word 
"property."  Smith  v.  McCullongh, 
104  U.  S.  25.  See,  also,  Brainerd  v. 
Peck,  34  Vt.  496;  Alabama  v.  Monta- 
gue, 117  U.  S.  602.  Compare  Wilson 
v.  Boyce,  92  U.  S.  320;  Eldridge  v. 
Smith,  34  Vt.  384. 

It  has  also  been  held  that  a  rail- 
road corporation  cannot  include  in 
a  mortgage  of  future  to  be  acquired 
property,  land  which,  at  the  time  of 
the  mortgage,  it  had  no  authority 
to  acquire.  Meyer  ».  Johnston,  53 
Ala.  237,  331. 

2  Minnesota  Co.  v.  St.  Paul  Co.,  2 
Wall.  609;  S.  C,  6  Wall.  742.  A 
mortgage  by  a  railroad  company  of 
"  all  present  and  future  to  be  ac- 
quired property  of  the  company,  in- 
cluding the  right  of  way  and  land 
occupied,  and  all  rails  and  other 
materials  used  thereon  or  procured 
therefor,"  includes  rolling  stock. 
Pullan  v.  Cincinnati,  etc.,  Air-Line 
R.  R.  Co.,  4  Biss.  35. 

In  Illinois,  rolling  stock  is  held  to 

675 


§  679.]  THE  LAW   OF   PRIVATE   CORPORATIONS.    [CHAP.  XI. 


Invalid 
provisions 
in  corpo- 
rate secu- 
rities. 


§  677.  Terms  in  securities  issued  by  a  railroad  or  other 
corporation  repugnant  to  the  legislative  provisions 
authorizing  the  security  are  void.  Thus,  a  railroad 
corporation  issued  its  bonds,  and  mortgaged  its  prop- 
erty to  secure  the  payment  of  them,  and  of  the 
semi-annual  instalments  of  interest  thereon,  as  the  same  should 
successively  fall  due.  The  statute  authorizing  the  mortgage 
declared  that  the  bonds  should  not  mature  at  an  earlier  period 
than  thirty  years.  In  consequence,  a  provision  in  the  bonds 
that,  upon  a  failure  to  pay  any  coupon,  when  presented  at  the 
place  of  payment,  and  a  continued  default  for  six  months,  the 
whole  sum  mentioned  in  the  bond  should  become  due  and  pay- 
able, was  held  void.1 

§  678.  But,  although  the  securities  may  contain  forbidden 
or  unauthorized  provisions,  courts  will  refrain  from 
vacate  the  holding  void  the  securities  themselves.2  Thus,  a 
securities,  corporation  cannot  refuse  to  pay  its  bonds  on  the 
ground  that  they  contain  an  unauthorized  provision  to  the 
effect  that  they  may  be  converted  into  stock  at  the  option  of 
the  holder.3 

§  679.  Bonds  of  a  corporation  issued  payable  to  order  or  to 
bearer  are  negotiable.4     And  the  negotiable  quality 

Corporate  °  ■ ;  °  ^    .  .  J 

bonds  ne-      of    such   a    bond   is   not   impaired    by   a   provision 
go  ia  e.       contained  in  the  bond,  that  it  may  be  "  registered 


be  a  part  of  the  realty,  so  as  to  pass 
by  a  conveyance  or  mortgage  of  the 
road.  Michigan  Cent.  R.  R.  Co.  v. 
Chicago  and  M.  Lake  Shore  R.  R. 
Co.,  1  111.  App.  399;  Palmer  v.  Forbes, 
23  111.  301;  Hunt  v.  Bullock,  ib.  320; 
Titus  v.  Mabee,  25  111.  257;  Titus  v. 
Ginheimer,  27  111.  462.  This  is  not 
the  doctrine  of  other  states.  William- 
son v.  N.  J.  Southern  R.  R.  Co., 
29  N.  J.  Eq.  311,  reversing  S.  C, 
28  N.  J.  Eq.  277;  Hoyle  v.  Pitts- 
burgh, etc.,  R.  R.  Co.,  54  N.  Y.  314; 
Coe  v.  Columbus,  etc.,  R.  R.  Co.,  10 
Ohio  St.  237;  see  Boston,  Concord, 
etc.,  R.  R.  Co.  v.  Gilmore,  37  N.  H. 
410. 

1  Howell  v.  Western  R.  R.  Co.,  94 
U.  S.  463. 
676 


2  See  Howell  v.  Western  R.  R. 
Co.,  supra ;  Carpenter  «.  Black  Hawk 
Gold  Mg.  Co.,  65  N.  Y.  43.  That 
some  invalid  bouds  have  been  issued, 
does  not  affect  the  validity  of  the 
mortgage  as  a  security  for  the  other 
bonds.  Graham  v.  Boston,  etc.,  R. 
R.  Co.,  118  U.  S.  162;  cf.  International 
Trust  Co.  v.  Davis  &  Farnum  Co., 
70  N.  H.  118.  A  Wisconsin  statute 
expressly  makes  void  bonds  of  cor- 
porations issued  for  less  than  seventy- 
five  per  cent,  of  the  face  value.  See 
Pfister  v.  Milwaukee  Electric  R.  Co., 
83  Wis.  86;  Hinckley  v.  Pfister,  ib.  64. 

8  Wood  v.  Wheelen,  93  111.  153. 
Compare  Sturges  v.  Stetson,  1  Biss. 
246. 

4  Kneelaud  v.  Lawrence,  140  U.  S. 


CHAP.  XI.]  CORPORATION  AND  CREDITORS. 


[§  680. 


and  made  payable  by  transfer  only  on  the  books  of  the  com- 
pany." l  Accordingly,  the  rights  of  a  purchaser  in  good  faith 
are  not  impaired  by  equities  affecting  the  title  of  his  vendor.2 
§  680.  Overdue  and  unpaid  interest  coupons  do  not  of  them- 
selves make  the  bond  to  which  they  are  attached  dis- 
honored paper.3  When  severed  from  the  bond, 
coupons  are  negotiable  and  pass  by  delivery.4  They  then  cease 
to  be  incidents  of  the  bonds  and  become  independent  claims. 
Consequently,  if  the  bonds  are  cancelled  or  paid  before  ma- 
turity, the  severed  coupons  do  not  thereby  lose  their  negotiable 
character,  nor  their  ability  to  support  separate  actions,  and  the 
amount  of  their  face  draws  interest  from  the  time  when  it  is 


209;  White  v.  Vermont,  etc.,  R.  R. 
Co.,  21  How.  575;  Carr  v.  Lefevre, 
27  Pa.  St.  413;  Mason  v.  Prick,  105 
Pa.  St.  162  ;  Haven  i\  Grand  Junc- 
tion R.  R.  Co.,  109  Mass.  88;  Morris 
Canal,  etc.,  Co.  v.  Fisher,  9  N.  J.  Eq. 
667;  Brainard  v.  New  York  and  Har- 
lem R.  R.  Co.,  25  N.  Y.  496;  American 
Nat.  B'k  v.  American  Wood  Paper 
Co.,  19  R.  I.  149;  Hebbard  r.  So. 
West.  Land  &  Cattle  Co.,  55  N.  J. 
Eq.  18;  see§  326.  Compare  Railroad 
Co.  v.  Howard,  7  Wall.  392. 

1  Savannah,  etc..  R.  R.  Co.  c.  Lan- 
caster, 62  Ala.  555.  But  bonds  con- 
taining a  provision  whereby  the  com- 
pany reserves  the  right  to  pay  them 
off  at  any  time  by  adding  twenty  per 
cent,  to  the  amount  of  the  principal 
are  not  negotiable.  Chouteau  v. 
Allen,  70  Mo.  290,  339;  see,  also,  Mc- 
Clelland v.  Norfolk  Southern  R.  R. 
Co.,  110  N.  T.  469. 

2  Kneeland  v.  Lawrence,  140  U.  S. 
209;  Murray  v.  Lardner,  2  Wall.  110. 
The  doctrine  of  applied  notice  of  a 
lis  pendens  does  not  apply  to  nego- 
tiable bonds.  See  §  327,  also  Ex  parte 
Williams,  18  S.  C.  299.  As  to  effect 
of  notice  to  a  trustee  for  bondholders, 
see  §  814. 

A  corporation  is  not  liable  on  its 
bonds,  which  are  stolen  before  the 


I  certificate  of  the  trustee  or  the  com- 
pany's seal  is  affixed,  to  an  innocent 
holder;  the  certificate  and  seal  hav- 
ing been  forged  after  the  theft.  Maas 
v.  Missouri,  K.  and  T.  R'y  Co.,  83  N. 
Y.  223. 

3  Railway  Co.  v.  Sprague,  103  U. 
S.  756;  Cromwell  v.  County  of  Sac, 
96  U.  S.  51;  Buffalo  L..  T.  &  S.  D. 
Co.  v.  Medina  Gas  Co.,  162  N.  Y.  67. 
See  National  Bank  v.  Kirby,  108 
Mass.  497.  But  see  First  Nat.  Bank 
v.  County  Commissioners,  14  Minn. 
77;  Morton  v.  New  Orleans,  etc., 
Ry.  Co.,  79  Ala.  590;  see,  also,  §  326. 

4  The  title  to  interest  coupons 
passes  by  delivery.  A  transfer  of 
possession  is  presumptively  a  trans- 
fer of  title.  Especially  is  this  so 
when  the  transfer  is  made  to  one 
who  is  not  the  debtor  and  is  under 
no  obligation  to  receive  or  pay  them. 
But  cutting  oft  coupons  when  due 
and  transferring  them  to  other  hold- 
ers gives  to  such  holders  no  priority 
of  right  over  the  holders  of  the  bonds 
from  which  the  coupons  have  been 
cut,  nor  over  the  subsequently  ma- 
turing coupons.  Ketchum  v.  Dun- 
can, 96  U.  S.  657;  cf.  Holland  Trust 
Co.  v.  Thompson-Houston  Elec.  Co., 
170  N.  Y.  233. 

677 


§  682.]  THE   LAW   OF   PRIVATE   CORPORATIONS.    [CHAP.  XI. 

payable.  Statutes  of  limitation  run  against  coupons,  when 
severed,  from  their  maturity.1 

§  681.  The  holders  of  coupons  guaranteed  by  a  corporation 
Ri  htsof  naying  general  powers  to  make  the  guaranty,  are 
bond-  not  bound  to  see  to  the  regularity  of  the  exercise  of 

that  power.2  And  the  fact  that  coupons  are  made 
payable  at  a  particular  place  does  not  make  a  presentation 
there  for  payment  necessary,  before  commencing  suit  on  them.3 
A  corporation  issuing  a  coupon  bond  is  in  the  position  of  the 
maker  of  a  promissory  note,  rather  than  in  that  of  the  drawer 
of  a  bill  of  exchange ;  and  the  holder  is  under  no  obligation  to 
present  the  bond  or  the  coupons  for  payment  within  a  reason- 
able time.4 

§  682.  In  a  case  recently  before  the  Supreme  Court  of  the 
Remedies  United  States,  a  railroad  mortgage  provided  that  if 
of  bond-        "default   should  be  made  in  the  payment  of  any 

holders.  l     J  J 

half-year's  interest  on  any  of  said  bonds,  and  the 
warrant  or  coupon  for  such  interest  shall  have  been  presented 
and  its  payment  demanded,  and  such  default  shall  have  con- 
tinued six  months  after  such  demand,  without  the  consent  of 
the  holder  of  such  coupon  or  bond,  then  and  thereupon  the 
principal  of  all  of  the  said  bonds  hereby  secured  shall  be  and 
become  immediately  due  and  payable,  anything  in  such  bonds 
to  the  contrary  notwithstanding ;  and  the  said  [trustee]  may 
so  declare  the  same  and  notify  [the  railroad  company],  and 
upon  the  written  request  of  the  holders  of  a  majority  of  the 
said  bonds  then  outstanding,  shall  proceed  to  collect  both  prin- 
cipal and  interest  of  all  such  bonds  outstanding  by  foreclosure. 
.  .  .  . "     It  was  held  that  the  written  request  of  a  majority  of 

1  Clark  v.  Iowa  City,  20  Wall.  583;  I  itations  only  when  suit  on  the  bond 


Walnut  v.  Wade,  103  U.  S.  683;  Ohio 
v.  Frank,  ib.  697;  Philadelphia,  etc., 
R.  Co.  v.  Knight,  124  Pa.  St.  58.  See 
Gilbert  v.  Washington  City,  etc.,  R. 
R.  Co.,  33  Gratt.  (Va.)  586;  Whitaker 
v.  Hartford,  etc.,  R.  R.  Co.,  8  R.  I. 
47;  Philadelphia  and  R.  R.  R.  Co.  v. 
Smith,  105  Pa.  St.  195.  Compare 
The  City  v.  Lamson,  9  Wall.  478,  in 
which  case  it  was  held  a  suit  on  a 
coupon  is  barred  by  a  statute  of  lim- 

678 


is  barred.     See,  also,  §  326. 

2  Connecticut  Mur.  Life  Ins.  Co. 
v.  Cleveland,  etc.,  R.  R.  Co.,  41  Barb. 
9.     See  §§  205,  328. 

3  Walnut  v.  Wade,  103  U.  S.  683; 
Shaw  v.  Bill,  95  U.  S.  10.  See  Alex- 
ander v.  Atlantic,  etc.,  R.  R.  Co.,  67 
N.  C.  198. 

4  Williamsport  Gas  Co.  v.  Pinker- 
ton,  95  Pa.  St.  62. 


CHAP.  XI.]  CORPORATION  AND  CREDITORS. 


[§  682. 


bondholders  was  a  prerequisite  to  a  foreclosure  by  the  trustee. 
But  the  court  said  that  any  bondholder  could  have  sued  in  his 
own  name,  and  could  have  proceeded  to  foreclose.1 


1  Chicago  and  Vincennes  R.  R.  Co. 
V.  Fosdick,  106  U.  S.  47.  Compare 
Howell  v.  Western  R.  R.  Co.,  94  U. 
S.  463;  First  National  Ins.  Co.  v. 
Salisbury,  130  Mass.  303. 

A  bondholder  under  a  trust  mort- 
gage may  sue  the  railroad  on  bonds 
held  by  him,  although  the  mortgage 
provides  that  on  the  request  of  the 
holders  of  a  certain  proportion  of 
bonds  (more  than  the  plaintiff  held) 
the  trustees  should  sell  the  property 
covered  by  the  mortgage.  Phila. 
and  Balto.  Cent.  R.  R.  Co.  v.  John- 
son, 54  Pa.  St.  127.  See  also  Mont- 
gomery County  Agricultural  Society 
v.  Francis,  103  Pa.  St.  378.  A  bidder 
at  a  judicial  sale  at  public  auction 
on  foreclosure  of  a  railroad  mort- 
gage, whose  bid  has  not  been  ac- 
cepted, the  sale  being  adjourned  for 
sufficient  cause  and  finally  discon- 
tinued, cannot  insist  on  leave  to  pay 
his  bid  and  have  the  sale  to  him 
confirmed;  although  he  was  the 
highest  bidder  and  bid  enough  to 
cover  the  mortgage  debt.  Blossom 
v.  Railroad  Co.,  3  Wall.  196.  A 
holder  of  railroad  bonds  secured  by 
a  mortgage  under  foreclosure  has  a 
standing    in    court  to    contest    the 


amount  of  compensation  allowed  the 
trustee  under  the  mortgage.  Wil- 
liams v.  Morgan,  111  U.  S.  684.  A 
board  of  directors  passed  a  resolu- 
tion permitting  the  holders  of  cer- 
tain notes  of  the  corporation,  secured 
by  a  mortgage  held  by  a  trustee  for 
the  note  holders,  to  convert  their 
notes  into  stock  of  the  corporation 
at  par,  provided  all  the  holders  of 
the  notes  converted  them  within  ten 
days:  some  of  the  note  holders  filed 
their  notes  for  conversion  and  re- 
ceived certificates  of  stock.  It  was 
held,  on  subsequent  foreclosure  of 
the  mortgage,  that  such  of  the  note 
holders  as  had  surrendered  their 
notes  were  entitled  to  have  the  fore- 
closure carried  on  for  them  (as  well 
as  the  rest),  not  all  the  note  holders 
having  surrendered  their  notes,  and 
consequently  no  conversion  into 
stock  of  any  notes  having  taken 
place.  Pugh  v.  Faiimount  Mining 
Co.,  112  U.  S.  238.  Taking  a  pledge 
of  corporate  property  does  not  pre- 
vent a  creditor  from  suing  the  cor- 
poration or  its  shareholders,  without 
selling  the  pledge.  Sonoma  Valley 
Bank  v.  Hill,  59  Cal.  107. 

679 


§  683.]        THE    LAW    OF    PRIVATE    CORPORATIONS.    [t'HAP.  XII. 


CHAPTER  XII. 

LEGAL  RELATIONS  BETWEEN  SHAREHOLDERS  AND 
OFFICERS  OF  A  CORPORATION. 


Effect  of  investing  the  officers  with 
authority  to  manage  the  corporate 
enterprise,  §§  683,  684. 

Right  of  shareholders  that  officers 
shall  do  no  unauthorized  acts, 
§685. 

Remedy,  §  686. 

Fraudulent  or  ultra  vires  acts,  §  687. 

Shareholders  incompetent  to  bring 
action  a  gainst  officers  until  there 
has  been  a  failure  of  the  corpora- 
tion to  act,  §  688. 

Competency  of  shareholders  to  sue 
when  the  corporate  management 
is  in  the  hands  of  the  guilty  offi- 
cers, §  689. 

Corporation  a  necessary  party  ;  ac- 


§  683. 


tion  should  be  brought  on  behalf 
of  all  the  shareholders,  §§  690,  691. 

Directors  trustees  for  all  the  share- 
holders, §  692. 

Corporation  cannot  condone  breach 
of  trust,  §  693. 

Responsibility  of  officers  for  error; 
for  acts  of  other  officers,  §  094. 

Acts  authorized  by  shareholders' 
meetings,  §  695. 

Unconditional  right  of  shareholders 
to  sue  for  direct  injuries,  §§  696, 
697. 

Limits  to  the  trust  relation  between 
shareholders  and  directors,  §  698. 

Directors'  right  to  indemnification, 


Effect  of  in- 
vesting the 
officers 
with  au- 
thority to 
manage  the 
corporate 
enterprise. 


When  a  number  of  persons  have  combined  their 
property  in  a  joint  undertaking,  agreeing  that  the 
enterprise  shall  be  managed  in  a  certain  way,  no  one 
of  them  can  at  will  withdraw  from  the  agreement, 
or  interfere,  except  as  in  the  agreement  provided 
for,  with  the  management  agreed  on.  Persons  who 
become  incorporated  agree,  that  within  the  fair  scope 
of  the  purposes  of  incorporation,  the  controlling  discretion  as 
to  the  corporate  enterprise  shall  rest  with  the  body  corporate 
acting  regularly,  and  through  the  will  of  a  majority ;  and  that 
the  ordinary  corporate  business  shall  be  managed  by  directors 
and  other  officers  elected  directly  or  indirectly  by  the  body 
corporate.1 

"Where,  however,  as  is  usual,  by  the  constitution  of  a  cor- 
poration the  management  of  the  corporate  affairs  is  vested  in  a 
board  of  directors,  it  would  seem  to  be  the  right  of  every 


1  Dudley  v.  Kentucky  High  School,  9  Bush,  576. 

680 


See  §  553. 


CHAP.  XII.]  SHAREHOLDERS  AND  OFFICERS.  [§  685. 

shareholder — a  right  secured  to  him  by  the  fundamental 
contract  embodied  in  the  corporate  constitution — that  the 
ordinary  business  of  the  corporation  shall  be  managed  and 
controlled  by  the  board  of  directors,  so  long  as  they  act  within 
the  scope  of  their  authority  and  honest  discretion,  free  from 
the  interference  of  even  a  majority  of  shareholders.  Under 
such  circumstances  the  fundamental  plan,  which  every  share- 
holder agreed  to,  was  not  that  a  majority  of  shareholders,  but 
that  the  board  of  directors  should,  for  ordinary  purposes,  man- 
age and  control  the  affairs  of  the  corporation. 

§  684.  Thus,  for  instance,  it  has  been  held  that  a  contract 
between  two  connecting  railroads  for  the  division  of  earnings 
according  to  the  distance  which  each  company  should  carry 
the  passengers  or  freight  for  which  the  money  is  paid,  is 
within  the  discretionary  powers  of  the  directors,  and  its 
execution  cannot  be  enjoined  by  a  shareholder  in  one  of  the 
companies  who  holds  a  majority  of  its  stock,  unless  he  shows 
a  fraudulent  purpose  on  the  part  of  the  directors  by  which  he 
will  be  injured.1  Similarly,  the  Supreme  Court  of  the  United 
States  has  decided  that  where  the  trustees  or  directors  of  a 
railroad  company  have  appealed  from  a  decree,  and  have 
directed  their  counsel  to  prosecute  the  appeal,  the  Supreme 
Court  will  not  dismiss  it  on  the  motion  of  strangers  to  the 
decree,  who,  since  the  decree  was  rendered,  have  become  the 
owners  of  the  majority  of  the  stock  of  the  corporation.  To 
the  directors  is,  by  law,  committed  the  management  of  the 
concerns  of  the  corporation ;  they  are  its  representatives  in 
court,  and  represent  shareholders  and  creditors.  If,  in  prose- 
cuting an  appeal  to  final  judgment,  they  violate  a  corporate 
obligation  or  their  own  duty,  shareholders  must  seek  a  remedy 
in  some  court  of  original  jurisdiction.2 

§  685.  It  is,  however,  no  part  of  the  contract  of  any  share- 
holder that  directors  shall  do  acts  unauthorized  bv   „.  .     , 

Right  of 

the  corporate  constitution ;  and  it  is  the  right  of  share- 

every  shareholder  that  they  shall  do  no  such  acts,  that  officers 

nor  indeed   any  act   beyond   their   own   authority,  ^author"0 

although  within   the  corporate  powers,  unless   the  Redacts. 

1  Elkins  v.  Camden  and  Atlantic  R.  I  2  Railway  Co.  v.  Ailing,  99  U.  S.  463. 
R.  Co.,  36  N.  J.  Eq.  241.  | 

681 


§  687.]        THE   LAW   OF   PRIVATE   CORPORATIONS.    [CHAP.  XII. 


Remedy. 


same  is  authorized  or  acquiesced  in  by  the  body  corporate. 
Directors  about  to  do  an  unauthorized  act  may  be  restrained 
no  doubt.     But  how  % 

%  686.  Unquestionably  action  to  restrain  them  should  be 
taken  b}^  and  in  the  name  of  the  corporation.  For 
the  corporation  is  the  direct  superior  or  principal 
of  the  board  of  directors.  Moreover,  if  the  unauthorized  act 
of  the  directors  is  not  improper  and  fraudulent  in  itself,  and 
within  the  scope  of  the  corporate  powers,  it  does  not  follow 
that  a  minority  of  shareholders  have  an  absolute  right  that  the 
act  should  not  be  done ;  for  it  may  be  that  the  majority,  who 
have  power  to  do  the  act  in  question,  approve  of  it.  Under 
such  circumstances,  for  a  minority  of  shareholders  to  allege  a 
refusal  on  the  part  of  the  corporation  to  restrain  the  act — an 
essential  allegation  in  a  shareholder's  bill  to  enjoin  directors 
— would  imply  the  corporate  approval  thereof,  and  demolish 
the  plaintiff's  case.  Accordingly  a  minority  of  shareholders 
cannot  ordinarily  prevent  directors  from  doing  any  act  which, 
as  done  by  the  directors,  the  majority  could  competently 
ratify.1  The  proposed  act  should  be  manifestly  improper,  and 
the  complaint  should  also  show  the  impracticability  of  procur- 
ing action  from  the  body  corporate  in  time  to  prevent  injury.2 
§  687.  In  many  cases,  however,  the  acts  of  directors  which 


1  Where  to  the  validity  of  certain 
acts,  original  action  on  the  part  of 
the  body  corporate  is  required  by 
statute  to  be  taken  in  a  certain  man- 
ner, as,  e.  </.,  in  regard  to  an  increase 
of  the  capital  stock,  it  is  possible 
that  to  validate  an  unauthorized  in- 
crease made  by  the  directors,  the 
majority  of  shareholders  would  have 
to  go  through  the  prescribed  formal- 
ities, and  that  a  simple  ratification 
of  the  increase  as  made  by  the 
directors  would  not  be  sufficient. 

2  In  this  connection,  Foss  v.  Har- 
bottle,  2  Hare,  461,  is  the  leading 
authority.  See  §§  553  et  seq.,  where 
the  matter  is  discussed  as  coming 
under  the  right  of  the    corporation 

682 


or  corporate  management,  to  man- 
age the  corporate  affairs.  Here  the 
matter  is  spoken  of  rather  with  ref- 
erence to  the  rights  of  shareholders 
against  directors  personally.  See 
McNaughton  v.  Osgood,  41  Hun 
(N.  Y.),  108. 

A  bill  was  filed  by  shareholders 
against  directors  to  compel  the  latter 
to  assign  to  the  corporation  a  lease 
which  they  had  taken  in  their  own 
name,  the  corporation  being  made  a 
party  defendant.  It  was  held  that 
all  the  shareholders  should  also  have 
been  made  parties,  as  the  corpora- 
tion had  the  right  to  take  an  as- 
signment or  decline  it.  Bengley  u. 
Wheeler,  45  Mich.  493. 


CHAP.  XII.]  SHAREHOLDERS  AND  OFFICERS. 


[§  688. 


are  sought  to  be   restrained   are  improper,  fraudu- 

T      A  °  ,,  .  ,  ,  .   .  r     .      .'  Fraudulent 

lent,  or  ultra  vires  acts,  which  the  majority  cannot  or  ultra 
ratify,  and  which  every  shareholder  has  the  right  to 
restrain.  That  such  acts  should  not  be  done  is  as  much  the 
right  of  a  single  shareholder  as  of  a  majority  of  shareholders. 
Nevertheless,  the  proper  plaintiff  in  a  suit  to  restrain  directors 
from  doing  unauthorized  acts,  or  in  a  suit  against  them  for 
damages  suffered  by  the  corporation,  or  to  compel  them  to 
account  for  illegal  profits  which  they  have  made,  is  still  the 
corporation ; 1  and  a  complaint  in  any  such  suit,  where  the 
corporation  is  not  the  complainant,  is  demurrable  unless  it 
set  forth  sufficient  reasons  why  the  action  is  not  brought  by 
the  corporation.2 

§  688.  Accordingly,  in  a  suit  brought  by  shareholders  to 
restrain  directors  or  other  officers  from  committing 
unauthorized  acts,  the  complaint  should  show — and   ersYnconi-" 
circumstantially — either    that    the  corporation  had   j^"*  t0 
been  requested  to  and  had  refused  or  failed  to  take   action 

...  against 

action,  or  that  the  corporation  is  impotent  to  act  for   officers 
the  reason  that  the  guilty  officers  constitute  or  con-   hasten1"! 


1  Brown  v.  Vandyke,  8  N.  J.  Eq. 
795;  Booth  v.  Robinson,  55  Md.  419; 
Hedges  v.  Paquett,  3  Oreg.  77;  State 
v.  Bank  of  Louisiana,  6  La.  745; 
Fishery.  Parr,  91  Md.  245;  Decatur 
Mineral  Land  Co.  v.  Palm,  113  Ala. 
531;  Macdougall  v.  Gardiner,  45  L. 
J.  Chan.  27. 

2  Doud  v.  Wisconsin,  etc.,  R.  Co., 
65  Wis.  108.  See  Black  v.  Huggins, 
2  Tenn.  Ch.  780. 

Shareholders  cannot  maintain  a 
bill  for  the  removal  of  the  treasurer 
of  a  corporation  unless  they  have 
previously  applied  to  the  board  of 
directors  for  relief.  Tuscaloosa 
M'f'g  Co.  v.  Cox,  68  Ala.  71 ;  Decatur 
Mineral  Land  Co.  et  al.  v.  Palm,  113 
Ala.  531 ;  Jefferson  County  Sav. 
Bank  v.  Francis,  115  Ala.  317;  John- 
son v.  National  B.  &  L.  Ass'n,125  Ala. 
465;  Stahn  v.  Catawba  Mills,  53  S.  C. 


519.     Cf.  Matthews  v.  Bank,  60  S.  C. 

183.  In  Woodrooff  v.  Howes,  88  Cal. 

184,  the  court  sustained  the  suit  of  a 
shareholder  for  the  specific  perform- 
ance of  a  contract  made  hy  the  de- 
fendants— who  were  also  a  majority 
of  the  corporation's  directors — with 
the  corporation.  In  Jasper  Land 
Co.  u.  Wallis  et  al.,  123  Ala.  652,  a 
suit  by  minority  stockholders  was 
sustained  without  application  to  the 
directors,  when  two  sets  of  men 
claimed  to  be  directors  and  a  receiver 
was  appointed.  In  Reynolds  v.  Bri- 
denthal,  57  Neb.  280,  an  injunction 
was  sustained  to  prevent  directors 
improperly  elected  from  acting. 
Where  the  complaint  alleges  that  de- 
fendants are  not  directors,  a  demand 
is  not  necessary.  Whitehead  v. 
Sweet,  126  Cal.  67.  See,  also,  Shivley 
v.  Eureka  Mining  Co.,  129  Cal.  293. 

683 


§  688.]         THE   LAW   OF   PRIVATE   CORPORATIONS.  [CHAP.  XII. 


failure  of      trol  the  corporate  management  and  affairs.1     If  these 

the  corpo-  r    .  ° 

ration  to  facts  appear  in  the  complaint,  and  the  complaint 
further  show  that  the  corporation,  and  the  plaintiff's 
interests  therein,  would  be  injured  by  the  commission  of  the 
act  sought  to  be  prevented,  it  will  be  sustained  by  a  court  of 
equity.2 

The  same  principles  apply  to  actions  brought  by  share- 
holders against  directors,  after  the  commission  of  the  unlawful 
acts,  for  damages  or  to  compel  the  directors  to  account  for 
profits  which  they  have  unlawfully  made.  The  complaint 
will  be  sustained  if  the  plaintiff  show  an  injury  to  him- 
self through  injuries  to  the  corporation,  and  either  that  the 
corporation  has  been  requested  to  sue  and  has  refused  or 
failed ; 3  or  that  it  is  not  iu  a  situation  to  sue,  or  is  under  the 
control  of  the  guilty  officers.4  And  a  shareholder  in  his  com- 
plaint in  such  an  action  should  state  particularly  the  efforts 

1  See  §§  139-142,  553-560.  Absence  |  mandamus  to  compel  the  officers  to 
of  such  allegations,  however,  cannot    hold  the  annual  election  for  trustees. 


be  taken  advantage  of  iu  the  first 
instance  in  the  appellate  court. 
Bulkley  v.  Big  Muddy  Iron  Co.,  77 
Mo.  105. 

9  Wright  v.  Oroville  M'g  Co.,  40 
Cal.  20;  Sears  v.  Hotchkiss,  25  Conn. 
171  ;  Pearson  v.  Tower,  55  N.  H. 
215;  Bliss  v.  Anderson,  31  Ala.  612. 
See  Elkins  v.  Camden  and  Atlantic 
R.  R.  Co.,  36  N.  J.  Eq.  467;  Can- 
non v.  Trask,  L.  R.  20  Eq.  669  ; 
Watts' s  Appeal,  78  Pa.  St.  370;  Sel- 
lers v.  Phoenix  Iron  Co.,  13  Fed. 
Rep.  20.  Compare  Leslie  v.  Loril- 
lard,  110  N.  Y.  519;  Perry  v.  Tnsca- 


People  v.  Cummings,  72  N.  Y.  433. 

8  Greaves  v.  Gouge,  69  N.  Y.  154; 
Smith  v.  Poor,  40  Me.  415  ;  Booth 
v.  Robinson,  55  Md.  419  ;  Brewer 
v.  Boston  Theatre,  104  Mass.  378  ; 
Evans  v.  Brandon,  53  Tex.  56;  Cogs- 
well v.  Bull,  39  Cal.  320;  Hazard  v. 
Durant,  11  R.  I.  195  ;  Montgomery 
Light  Co.  v.  Lahey,  121  Ala.  131. 
Compare  Heath  v.  Erie  R'y  Co.,  8 
Blatchf.  347. 

4  Brewer  v.  Boston  Theatre,  104 
Mass.  378;  Rogers  v.  Lafayette  Agri- 
cultural Works,  52  Ind.  296;  Carter 
v.  Ford  Glass  Co.,  85  Ind.  180;  Pond 


loosa  Co.,  93  Ala.  304;  Byers  v.  Rol- j  v.    Vermont   Valley   R.    R.    Co.,    12 
lins,  13  Col.  22;  Marcusse  v.  Gullet'  Blatchf.  280;  Heath  v.  Erie  R'y  Co. 


Gin  Co.,  52  La.  Ann.  1383. 

Where,  by  a  statute  on  failure  to 
publish  annual  reports  the  share- 
holders are  made  jointly  and  sev- 
erally liable  for  the  debts  of  the 
corporation,  one  or  more  share- 
holders may  have  a  mandamus  to 
compel  the  officers  to  publish  the 
reports.  Smith  v.  Steele,  8  Neb. 
115.     So  a  shareholder  may  have  a 

684 


8  Blatchf.  347  ;  Ryan  v.  Leaven- 
worth, etc.,  R'y  Co.,  21  Kan.  365  ; 
Peabody  v.  Flint,  6  Allen,  52;  Mus- 
sina v.  Gnldthwaite,  34  Tex.  125  ; 
Jones  v.  Johnson,  10  Bush  (Ky. ), 
649;  Hilles  b.  Parrish,  14  N.  J.  Eq. 
380;  Booth  v.  Robinson,  55  Md.  419; 
Neall  v.  Hill,  16  Cal.  145;  Deaderick 
v.  Wilson,  8  Bax.  (Tenn.)  108; 
Davis    v.    Gemmell,    70    Md.    356; 


CHAP.  XII.]  SHAREHOLDERS  AND  OFFICERS. 


[§  689. 


Compe- 
tency of 
sharehold- 
ers to  sue 
when  the 
corporate 
manage- 
ment is  in 
the  hands 
of  the 
guilty 
officers. 


which  he  has  made  to  prevail  on  the  corporation  to  sue,  so  that 
the  court  may  judge  intelligently  whether  his  efforts  have 
been  real  or  simulated.1  In  fine,  it  must  be  made  to  appear 
to  the  court  that  it  is  necessary  for  the  protection  of  the  plain- 
tiff's interests  in  the  corporation  that  he  should  be  allowed  to 
bring  the  action. 

§  689.  The  following  are  a  few  instances  of  cases  which 
either  hold,  or  proceed  on  the  assumption,  that 
when  it  is  apparent  that  the  guilty  officers  consti- 
tute the  corporate  management  so  as  to  render  a 
request  to  the  corporation  to  proceed  against  them 
futile,  such  request  need  not  be  made  by  share- 
holders before  commencing  suit  against  them.2 

An  action  will  lie  in  favor  of  a  shareholder  against 
the  president  of  a  corporation,  without  previous  de- 
mand on  the  directors  for  relief,  when  the  following  facts  ap- 
pear from  the  complaint :  that  the  corporation  has  made  profits ; 
that  the  president  does  not  allow  them  to  appear  on  the  books 
of  the  corporation ;  that  he  is  largely  indebted  to  the  corpora- 
tion, and  has  received,  but  not  accounted  for,  its  emoluments ; 
that  the  majority  of  the  directors  are  his  tools,  and  have  sur- 
rendered to  him  the  control  of  the  corporate  affairs.3 

Where  a  member  of  the  board  of  directors,  who  is  also  secre- 
tary of  the  board  and  treasurer  of  the  corporation,  presents  a 
bill  for  extra  compensation  as  secretary  and  treasurer,  he  is 
disqualified  from  acting  as  a  director  on  the  auditing  of  the 
bill ;  and  if  the  interested  director  is  needed  to  make  a  quorum, 
and  by  the  aid  of  his  own  vote  the  bill  is  approved  of,  any 
shareholder  may  sue  for  himself  and  other  shareholders  to  pre- 
vent its  payment  and  to  set  aside  the  proceedings.4 


Harmerty  v.  Standard  Theatre  Co., 
109  Mo.  297;  Sage  v.  Culver,  147  N.Y. 
241.  See  Watts'  s  Appeal,  78  Pa.  St. 
370;  Brown  v.  Vandyke,  8  N.  J.  Eq. 
795;  Eaton  v.  Robinson,  18  R.  I.  39(1; 
Gerry  v.  Bismarck  Bank,  19  Mont. 
191;  Forrester  v.  B.  &  M.  Min.  Co., 
21  Mont.  544. 

1  Dannmeyer  v.  Coleman,  11  Fed. 
Rep.  97.     See  §  140. 

2See,  e.  g.,  Rotkwell  v.   Robinson, 


39  Minn.  1;  Smith  v.  Dorn,  96  Cal. 
73.  Other  cases  are  cited  in  the 
last  note  but  one,  many  of  which 
are  stated  more  at  length  elsewhere. 
See,  especially,  Brewer  v.  Boston 
Theatre,  §  560. 

3  Rogers  v.  Lafayette  Agricultural 
Works,  52  Ind.  296;  cf.  Montgomery 
Light  Co.  ».  Lahey,  121  Ala.  131. 

*  Butts  v.  Wood,  37  N.  Y.  317. 

685 


§  690.]       THE    LAW    OF   PRIVATE   CORPORATIONS.     [CHAP.  XII. 


Directors  of  a  national  bank  are  liable  to  shareholders  for 
losses  sustained  by  it  through  their  gross  negligence  and 
inattention  to  duty.  If  the  receiver  of  the  bank  when  insol- 
vent, himself  one  of  the  guilty  directors,  refuses  to  sue,  a 
shareholder  may,  on  behalf  of  himself  and  all  other  share- 
holders, sue  the  directors  for  damages,  making  the  receiver 
and  the  bank  parties.  The  complaint  need  not  allege  a  direc- 
tion to  sue  from  the  comptroller  of  the  currency,  or  a  refusal 
on  his  part  to  direct  the  receiver  to  sue ;  and  the  action  may 
be  brought  in  a  state  court.1  In  such  an  action  the  statute  of 
limitations  affecting  equitable  actions  generally  applies.2 

§  690.  In  all  cases  where  shareholders  bring  suit  against 
directors  and  other  officers,  either  to  restrain  them 
from  improper  and  unauthorized  acts,  or  to  compel 
them  to  account  for  illegal  profits  which  they  have 
made,  or  when  the  suit  is  simply  to  recover  damages 
for  injuries  accruing  to  the  corporate  property 
through  their  wrongful  or  negligent  acts,  it  is  essen- 
tial that  the  corporation  be  made  a  party  defendant.3 
Unless  all  the  shareholders  join  as  plaintiffs,  the  action  should 
be  brought  on  behalf  of  all ;  or,  at  least,  of  all  who  are  willing 


Corporation 
a  necessary 
party;  ac- 
tion should 
be  brought 
on  behalf  of 
all  the 
share- 
holders. 


1  Brinckerhoff  v.  Bostwick,  88  N. 
Y.  52;  reversing  S.  0.,  23  Hun,  237. 
See,  also,  Merchants  and  Planters' 
Line  v.  Waganer,  71  Ala,  581;  Kelsey 
v.  Sargent,  40  Hun  (N.  Y.),  150. 

2  Brinckerhoff  ».  Bostwick,  99  N. 
Y.  185. 

s  Greaves  v.  Gouge,  69  N.  Y.  154; 
Cunningham  v.  Pell,  5  Paige  (N.  Y. ), 
607;  Charleston  Ins.,  etc.,  Co.  v. 
Sebring,  5  Rich.  Eq.  (S.  C.)  342; 
Sears  v.  Hotchkiss,  25  Conn.  171; 
Black  v.  Huggins,  2  Tenn.  Ch.  780; 
Robinson  v.  Smith,  3  Paige  (N.  Y. ), 
222;  Davenport  v.  Dows,  18  Wall. 
626;  Bruschke  v.  Schuetzer  Verein, 
145  111.  433. 

Where  shareholders  pass  a  resolu- 
tion to  cease  to  do  business,  and 
place  all  the  assets  of  the  corpora- 
tion in  the  hands  of  one  of  its  offi- 
cers, to  be  converted  into  money  for 

686 


distribution  among  the  shareholders 
after  paying  the  corporate  debts,  the 
corporation  is  still  a  necessary  party 
to  a  bill  filed  by  a  shareholder  against 
the  officer  for  an  account  and  set- 
tlement of  the  shareholder's  interest. 
Young  v.  Moses,  53  Ga.  328.  So 
when  the  corporation  is  in  the  hands 
of  a  receiver,  he  as  well  as  it  is  a 
necessary  party  defendant.  Brinck- 
erhoff v.  Bostwick,  88  N.  Y.  52. 
And  a  Federal  court  will  not  enter- 
tain a  suit  by  shareholders  against 
officers  for  fraudulent  misappropria- 
tion of  corporate  property,  when  the 
receiver  appointed  by  a  state  court 
is  not  made  a  party  to  the  suit,  al- 
though the  state  court  has  denied  a 
petition  of  the  receiver  to  bring  the 
suit,  and  an  application  of  present 
plaintiffs  for  leave  to  make  him  a 
party;    for   when  a    court    has  ap- 


CHAP.  XII.]  SHAREHOLDERS  AND  OFFICERS. 


[§  692. 


to  join  in  defraying  its  expenses.1     And  a  court  of  equity  is  the 
appropriate  tribunal.2 

As  in  such  cases  the  injury  wrought  by  the  misfeasance  of 
the  officers  is  common  to  all  shareholders,  so  in  the  interests  of 
all  should  the  suit  be  brought.  And  thus  it  has  been  held  that 
a  single  shareholder  cannot  maintain  a  separate  action  at  law 
against  directors  for  damages  sustained  by  reason  of  their  negli- 
gence, which  had  rendered  his  shares  worthless.  His  action 
should  be  brought  in  a  form  to  protect  the  interests  of  the  cor- 
poration as  trustee  for  all  its  shareholders  and  creditors.3 

§  691.  A  distinction  has  been  taken 4  which  has  not  met 
with  continuing  approval ;  namely,  that  while  a  shareholder 
may  sue  directors  for  damages  arising  to  him  through  a  breach 
of  trust  on  their  part,  he  may  not  bring  a  suit  in  which  a  judg- 
ment would  in  any  way  control  the  corporate  action.  The 
distinction  seems  badly  taken,  for  if  the  corporation  refuses  or 
fails  to  act,  it  will  often  be  that  only  through  controlling  the 
corporate  action  by  the  aid  of  a  court  of  equity  can  a  share- 
holder adequately  protect  his  interests. 

§  692.  Although  it  is  to  the  body  corporate  that  directors 
are  immediately   accountable,  and    actions    can    be 
sustained  against  them  by  a  shareholder  for  abuse 
of  their  trust  only  under  the  conditions  mentioned, 
none  the  less  do  directors  and  other  corporate  officers 

pointed  a  receiver,  the  court  assumes 
administration  of  the  property,  the 
receiver  is  an  officer  of  the  court, 
and  his  possession  is  the  possession 
of  the  court;  and  it  is  for  the  court 
appointing  him  to  decide  claims  of 
or  against  the  receiver,  or  permit 
them  to  be  litigated  elsewhere.  Por- 
ter v.  Sabin,  149  U.  S.  473.  Compare 
Schuyler's  Steam  Tow  Boat  Co.,  In 
re,  136  U.  S.  169;  Gilman  v.  Ketcham, 
84  Wis.  60. 

1  Greaves  v.  Gouge,  69  N.  Y.  154; 
Bosworth  v.  Allen,  168  N.  Y.  157; 
Brewer  v.  Boston  Theatre,  104  Mass. 
378;  Robinson  v.  Smith,  3  Paige  (1ST. 
Y. ),  222 ;  Davenport  v.  Dows,  18  Wall. 
626.  See  Rogers  v.  Lafayette  Agri- 
cultural Works,  52  Ind.  296. 


Directors 
trustees  for 
all  share- 
holders. 


2  Hodges  v.  New  England  Screw 
Co.,  1  R.  I.  312;  S.  C,  3  R.  I.  9;  see 
Smith  v.  Hurd,  12  Mete.  371;  Allen 
v.  Curtis,  26  Conn.  456.  For  the  right 
of  shareholders  to  sue  on  behalf  of 
the  corporation,  see  §§  138-142;  and 
for  the  right  of  a  minority  by  suit  to 
control  corporate  action,  see  §§  553- 
560. 

3  Craig  v.  Gregg,  83  Pa.  St.  19; 
Gardiner  v.  Pollard,  10  Bos.  (N.  Y.) 
674.  See,  also,  Evans  v.  Brandon,  53 
Tex.  56.  Compare  Gaffney  v.  Colvill, 
6  Hill,  567;  Oliphant  v.  Woodburn, 
etc.,  Co.,  63  Iowa,  332;  Eaton  v. 
Robinson,  19  R.  I.  146. 

4  Hodges  v.  New  England  Screw 
Co.,  1  R.  I.  312. 

687 


§  693.]        THE   LAW   OF   PRIVATE   CORPORATIONS.    [CHAP.  XII. 


hold  their  powers  iti  trust  for  all  the  shareholders,  minority  as 
well  as  majority  ;  *  and  the  primary  reason  why  a  single  share- 
holder cannot  always  bring  suit  against  the  guilty  officers  im- 
mediately is  not  the  inconvenience  which  a  multiplicity  of  suits 
might  cause  the  latter,  but  rather  the  right  of  the  corporation 
to  control  the  actions  of  its  appointees  and  bring  them  to  ac- 
count. Accordingly,  from  the  restrictions  on  the  right  of  share- 
holders to  bring  suits  against  corporate  officers  for  a  breach  of 
duty,  it  is  not  to  be  implied  that  directors  and  other  officers  do 
not  owe  to  every  shareholder  the  substantial  duties  which 
they  owe  immediately  to  the  corporation.  These  restrictions 
are  only  in  respect  to  the  manner  of  enforcing  their  duties ; 
and  the  shareholders  are  the  real  beneficiaries. 

§  693.  Thus,  it  may  be  said  that  the  officers  of  a  corpora- 
tion owe  to  the  shareholders  all  the  duties  which 
they  owe  to  the  body  corporate  ;  and  the  rules  gov- 
erning the  liability  of  officers  to  the  body  corporate 
also  govern  their  substantial  liability  to  the  share- 
Moreover,  it  is  beyond  the  powers  of  the  corporation 
to  condone  gratuitously,  so  as  to  conclude  non-consenting 
shareholders,  a  breach  of  trust  on  the  part  of  directors, 
whereby  the  assets  of  the  corporation  have  been  wasted  or  the 
corporate  interests  injured.2  Accordingly,  for  every  breach  of 
trust  on  the  part  of  the  officers  of  a  corporation,  whether  the 
same  consist  in  fraudulent  or  unauthorized  acts  or  in  gross 
negligence,3  the  guilty  officers  are  liable  to  the  individual 
shareholders  in  damages,  or  to  account  for  unlawful  profits 
made  by  them.4     And  to  enforce  this  liability,  actions  may 


Corpora- 
tion cannot 
condone 
breach  of 
trust. 

holders. 


1  Harris  v.  North  Devon  R'y  Co., 
20  Beav.  384;  Richards  v.  New 
Hampshire  Ins.  Co.,  43  N.  H.  263. 

Directors  can  make  no  disposition 
of  the  corporate  funds  which  will 
not  enure  to  the  equal  [proportion- 
ate] benefit  of  shareholders.  Hale 
v.  Republican  River  Bridge  Co.,  8 
Kan.  460.  In  Richardson  v.  Larpent, 
2  Y.  &  C.  N.  R.  507,  the  bill  was  dis- 
missed because  shareholders,  hold- 
ing views  opposed  to  the  plaintiff, 
were  not  made  parties  to  the  suit, 

688 


although  the  defendant  directors 
held  the  views  of  such  shareholders. 
Bruce,  V.  C,  saying  (p.  514),  "Di- 
rectors are  officially  obliged  to  have 
an  equal  mind  towards  the  share- 
holders, and  cannot  properly  be  con- 
sidered as  representing  an  opposi- 
tion." 

2  Hazard  v.  Durant,  11  R.  I.  195. 

8  Brinckerhoff  v.  Bostwick,  88  N. 
T.  52. 

4  Ryan  v.  Leavenworth,  etc.,  R'y 
Co.,  21  Kans.  365;  Farmers',  etc., 
Bank  v.  Downey,  53  Cal.  466;  Koehler 


CHAP.  XII.]  SHAREHOLDERS  AND  OFFICERS. 


[§  695. 


be  brought  by  the  latter  under  the  conditions  heretofore  dis- 
cussed.1 

§  694:.  As  corporate  officers  acting  in  good  faith  within  their 
authority  are  not  liable  to  the  corporation  for  a  mere 
mistake  in  judgment,2  so,  for  such  mistakes,  they  will   binty  of 

otiicBrs  for 

not  be  liable  to  individual  shareholders.3     Neither   errors; 
will  they  be  liable  to  shareholders  for  the  frauds  of   J°uot  te °f 
other  officers  under  circumstances  which  do  not  ren-   officers- 
cler  them  liable  to  the  corporation.4     But,  whenever  directors 
incur  liability  to  the  corporation  for  the  frauds  of  other  officers 
which  the  negligence  of  the  directors  renders  possible,  the  di- 
rectors will  be  liable  to  the  shareholders  if  the  corporation  fails 
to  bring  suit  against  them.5 

§  695.  Directors  have  been  held  not  to  be  liable  to  share- 
holders for  improper  or  illegal  acts  which  are  author- 
ized by  a   shareholders'   meeting.6     And  a  bill  in 
equity  filed  by  shareholders  against  directors  alleg- 
ing illegal  acts  on  the  part  of  the  latter,  is  demurra- 


Acts  au- 
thorized by 
sharehold- 
ers' meet- 
ings. 


v.  Black  River  Falls  Iron  Co.,  2  Black, 
715. 

Directors  will  be  liable  to  share- 
holders if  they  fraudulently  misman- 
age the  corporate  affairs  in  the  in- 
terests of  a  rival  corporation.  Booth 
v.  Robinson,  55  Md.  419.  The  salary 
of  a  director  was  increased  improp- 
erly. Some  of  the  shareholders 
acquiesced;  others  did  not.  Held 
that  the  non-consenting  shareholders 
were  entitled  to  recover  their  propor- 
tion of  the  improper  excess  of  salary 
from  the  officer  receiving  it;  but 
said  officer  can  retain  the  balance,  as 
against  the  shareholders  who  have 
acquiesced  with  knowledge.  Brown 
v.  De  Young,  167  111.  549;  cf.  Eaton 
v.  Robinson,  19  R.  I.  146;  Blair  v. 
Telegram  News  Co.,  172  Mass.  201. 

1  Shareholders  may,  however,  lose 
their  right  to  object  by  acquiescence 
or  a  long  delay;  and  they  are  charge- 
able with  knowledge  of  the  records 
of  the  corporation.  Kitchen  v.  St. 
Louis,  etc.,  R'y  Co.,  69  Mo.  224;  see 

44 


Watts's  Appeal,  78  Pa.  St.  370;  Fos- 
ter v.  Mansfield,  etc.,  R.  R.  Co.,  146 
U.  S.  88;  Ware  v.  Galveston  City  Co., 
146  U.  S.  102;  Skinner  i>.  Smith,  134 
N.  Y.  240. 

2  See  §  620. 

3  Smith  v.  Prattville  M'f'g  Co.,  29 
Ala.  503;  Watts's  Appeal,  78  Pa.  St. 
370;  Booth  v.  Robinson,  55  Md.  419. 

4  Dunn  v.  Kyle,  14  Bush  (Ky.),  134; 
Bloom  v.  Nat.  Saving  Co.,  152  N.  Y. 
114.  See  §§  624-626.  A  director  is 
not  liable  to  a  shareholder  for  mis- 
representations in  the  articles  of  as- 
sociation made  before  the  election  of 
the  board,  of  which  he  was  a  mem- 
ber; and  a  person  cannot  maintain 
an  action  against  directors  for  the 
violation  of  a  statute  and  the  conse- 
quent depreciation  of  the  stock,  when 
the  acts  complained  of  were  commit- 
ted before  he  became  a  shareholder. 
Mabey  v.  Adams,  3  Bos.  (N.  Y.)  346. 

6  Ackerman  v.  Halsey,  37  N.  J.  Eq. 
356;  aff'd  38  N.  J.  Eq.  501. 
6  International,   etc.,  R.  R.  Co. 

689 


§  697.]        THE   LAW   OF   PRIVATE   CORPORATIONS.     [CHAP.  XII. 


Uncondi- 
tional right 
of  share- 
holders to 
sue  for 
direct  in- 
juries. 


ble  when  one  of  the  complainants  is  a  director  who  participated 
in  the  alleged  acts.1 

§  690.  When  an  injury  to  a  shareholder  is  not  the  result 
of  a  misapplication  of  the  corporate  funds  by  reason  of  which 
all  shareholders  suffer  alike ;  but  is  an  injury 
done  by  corporate  officers  to  the  shareholder  di- 
rectly, the  shareholder  may  sue  at  once  on  his 
own  behalf;  for  he  is  the  only  person  injured,  and 
in  respect  of  such  injuries  he  is  not  held  to  have 
confided  the  protection  of  his  interests  to  the  body  corporate.2 
Accordingly,  when  a  person  is  induced  through  the  fraudulent 
misrepresentations  of  directors  to  purchase  shares,  he  may 
sue  them  immediately  for  the  damages  arising  from  the  wrong 
done  him.3  Likewise,  Avhen  directors  make  a  fraudulent 
overissue  of  stock,  any  one  purchasing  such  shares  on  the 
faith  of  their  having  been  lawfully  issued  may  recover  from 
the  directors  the  damages  sustained  by  him.4 

§  697.     If   confidential   agents   of   a   company  conspire  to 


Bremond,  53  Tex.  96.  See,  also, 
Overend  v.  Gurney,  L.  R.  4  Ch.  701; 
S.  C,  sub  nom.  Overend  &  Gurney 
Co.  v.  Gibb,  L.  R.  5  H.  L.  480.  Com- 
pare Deaderick  v.  Wilson,  8  Bax. 
(Tenn.)  108. 

1  Baird  v.  Midvale  Steel  Works,  12 
Phila.  (Pa.)  255. 

2  The  treasurer  of  a  corporation 
who  holds  money  to  pay  a  dividend 
•which  has  been  declared,  and  refuses 
to  pay  the  dividend  on  certain  shares, 
claiming  to  be  the  owner  of  them 
himself,  is  liable  personally  for  the 
amount  of  the  dividend,  to  the  real 
owner  in  an  action  of  assumpsit  for 
money  had  and  received.  Williams 
v.  Fullerton,  20  Vt.  3-16.  When 
there  are  two  classes  of  sharehold- 
ers, one  whose  dividends  are  to  be 
deferred  for  a  number  of  years,  and 
directors  pay  to  the  other  class  div- 
idends out  of  the  capital  of  the  com- 
pany, the  directors  may  be  person- 
ally liable  to  make  up  the  sum,  in 
the  interests  of  the  deferred  share- 

690 


holders.  Salisbury  v.  Metropolitan 
R'y  Co.,  22  L.  T.  N.  S.  839. 

Some  directors  attempted  to  pur- 
chase on  behalf  of  their  bank  its 
own  stock.  This  they  had  no  power 
to  do,  and  the  bank  repudiated  the 
transaction.  It  was  held  that  the 
vendor  could  not  sue  the  directors, 
who  had  made  no  misrepresenta- 
tions and  whose  want  of  power  was 
a  matter  of  law,  as  open  to  the 
knowledge  of  the  plaintiff  as  to 
themselves.  Abelas  v.  Cochran,  22 
Kan.  405. 

8  Cole  v.  Cassidy,  138  Mass.  437; 
Davidson  v.  Tulloch,  3  Macq.  783; 
Paddock  v.  Fletcher,  42  Vt.  389; 
Cazeaux  v.  Mali,  25  Barb.  578;  Mor- 
gan v.  Skiddy,  62  N.  Y.  319;  Bale  v. 
Cleland,  4  Foss.  &  Finn.  117.  Com- 
pare Mabey  v.  Adams,  3  Bos.  (N.  Y. ) 
346 ;  Hubbard  v.  Weare,  79  Iowa, 
678;  Gerner  v.  Mosher,  58  Neb.  135. 
See  Gerner  v.  Yates,  61  Neb.  100. 

4  Bruff  v.  Mali,  36  N.  Y.  200;  Shot- 
well  v.  Mali,  38  Barb.  445. 


CHAP.  XII.]  SHAREHOLDERS  AND  OFFICERS.  [§  698. 

depress  the  selling  price  of  the  shares  by  a  system  of  false 
accounts  and  concealments,  in  order  that  they  may  purchase 
shares  at  less  than  the  real  value,  and  they  do  purchase  the 
shares  of  a  holder  at  less  than  the  shares  are  worth,  the  holder 
may  have  the  sale  set  aside  with  an  accounting  for  dividends 
received  by  them,  or  may  hold  the  agents  for  the  difference 
between  the  value  of  the  shares  and  what  they  paid.1  Where, 
however,  the  defendant  with  other  directors  of  a  corporation, 
made  an  assessment  on  its  stock,  upon  which  but  a  small  pro- 
portion was  paid,  and  threatened  to  make  further  assessments 
for  the  purposes  of  the  corporation,  a  course  of  action  which 
induced  the  plaintiff  to  sell  his  shares  to  the  defendant,  it  was 
held  that  there  was  no  such  fraud  in  the  matter  as  would  war- 
rant setting  the  sale  aside.2 

§  698.  The  trust  relation  between  shareholders  and  directors 
extends  only  to    matters  relating  to  the    manage-    , .   . 

.    .     J  ,  °A  ,.  °         Limits  to 

ment  of  the  corporate  business.  Accordingly,  rules  the  trust 
applicable  to  transactions  between  a  trustee  and  his  tween 
cestui  que  trust  do  not  extend  to  a  purchase  of  holders  and 
shares  made  by  a  director  from  a  shareholder,  and  directors. 
in  the  absence  of  actual  fraudulent  misrepresentations,  such 
a  sale  will  be  upheld,  provided  the  director  does  not  inten- 
tionally and  fraudulently  divert  or  prevent  the  vendor  from 
making  inquiries  into  the  condition  of  the  corporate  affairs.3 
This  rule,  regarding  the  purchase  of  shares  by  an  officer, 
was  applied  under  the  following  circumstances :  The  defend- 
ant, who  was  the  president  and  a  director  of  a  railroad 
company,  knowing  by  reason  of  his  official  position  that  the 
true  value  of  its  stock  was  largely  in  excess  of  the  selling 
price,  purchased  the  shares  of  a  non-official  shareholder  for  less 
than  their  real  value.  The  court  held  that  the  defendant  was 
under  no  duty  to  disclose  to  the  shareholder  matters  affecting 
the  value  of  the  shares,  which  were  not  matters  of  general 


But  an  assignee  of  shares  cannot 
sue  the  transfer  agent  for  improp- 
erly refusing  to  register  him;  but 
must  sue  the  corporation.  Denny 
v.  Manhattan  Co.,  2  Denio  (N.  Y. ), 
115. 

1  Walsham  v.  Stainton,  1  De  G. 
J.  &  S.  678. 


2  Grant  v.  Attrill,  11  Fed.  Rep. 
469. 

3  Carpenter  v.  Danforth,  52  Barb. 
581;  Deaderick  v.  Wilson,  8  Bax. 
(Tenn.)  108;  Commissioners  of  Tip- 
pecanoe County  v.  Reynolds,  44  Ind. 
509;  Krumbhaar  v.  Griffiths,  151  Pa. 
St.  223. 

691 


§  699.]        THE   LAW   OF   PRIVATE   CORPORATIONS.   [CHAP.  XII. 


opinion  and  could  not  have  been  found  out  by  the  shareholder. 
The  fact  known  to  the  defendant  and  not  to  the  plaintiff,  was 
that  the  former  was  about  to  consummate  a  sale  of  the  road 
which  was  likely  to  enhance,  and  when  effected  did  greatly  en- 
hance, the  value  of  the  stock.1 

§  699.  If  directors  expend  money,  and  incur  personal  liability 
for  purposes  not  within  their  authority,  yet  the  share- 
holders, knowing  the  circumstances,  acquiesce,  and 
receive  the  benefit  of  their  acts,  the  directors  will,  as 
against  the  shareholders,  be  entitled  to  indemnity 
from  the  corporate  funds.2  And  if  shareholders  neglect  to  at- 
tend corporate  meetings  where  they  know  such  matters  are  to 
be  discussed,  they  will  not  be  permitted  to  take  advantage  of 
their  ignorance.3  But  where  by  reason  of  certain  defaults  the 
officers  of  a  corporation  have  been  compelled  to  pay  its  debts, 
they  cannot  obtain  contributions  from  the  shareholders,  whom 
the  same  statute  rendered  liable  after  the  property  of  the  offi- 
cers had  been  exhausted.4 


Directors' 
right  to  in- 
demnifica- 
tion. 


1  Commissioners  of  Tippecanoe 
Co.  v.  Reynolds,  44  Ind.  509,  Downey, 
C.  J.,  dissenting.  The  transaction 
which  in  this  case  was  allowed  to 
stand  seems  to  the  writer  to  have 
been  eminently  unfair,  and  indeed  a 
rule — for  which  this  decision  is  cer- 
tainly authority — that  directors  in 
their  dealings  with  shareholders  are 
entitled  to  take  advantage  of  their 
knowledge  of  facts  not  known  to  the 
latter,  but  which  the  directors  are 
acquainted  with  by  reason  of  their 

692 


official  position,  seems  of  question- 
able propriety.  Compare  Perry  v. 
Pearson,  135  111.  218,  236;  Sargent 
v.  Kansas  Mid.  R.  R.  Co.,  48  Kan. 
672. 

2  Ex  parte  Chippendale,  4  De  G.  M. 
&  G.  19;  §  645. 

3  See  Turquand  v.  Marshall,  L.  R. 
4  Ch.  376;  Lire  British,  etc.,  Assur. 
Soc,  Lane's  Case,  1  De  G.  J.  &  S. 
504. 

4  Stone  v.  Fenno,  6  Allen,  579. 


CHAP.  XIII.]        SHAREHOLDERS  AND  CREDITORS. 


CHAPTER  XIII. 


LEGAL  RELATIONS  BETWEEN  SHAREHOLDERS  AND 
CREDITORS  OF  A  CORPORATION. 


Rights  of  creditors  in  absence  of 
statutory  liability,  §  700. 

Liability  incurred  by  subscribing. 
Conditions,  §  701. 

Liability  in  respect  of  shares  issued 
for  property,  §  702. 

Corporate  assets  a  "  trust  fund "  ? 
Recent  cases,  §  702a. 

"Bonus"  stock,  §  7026. 

Creditors'  remedies,  §  703.    . 

Joinder  of  parties  in  creditors'  bills, 
§§  704-706. 

Appointment  of  receiver.  Assignee 
in  bankruptcy,  §  707. 

Rights  of  creditors  against  share- 
holders improperly  withdrawing 
corporate  funds,  §  708. 

Shareholders,  in  what  respects  trus- 
tees for  creditors,  §§  709-711. 

Classes  of  statutes  imposing  personal 
liability,  §  712. 

Return  of  unsatisfied  execution 
against  the  corporation,  §  713. 

Nature  of  statutory  liability,  §§  714- 
716. 

Shareholders  not  left,  but  made  lia- 
ble, §  717. 

To  what  shareholders  statutory  lia- 
bility attaches,  §§  718-720. 

Creditors  the  proper  parties  to  sue, 
§721. 

Necessary  averments  in  pleading, 
§§  722,  723. 

Performance  by  creditor  of  condi- 
tions precedent,  §  724. 

Joinder  of  parties,  §  725. 

Distinction,  §  726. 

Liability  of  shareholders  in  national 
banks,  §  727. 


Extinguishment  of  liability,  §  728. 

Set-off.     Unpaid  subscriptions,  §  729. 

Set-off.  Dividends  improperly  re- 
ceived, §  730. 

Set-off.  Statutory  liability,  §§  731, 
732. 

When  shareholder,  who  is  also  a 
creditor,  cannot  sue  another  share- 
holder at  law,  §  733. 

Liability  for  debts  of  a  particular 
class.     "Debts,"  §734. 

Waiver  or  repeal  of  statutory  lia- 
bility. Substantial  compliance 
with  statute,  §  735. 

Statute  of  limitations,  §  736. 

Effect  of  judgment  against  corpora- 
tion, §  737. 

Shareholders  cannot  deny  corporate 
existence,  §  738. 

Nor  can  the  creditor  ordinarily, 
§739. 

Who  are  shareholders  as  to  creditors, 
§740. 

Transferee  of  shares  as  collateral 
security,  §  741. 

Real  owner  of  shares  liable,  §  742. 

Rationale,  §  743. 

Fraud,  when  no  defence,  §  744. 

Releases,  no  defence,  §  745. 

Compromises  :  forfeitures,  §  746. 

Effect  of  transfers  of  shares.  Trans- 
fers to  the  corporation,  §  747. 

Irregular  transfers,  §  748. 

Transfers  in  fraud  of  creditors, 
§749. 

Relations  between  shareholders  and 
creditors  on  winding  up.  Divi- 
dends, §  750. 

On  dissolution,  §  751. 

693 


§  701.]       THE   LAW   OF  PRIVATE  CORPORATIONS.    [CHAP.  XIII. 


§  700.  When,  according  to  the  constitution  of  a  corpora- 
Rights  of  ^on>  liability  for  corporate  indebtedness  is  not 
creditors  in    extended    bevond  the  corporate  funds  properly  so 

absence  of  J 


statutory 
liability. 


called,  that  is,  not  beyond  the  capital  named  in  the 
charter  or  articles  of  association,  paid  up  or  agreed 
to  be  paid  up,  and  to  be  used  in  the  corporate  business,  it  is 
almost  an  identical  proposition  to  say  that  the  shareholders, 
provided  they  honestly  pay  what  they  have  subscribed,  are  not 
personally  liable  to  creditors  of  the  corporation.1  AVhen  such 
is  the  constitution  of  a  corporation,  creditors  have  but  two 
general  and  comprehensive  rights  as  against  shareholders :  the 
one  right,  that  each  shareholder,  unless  cash  in  amount  or 
property  in  value  equal  to  the  par  value  of  his  shares  has  been 
paid  to  the  corporation  on  account  of  them,  shall  contribute  to 
the  corporate  funds  the  amount  unpaid  on  his'  shares  when 
necessary  to  meet  the  corporate  indebtedness  ;2  the  other  right, 
that  shareholders  shall  not,  to  the  injury  of  creditors,  divert 
the  funds  of  the  corporation  from  their  proper  function  of 
discharging  the  corporate  indebtedness.  Whatever  rights 
against  shareholders  in  a  corporation  with  a  constitution  of 
this  nature  creditors  may  have,  are  incidental  to  these  two 
main  rights. 

§  701.  By  subscribing  for  shares  in  the  capital  stock  of  a 
„ corporation,  subscribers,    even   without   an   express 

Liability  r  '      .  ' 

incurred  by   promise  to  pay,  are  held  impliedly  to  agree  to  pay 
Condmo^I'  to  the  corporation  the  par  value  of  the  shares  sub- 


1  See  Seymour  v.  Sturges,  26  N.  Y. 
134.  A  statute  prescribing  that 
no  shareholder  shall  be  liable  to 
creditors  of  the  corporation  for 
more  than  the  amount  subscribed 
by  him  is  declaratory  of  the  com- 
mon law.  Walker  v.  Lewis,  49  Tex. 
123. 

2  This  right  of  creditors,  or  liabil- 
ity of  shareholders,  is  sometimes  ex- 
pressed by  statute.  (See  N.  Y.  Rev. 
Stat.  chap.  18,  tit.  iii.  §1,  par.  5); 
Morgan  v.  New  York  and  Albany 
R.  R.  Co.,  10  Paige  (N.  Y.),  290. 
But  no  implied  promise  to  pay  for 
shares   can    be   held   to  arise  when 

694 


the  defendant  never  agreed  to  be- 
come a  shareholder  nor  accepted 
that  relationship,  but  repudiated  it 
as  soon  as  he  knew  it  was  put  upon 
him  by  another  person,  as,  for  in- 
stance, where  one  stockbroker  or- 
ders another  to  purchase  stock,  and 
the  second  broker  has  it  transferred 
to  the  name  of  the  broker  who  sent 
the  order.  No  implied  authority 
can  exist  in  such  case  to  transfer 
stock  to  the  name  of  the  broker 
ordering  it,  for  the  other  broker 
knows  him  to  be  acting  merely  as 
a  broker.  Glenn  v.  Garth,  133  N. 
Y.  18. 


CHAP.  XIII.]  SHAREHOLDERS  AND  CREDITORS. 


[§  701. 


scribed  for  by  them  respectively.1  However,  as  it  is  the  law 
that  when  a  certain  amount  of  stock  is  mentioned  in  the 
charter  or  articles  of  incorporation,  a  contract  to  subscribe 
cannot  be  enforced  by  the  corporation  before  the  total  amount 
is  subscribed,  so  creditors  canuot  compel  a  subscriber  to  pay 
up  his  subscription  when  the  same  implied  condition  is  un- 
fulfilled and  the  subscriber  has  done  nothing  to  estop  him- 
self from  setting  up  such  defence.2     But  a  subscriber  does 


1  See  §  513. 

The  original  holder  of  stock  in  a 
corporation  is  liable  for  unpaid  in- 
stalments of  stock  without  an  ex- 
press promise  to  pay  them,  and  a 
contract  made  by  him  with  the  cor- 
poration or  its  agents,  limiting  bis 
liability  therefor,  is  void  as  to  cred- 
itors of  the  company  and  its  assignee 
in  bankruptcy  who  represents  them. 
Upton  v.  Tribilcock,  91  U.  S.  45; 
Tuckerman  v.  Brown,  33  X.  Y.  297; 
Jewell  v.  Rock  River  Paper  Co.,  101 
111.  57;  Union  Mut.  Life  Ins.  Co.  v. 
Frearstone  M'f'g  Co.,  97  111.  537; 
Keystone  Bridge  Co.  v.  Barstow,  8 
Mo.  App.  494;  Wight  Co.  v.  Steinke- 
meyer,  6  Mo.  App.  574;  Farnsworth 
v.  Bobbins,  36  Minn.  369;  Goodwin 
v.  McGehee,  15  Ala.  "232.  Compare 
Ross  v.  Kelly,  36  Minu.  38.  Tbe 
charter  of  a  trust  company  provided: 
"If  at  any  time  tbe  capital  stock 
paid  into  said  corporation  shall  be 
impaired  by  losses  or  otberwise,  tbe 
directors  sball  forthwith  repair  the 
same  by  assessment."  The  company 
being  insolvent  and  in  the  hands  of 
a  receiver,  it  was  beld  that  a  per- 
sonal liability  was  not  imposed  on 
the  shareholders,  and  that  they  could 
not  be  assessed  to  pay  creditors, 
and  that  the  purpose  of  said  pro- 
vision was  to  prevent  the  continuance 
of  business  with  impaired  capital. 
Dewey  v.  St.  Albans  Trust  Co.,  57 
Vt.  332. 


The  shareholders  of  a  corporation 
who  were  under  no  personal  liability 
to  its  creditors,  at  a  time  when  the 
corporation  was  insolvent  made  an 
agreement  to  pay  the  treasurer  "the 
sums  set  opposite  our  names,  respec- 
tively, for  the  purpose  of  liquidating 
the  debt  against  said  association." 
All  but  one  paid  the  amount,  and 
the  business  was  continued  three 
years.  It  was  held  that  an  action 
of  assumpsit,  in  the  name  of  the 
treasurer,  could  be  maintained  on 
behalf  of  those  who  were  creditors 
at  the  time  of  the  above  agreement, 
the  corporation  having  ceased  to  do 
business,  and  transferred  its  assets 
to  its  creditors.  Haskell  v.  Oak,  75 
Me.  519.  A  corporation  was  organ- 
ized, the  members  agreeing  that  its 
liabilities  should  not  exceed  an 
amount  much  less  than  its  nom- 
inal capital  stock;  they  then  dis- 
tributed its  capital  stock  among 
themselves,  paying  for  it  only  a 
small  fraction  of  its  face.  Held,  a 
shareholder  who  was  a  party  to  the 
original  agreement  could  not  recover 
against  other  shareholders  for  debts 
owing  him  by  the  corporation  be- 
yond the  limited  amount;  but  seems 
an  outside  creditor  could.  Haider- 
man  v.  Ainslie,  82  Ky.  395. 

2  Temple  v.  Lemon,  112  111.  51; 
Hawkins  v.  Citizens'  Inv.  Co.,  38  Or. 
544.  See  §  518.  But  the  subscriber 
may  estop  himself  by  delay  from  in- 

695 


§  70±]       THE    LAW    OF    PRIVATE   CORPORATIONS.    [CHAP.  XIII. 


estop  himself  by  paying  a  call  and  acting  as  a  shareholder.1 
The  capital  stock,  whether  actually  paid  up  or  subject  to  call, 
constitutes  the  primary  fund  to  be  applied  in  furthering  the 
objects  of  incorporation.  It  is  the  fund  which  subscribers  are 
bound  to  contribute,  and  which  creditors  may  rely  on  for  the 
payment  of  their  claims.13  It  need  not  be  altogether  cash,  but 
may  consist  partly  in  buildings,  plant,  and  properties.  Accord- 
ingly, a  shareholder  may  pay  for  his  shares  in  property  or 
even  in  services,  provided  such  property  or  services  be  fairly 
worth  the  par  value  of  the  capital  stock  received  as  fully  paid 
up  in  return.3 

§  702.  To  issue  shares  as  fully  paid  up  for  property  known 
to  the  corporation  and  the  shareholder  receiving 
them  to  be  grossly  below  their  par  value,  is  a  fraud 
on  creditors,  for  whose  benefit  the  shareholder  to 
whom  the  shares  are  issued  may  be  compelled  to 
make  up  the  difference.4     This  rule  has  been  held  not  to  be 


Liability  iu 
respect  of 
shares  is- 
sued for 
property. 


sisting  (as  against  creditors)  on  the 
condition.  Lee  v.  Imbrie,  13  Oreg. 
510. 

1  Cornell  and  Michler's  Appeal, 
114  Pa.  St.  153. 

2  See  Thompson  v.  Reno  SVgs 
Bank,  19  Nev.  103  and  §§  654,  655. 

When  sued  by  a  creditor  a  sub- 
scriber cannot  plead  an  agreement 
not  contained  on  the  face  of  the 
subscription,  that  the  subscription 
was  to  be  paid  only  under  certain 
conditions.  Hickman  v.  Wilson,  104 
111.  54;  Hawkins  v.  Citizens1  Inv. 
Co.,  38  Or.  544.     See  §521. 

8  Coit  v.  Gold  Amalgamating  Co., 
119  U.  S.  343.     See  §522c. 

But  a  subscriber  cannot  as  against 
creditors  set  up  a  collateral  agree- 
ment that  his  subscription  was  to 
be  paid  in  land  which  the  corpora- 
tion had  no  authority  to  acquire. 
Noble  v.  Callender,  20  Ohio  St.  199- 
Compare  In  re  Glen  Iron  Works, 
Wilbur  v.  Stockholders,  13  Pliila. 
(Pa.)  479;  S.  C,  18  Baukr.  Reg.  178. 
"The  public  has  a  right  to  assume, 

GOG 


where  the  stock  of  a  company  has 
all  been  issued  as  full- paid  stock,  that 
it  has  been  paid  for  in  full  in  money, 
or  in  property  at  a  fair  value."  Goff 
v.  Hawkeye  Pump,  etc.,  Co.,  62 
Iowa,  691,  694,  opinion  of  court  per 
Adams.  J.  Where  a  corporation  is- 
sued all  its  stock  fur  a  patent  which 
turned  out  worthless,  the  stock- 
holders were  held  liable  to  credit- 
ors. Chisholm  Bros.  v.  Forney,  65 
Iowa,  333.  Where  the  articles  of  in- 
corporation provided  that  15  per 
cent,  only  of  the  par  value  of  shares 
be  paid  in,  it  was  held  that  payment 
of  the  balance  of  85  per  cent,  could 
not  be  enforced  by  a  receiver  ap- 
pointed after  the  corporation  became 
insolvent.  Bent  v.  Underdown,  156 
Ind.  516. 

*  Stout  o.  Hubbell,  104  la.  499; 
Jackson  r.  Traer,  64  Iowa,  469;  Free- 
man v.  Stine,  15  Phila.  (Penn. )  37; 
Crawford  v.  Rohrer,  59  Md.  599;  Os- 
good «.  King,  42  Iowa,  478;  Wishard 
v.  Hansen,  99  Iowa,  307;  Wether- 
bee  v.  Baker,  35  N.  J.  Eq.  501 ;  Elyton 


CHAP.  XIII.J        SHAREHOLDERS  AND  CREDITORS. 


[§  702. 


affected  by  the  facts  that  the  corporation  was  insolvent  when 
the  shares  were  issued,  and  that  they  were  issued  in  payment 
of  a  debt  owed  by  it.1  If,  however,  shares  are  issued  as  fully 
paid  up,  when  in  fact  the  corporation  has  never  received  the 
par  value  of  them,  creditors  cannot  compel  a  person  who  buys 
them  in  good  faith  as  full  paid,  to  pay  the  difference  between 
their  par  value  and  the  value  of  whatever  property  was  given 
for  them  originally.2  Though  possibly  the  creditors  could  hold 
the  original  subscriber  who  took  the  shares  as  fully  paid  up, 


Land  Co.  v.  Birmingham  Warehouse 
Co.,  92  Ala.  407;  Romau  ».  Dimmick, 
115  Ala.  233;  Pickering  v.  Town- 
send,  118  Ala.  351;  Lea  v.  Iron  Belt 
Mercantile  Co.,  119  Ala.  271,  276; 
Roman  v.  Dimmick,  123  Ala.  366; 
Shickle  v.  Watts,  94  Mo.  410;  Van 
Cleve  v.  Berkey,  143  Mo.  109;  Kelly 
v.  Clark,  21  Mont.  291;  Coleman  v. 
Howe,  154  111.  458;  Hastings  Malt- 
ing Co.  v.  Iron  Range  Co.,  65  Minn. 
28;  Marshal  Foundry  Co.  v.  Killian, 
99  N.  C.  501;  Clayton  v.  Ore  Knob 
Co.,  109  N.  C.  385.  Compare  White- 
hill  i>.  Jacobs,  75  Wis.  474;  Gogebic 
Inv.  Co.  v.  Iron,  etc.,  Co.,  78  Wis. 
427;  In  re  South  Mountain  Con- 
solidated M'g  Co.,  14  Fed.  Rep.  347; 
Sprague  v  Nat.  Bank,  172  111.  149. 
Actual  fraud  on  the  part  of  the  cor- 
poration and  stockholders  need  not 
be  shown.  Gillin  v.  Sawyer,  93  Me. 
151.  When  a  person  receives  shares 
as  a  gift,  in  consideration  of  his  in- 
fluence and  service  in  recommend- 
ing the  goods  of  the  corporation, 
creditors  may  compel  him  to  pay  in 
the  amount  of  his  subscription. 
Savings  Bk.  v.  Stove  Co.,  105  Mich. 
535.  See,  also,  Eddystone  Ins  Co., 
7a  re,  L.  R.  Ch.  Div.  1893,  III.  9. 

Where  stock  is  issued  in  good  faith 
for  property  supposed  to  equal  in 
value  the  amount  of  stock  issued  for 
it,  the  subscriber  will  not  be  liable  to 
creditors  because  subsequent  events 
show  that  the  property  was  worth 


less.  Coit  v.  Gold  Amalgamating 
Co.,  14  Fed.  Rep.  12;  S.  C,  aff'd  119 
U.  S.  343;  Fort  Madison  Bank  v.  Al- 
den,  129  U.  S.  372;  Brant  v.  Ehlen, 
59  Md.  1;  Penfield  v.  Dawson  Town 
&  Gas  Co.,  57  Neb.  231;  Kroenert  v. 
Johnston,  19  Wash.  96.  See  Cofhn 
v.  Ransdell,  110  Ind.  417,  and  §  723. 
The  stockholder  who  receives  bonds 
as  a  bonus  upon  paying  for  his  stock 
in  property  cannot  be  charged  there- 
for. The  bonds  may  not  be  enforce- 
able, but  no  obligation  to  pay  for 
them  exists  in  favor  of  the  creditor 
of  the  corporation.  Romau  v.  Dim- 
mick, 123  Ala.  366. 

1  Jackson  v.  Traer,  64  Iowa,  469.  In 
this  case  $350,000  of  stock  were  issued 
in  payment  of  a  debt  of  $70,000. 
Contra,  Clark  v.  Bever,  139  U.  S. 
96. 

2  Brant  v.  Ehlen,  59  Md.  1;  Phelan 
o.  Hazard,  5  Dill.  45;  Steacy  v.  Little 
Rock,  etc.,  R.  R.  Co.,  ib.  348;  Fore- 
man v.  Bigelow,  4  Cliff.  508;  Erskine 
o.  Loewenstein,  82  Mo.  301;  Johnson 
w.  Lullman,  15  Mo.  App.  55;  S.  C,  88 
Mo.  567;  Keystone  Bridge  Co.  v.  Mc- 
Cluney,  8  Mo.  App.  496;  West  Nash- 
ville Mill  Co.  v.  Bank,  86  Tenn.  252; 
Morgan  n.  Howland,  89  Me.  484;  see 
Waterhouse  v.  Jamieson,  L.  R.  2 
H.  L.  Sc.  29.  Compare  Peck  v.  Coal- 
field Coal  Co.,  11  111.  App.  88;  Rail- 
road Co.  v.  Howard,  7  Wall.  392; 
Troup  v.  Horbach,  53  Neb.  795.  § 
522c. 

697 


§  7025.]  THE    LAW    OF    PRIVATE   CORPORATIONS.    [CHAP.  Xm. 


assets  a 
"  trust 
fund?" 
Recent 
cases. 


knowing  them  not  to  be  so,  liable  for  such  difference,1  or  for 
the  difference  between  what  he  gave  and  what  he  received  for 
them.2 

§  702a.  The  doctrine  that  corporate  assets  constitute  a 
"trust  fund"  has  recently  been  impugned;3  and  as  certain 
decisions  of  the  Supreme  Court  of  the  United  States  might  give 
Corporate  the  impression  that  this  doctrine  and  principles 
flowing  from  it  had  been  given  up,  that  court  has 
felt  itself  called  on  to  use  the  following  language  : 
"  It  is  the  settled  doctrine  of  this  court  that  the 
trust  arising  in  favor  of  creditors  by  subscriptions  to  the  stock 
of  a  corporation  cannot  be  defeated  by  any  simulated  payment 
of  such  subscription,  nor  by  any  device  short  of  an  actual 
payment  in  good  faith.  And  while  any  settlement  or  satis- 
faction of  such  subscription  may  be  good  as  between  the 
corporation  and  the  stockholders,  it  is  unavailing  as  against 
the  claims  of  creditors.  Nothing  that  was  said  in  the  recent 
cases  of  Clark  v.  Bever,  139  U.  S.  96 ;  Fogg  v.  Blair,  139  U.  S. 
118;  or  Handley  v.  Stutz,  139  U.  S.  417,  was  intended  to 
overrule  or  qualify  in  any  way  the  wholesome  principle 
adopted  by  this  court  in  the  earlier  cases,  especially  as  applied 
to  the  original  subscribers  to  stock.  The  later  cases  were 
only  intended  to  draw  a  line  beyond  which  the  court  was 
unwilling  to  go  in  affixing  a  liability  upon  those  who  had 
purchased  stock  of  the  corporation,  or  had  taken  it  in  good 
faith  in  satisfaction  of  their  demands."  i 

§  702b.    One  of  the  points  decided  in  the  case  of  Handley 

v.  Stutz  was   that   only  subsequent  creditors  could 

s'tod<nuS "     be  presumed  to  have  given  credit  to  the  company 

on   the  faith  of  an  issue  of  stock,  and  that  conse- 


»  See  Boyton  v.  Hatch,  47  N.  T.  225; 
Tallmadjre  v.  Fishkill  Iron  Co.,  4 
Barb.  382;  Poll's  Case,  L.  R.  5  Ch. 
11 ;  cf.  Tulare  Sav.  B'k  v.  Talbot,  131 
Cal.  45. 

2  Eyerman  v.  Krieckhaus,  7  Mo. 
App.  455.  Christensen  v.  Eno,  106 
N,  Y.  97,  appears  to  hold  that  a  cor- 
poration may  present  shares  of  its 
stock  to  shareholders,  and  that  on  its 
subsequent  insolvency  creditors  can- 

698 


not  compel  shareholders  who  have 
received  shares  as  a  gratuity  to  pay 
up  the  par  value  thereof.  Compare 
Clark  v.  Bever,  31  Fed.  Rep.  670. 

3  Hospes  v.  Northwestern  Mfg.  Co., 
48  Minn.  174;  see  §  7026.  The  present 
discussion  is  to  be  read  in  connection 
with  §§  522a-522c,  and  note  to  §  655. 

4  Camden  v.  Stuart,  143  U.  S.  104, 
113.  See  Kelly  v.  Clark,  21  Mont. 
291.     Compare  Lloyd  v.  Preston,  146 


CHAP.  XIII.]  SHAREHOLDERS  AND  CREDITORS. 


[§  7026. 


quently  they  alone  would  have  a  valid  claim  against  those 
shareholders  who  had  received  "  bonus  "  stock,  or  stock  issued 
for  less  than  its  par  value.1  In  connection  with  that  case 
the  decision  and  reasoning  in  Hospes  v.  Northwestern  Manu- 
facturing Co.2  are  of  interest.  There  the  court  held  that 
where  it  is  explicitly  agreed  between  the  corporation  and 
the  person  to  whom  stock  is  issued  that  it  shall  be  "  bonus " 
stock,  no  implied  promise  to  pay  for  it  can  arise  in  favor 
of  the  corporation,  and  hence  not  in  favor  of  any  creditor  of 
the  corporation ;  the  creditor's  right  can  rest  only  on  a  fraud 
done  him ;  no  equity  exists  in  favor  of  a  creditor  whose  debt 
was  contracted  before  the  issue,  nor  in  favor  of  a  subsequent 
creditor  who  knew  of  the  agreement  under  which  the  "  bonus" 
stock  was  issued.  The  court  then  refers  to  the  recent  cases 
in  the  Federal  Supreme  Court  and  continues  :  "  It  is  difficult 
if  not  impossible  to  explain  or  reconcile  these  cases  upon 
the  '  trust  fund '  doctrine,  or,  in  the  light  of  them,  to  predi- 
cate the  liability  of  the  stockholder  upon  that  doctrine. 
But  by  putting  it  upon  the  ground  of  fraud,  and  applying  the 
old  and  familiar  rules  of  law  on  that  subject  to  the  peculiar 
nature  of  a  corporation  and  the  relation  which  its  stockholders 
bear  to  it  and  the  public,  we  have  at  once  a  rational  and  logical 
ground  on  which  to  stand.  The  capital  of  a  corporation  is  the 
basis  of  its  credit.  It  is  a  substitute  for  the  individual  lia- 
bility of  those  who  own  its  stock.  People  deal  with  it  and 
give  it  credit  on  the  faith  of  it.  They  have  a  right  to  assume 
that  it  has  paid-in  capital  to  the  amount  which  it  represents 
itself  as  having ;  and  if  they  give  it  credit  on  the  faith  of  that 
representation,  and  if  the  representation  is  false,  it  is  a  fraud 
upon  them ;  and,  in  case  the  corporation  becomes  insolvent, 
the  law,  upon  the  plainest  principles  of  common  justice,  says 
to  the  delinquent  stockholder :  '  Make  that  representation  good 
by  paying  for  your  stock.'     It  certainly   cannot  require  the 


U.  S.  630,  opinion  of  court  per 
Brown,  J.  See  Fouche  v.  Merchants1 
Nat.  Bank,  110  Ga.  827;  Van  Cleve 
v.  Berkey,  143  Mo.  109. 

i  Handley  v.  Stutz,  139  U.  S.  417; 
ace.  First  Nat.  B'k  v.  Mining  Co.,  42 
Minn.  327;  Gil  man  v.  Gross,  97  Wis. 
224.     Cf.  Palmer  v.  Bank,    72    Minu. 


266.  Those  are  "  subsequent  cred- 
itors" whose  claims  arise  after  the 
resolution  to  issue  the  stock  has 
been  passed,  although  it  may  not 
have  been  distributed  till  after  their 
debts  accrued.  Handley  v.  Stutz, 
supra. 

2  48  Minn.  174. 

699 


§  703.]       THE    LAW    OF    PRIVATE   CORPORATIONS.  [CHAP.  XIII. 

invention  of  any  new  doctrine  to  enforce  so  familiar  a  rule  of 
equity.  It  is  the  misrepresentation  of  fact  in  stating  the 
amount  of  capital  to  be  greater  than  it  really  is  that  is  the 
true  basis  of  the  liability  of  the  stockholder  in  such  cases ;  and 
it  follows  that  it  is  only  such  creditors  who  have  relied,  or 
who  can  fairly  be  presumed  to  have  relied,  upon  the  professed 
amount  of  capital,  in  whose  favor  the  law  will  recognize  and 
enforce  an  equity  against  the  holders  of  '  bonus  stock.'  "  ' 

The  above  reasoning  is  certainly  forcible,  and  the  decision, 
as  well  as  that  in  Ilandley  v.  Stutz,  is  in  harmony  with  usual 
modes  of  conducting  the  affairs  of  corporations.  It  is  to  be 
borne  in  mind,  however,  that  the  "  trust  fund  "  doctrine  rests 
primarily  on  the  view  that  the  amount  of  stock  named  in  the 
charter  constitutes  a  statement  to  all  the  world  that  that  is  the 
amount  of  capital  on  which  the  corporation  is  to  do  business. 
Now,  as  it  would  seem  to  be  false  on  principle  to  say  that  the 
amount  of  stock  named  in  the  charter  does  constitute  such  a 
statement,  and  means  money  or  money's  worth,  but  that  no 
such  idea  is  connected  with  any  subsequent  issue  or  increase  of 
stock,  recent  cases  tend  to  uphold  the  indiscriminate  issue  of 
fictitious  stock. 

§  703.  Creditors  in  order  to  enforce  their  main  right  to 
Creditors'  have  the  nominal  value  of  the  capital  stock  actually 
remedies.  paj^  jn?  have  the  subsidiary  right  to  compel  the 
directors  to  make  calls ; 2  or  creditors  may  themselves  bring 


1Hospesw.  Northwestern  Mfg.  Co., 
48  Minn.  174,  197,  Opinion  of  court 
per  Mitchell,  J.  See,  also,  Bickley  v. 
Schlag,  4(5  N.  J.  Eq.  532;  Hehberd  v. 
South  West.  L.  &  C.  Co.,  55  N.  J.  Eq. 
18;  Wallace  v.  Carpenter  Co.,  70 
Minn.  321  ;  and  Hastings  Malting  Co. 
v.  Iron  Range  Co.,  65  Minn.  28. 

2  See  §661. 

In  the  ordinary  case  of  a  solvent 
corporation  there  is  no  liability  on 
shareholders  to  pay  in  the  capital 
until  an  assessment  is  levied  by  the 
proper  corporate  authorities;  but 
when  the  corporation  becomes  in- 
solvent, especially  if  it  ceases  to  be  a 
going  concern,  this  condition  piece- 

700 


dent  ceases  to  exist,  and  payment  is 
compellable  at  the  suit  of  creditors, 
although  no  assessment  has  been 
made.  Hatch  v.  Dana,  101  U.  S. 
205;  Wilbur,  Assignee,  v.  Stock- 
holders, In  re  Glen  Iron  Works,  18 
Bankr.  Reg.  178;  S.  C,  13  Phila. 
479;  Holmes  v.  Sherwood,  3  McCrary, 
405;  Crawford  v.  Rohrer,  59  Md.  599. 
See  Kohler  v.  Agassiz,  99  Cal.  9. 
Compare  Seymour  v.  Sturges,  26  N. 
Y.  134. 

Unpaid  stock  "  in  cases  of  insol- 
vency is  due  as  an  entirety;  it  is 
due  to  the  aggregate  of  the  credit- 
ors; only  so  much  is  due  as  is  requi- 
site to  discharge  the  indebtedness  of 


CHAP.  XIII.]        SHAREHOLDERS  AND  CREDITORS. 


[§  703. 


a  bill  in  equity  against  the  delinquent  shareholders.1  But 
a  creditor  cannot  sustain  a  bill  against  shareholders  for  satis- 
faction of  his  claim  from  their  unpaid  subscriptions  until  he 
has  exhausted  his  legal  remedies  against  the  corporation  and  its 


the  corporation  after  all  other  assets 
have  been  thereto  applied;  as  a 
necessary  consequent  there  must  be 
an  account  of  debts,  assets,  and  un- 
paid capital  taken;  when  such  ac- 
count has  been  taken,  and  the 
amount  required  from  each  stock- 
holder has  been  ascertained,  an  as- 
sessment ordering  the  payment  of 
such  proportionate  amount  by  each 
may  be  made  by  a  court  of  compe- 
tent jurisdiction  in  a  proceeding  in 
which  the  corporation  and  the  stock- 
holders should  be  made  defendants. 
"  I  consider  it  as  the  clear  result 
of  the  authorities  that,  except  in 
cases  where  the  corporate  author- 
ities have  themselves  made  calls 
which  are  authorized  by  the  sub- 
scription contracts,  there  is  abso- 
lutely no  liability  of  any  kind  what- 
ever, on  the  part  of  the  stockholder 
to  pay  any  part  of  his  unpaid  capital, 
except  under  and  by  force  of  an  as- 
sessment made  as  above  stated." 
Bunn's  Appeal  (or  Lane's  Appeal), 
105  Pa.  St.  49,  67,  per  Green,  J.,  giv- 
ing opinion  of  the  Supreme  Court  of 
Pennsylvania.  This  case  disapproves 
In  re  Glen  Iron  Works,  13  Weekly 
Notes,  387;  S.  C,  13  Phila.  479.  See, 
also,  Bell's  Appeal,  115  Pa.  St.  88, 
and  compare  Citizen's,  etc.,  S'v'gs 
B'k  v.  Gillespie,  115  Pa.  St.  564; 
Cumberland  Lumber  Co.  v.  Clinton 
Hill  Lumber  Co.,  57  N.  J.  Eq.  627. 
Consequently,  on  the  insolvency  of  a 
corporation,  unpaid  and  uncalled 
amounts  due  upon  the  capital  stock 
cannot  be  attached  by  a  judgment 
creditor  of  the  corporation  by  means 
of  an  attachment  execution.  Bunn's 
Appeal,  supra. 


1  Gaff  v.  Flesher,  33  Ohio  St.  107; 
Harmon  ».  Page,  62  Cal.  448;  Baines 
v.  Babcock,  95  Cal.  581;  Universal 
Fire  Ins.  Co.  v.  Tabor,  16  Col.  531; 
Washington  S'v'gs  Bk.  v.  Butchers' 
&  D.  B'k,  107  Mo.  133;  Bailey  v. 
Pittsburg  Coal  R.  Co.,  139  Pa.  St. 
213;  Lane's  Appeal,  105  Pa.  St.  49; 
Allen  v.  Montgomery  R.  R.  Co.,  11 
Ala.  437,  449;  Hightower  v.  Thorn- 
ton, 8  Ga.  486,  504 ;  Harmon  v.  Hunt, 
116  N.  C.  678;  see  Jones  v.  Jarman, 
34  Ark.  323;  Haslettu.  Wotherspoon, 
1  Strobh.  Eq.  (S.  C.)  209;  Martin  v. 
South  Salem  Land  Co.,  94  Va.  28; 
Harris  v.  Gateway  Land  Co.,  128 
Ala.  652.  A  shareholder  cannot 
plead  against  creditors,  that  interest 
on  instalments  already  paid  in,  has 
not  been  paid  him  by  the  corpora- 
tion as  promised.  Wood  v.  Pearce,  2 
Disney  (Ohio),  411.  See,  also,  cases 
in  succeeding  notes.  But  an  action 
at  law  does  not  lie  by  a  creditor 
against  a  shareholder  for  unpaid 
subscriptions.  Patterson  v.  Lynde, 
106  U.  S.  519;  Van  Pelt  v.  Gardner, 
54  Neb.  702;  Burch  v.  Taylor,  1 
Wash.  245.  See  Bunn's  Appeal, 
supra.  But  compare  Potts  v.  Wal- 
lace, 146  U.  S.  689.  A  statute  giving 
creditors  a  right,  on  return  of  execu- 
tion against  corporations  unsatisfied, 
to  an  execution  against  shareholders 
to  the  extent  of  their  unpaid  sub- 
scriptions, does  not  increase  share- 
holders' liability,  and  is  constitu- 
tional. Hill  v.  Merchants'  Ins.  Co., 
134  U.  S.  515.  A  stockholder  cannot 
be  garnisheed  on  his  unpaid  subscrip- 
tion by  a  creditor  of  the  corporation, 
when  no  call  has  been  made.  KcKel- 
vey  v.  Crockett,  18  Nev.  238.  As  to 
701 


§  704.]       THE   LAW   OF   PRIVATE   CORPORATIONS.  [CHAP.  XIII. 


property.1  Though  it  would  seem  that  this  last  rule  is  inap- 
plicable to  creditors  of  a  dissolved  corporation  who  can  obtain 
no  judgment  at  law  against  it.2 

§  704.  A  creditor  suing  for  satisfaction  of  his  debt  may 
properly,  and,  according  to  the  majority  of  decisions, 
must  sue  on  behalf  of  himself  and  all  other  creditors 
who  are  willing  to  join.  For  the  unpaid  subscrip- 
tions constitute  a  fund  for  the  benefit  of  all  the 
creditors.3  In  such  an  action  it  is  proper  to  join  all  the  share- 
holders as  defendants ;  and  if  the  latter  are  too  numerous  to  be 
joined,  or  if  some  of  them  are  unknown  to  the  plaintiff,  or  in- 
solvent, or  beyond  the  jurisdiction  of  the  court,  the  creditors' 
bill  should  contain  allegations  to  this  effect.4  The  corporation 
should  also  be  made  a  party  defendant.5 


Joinder  of 
parties  in 
creditors' 
bills. 


the  assignment  by  the  corporation  of 
unpaid  subscriptions,  see  §§  543,  707. 
As  to  right  of  receiver  of  an  insol- 
vent foreign  corporation  to  sue  for 
unpaid  subscriptions,  see  §  393,  note. 

1  Terry  v.  Anderson,  95  U.  S.  628, 
636;  Sturges  ».  Vanderbilt,  73  N.  Y. 
384;  Blake  v.  Hinkle,  10  Yerger 
(Tenn.),  218.  See  Hatch  v.  Dana, 
101  U.  S.  205;  Marsh  v.  Burroughs, 
1  Woods,  463;  Remington  v.  Samana 
Bay  Co.,  140  Mass.  494;  Thomson- 
Houston  Elec.  Co.  v.  Murray,  60  N. 
J.  L.  20;  Wehn  v.  Fall,  55  Neb.  548. 
The  Federal  Supreme  Court  holds 
that  the  plaintiff  must  have  obtained 
judgment  against  the  corporation  in 
the  courts  of  the  state  where  he  seeks 
to  sue  the  shareholder,  or  show  that 
it  was  impossible  to  do  so,  before  he 
can  maintain  an  action  for  unpaid 
subscription  against  the  shareholder. 
National  Tube  Works  Co.  v.  Ballou, 
146  U.  S.  517.  See,  also,  Swan  Land 
Co.  v.  Frank,  148  U.  S.  603;  Hard- 
ware Co.  v.  Milling  Co.,  13  Utah,  423. 
As  to  the  effect  in  such  a  suit  of  a 
judgment  against  a  corporation, 
see  §  737. 

2  Terry  v.  Anderson,  supra  ;  com- 
pare Sturges  v.  Vanderbilt,   supra ; 

702 


Remington  v.  Samana  Bay  Co.,  140 
Mass.  494. 

3  See  Dabney  v.  Bank  of  South 
Carolina,  3  S.  C.  124;  Sawyer  »• 
Hoag,  17  Wall.  610;  Hickling  v. 
Wilson,  104  111.  54;  Lane's  Appeal, 
105  Pa.  St.  49;  Brundage  v.  Monu- 
mental Gold,  etc.,  M'g  Co.,  12  Oreg. 
322;  Patterson  v.  Lyude,  112111.  196; 
Pickering  v.  Hastings,  56  Neb.  201; 
Welch  v.  Sargent,  127  Cal.  72.  This 
rule  holds  good  though  the  corpo- 
ration be  a  foreign  corporation.     lb. 

4  Adler  v.  Milwaukee  Patent  Brick 
M'f'g  Co.,  13  Wis.  57;  Vick  v.  Lane, 
56  Miss.  681;  Wetherbee  v.  Baker,  35 
N.  J.  Eq.  501;  Holmes  v.  Sherwood, 
3  McCrary,  405;  Bronsou  v.  Insurance 
Co.,  85  N.  C.  411.  See  Hadley  v. 
Russell,  40  N.  H.  109;  Erickson  v. 
Nesmith,  46  N.  H.  371;  Trust  Co.  v. 
Loan  Co.,  92  Me.  444. 

5  Wetherbee  v.  Baker,  35  N.  J.  Eq. 
501 ;  Perkins  v.  Sanders,  56  Miss.  733; 
Holmes  v.  Sherwood,  3  McCrary, 
405;  Patterson  v.  Lynde,  112  111.  196; 
Potter  v.  Dear,  95  Cal.  578;  contra, 
that  corporation  is  not  a  necessary 
party,  see  German  Nat.  Bank  v. 
Farmers  &  Merchants  Bank,  54  Neb. 
593. 


CHAP.  XIII.]       SHAREHOLDERS  AND  CREDITORS. 


[§  705. 


§  705.  The  corporation  being  insolvent,  no  doubt  any  cred- 
itor not  made  a  party  to  the  bill  has  a  right  to  come  in  and  in- 
sist on  a  ratable  distribution  of  the  corporate  assets,  which 
include  unpaid  subscriptions.1  And  a  creditor's  bill  that  is 
properly  framed  will  be  in  a  form  to  enable  any  creditor  to 
join.3  It  would,  however,  work  hardship  if  a  creditor  who  sues 
in  a  court  of  equity  to  reach  assets  of  the  corporation  which  he 
cannot  subject  to  his  claim  in  an  action  at  law,  were  in  all  cases 
obliged  to  make  all  the  shareholders  parties,  or  even  to  bring 
his  suit  on  behalf  of  all  the  creditors.  To  insist  on  this  would 
practically  force  a  creditor  seeking  such  equitable  relief  to  bring 
a  bill  for  the  winding  up  of  the  corporation ;  which  is  certainly 
not  incumbent  on  him.3 

Thus,  in  Marsh  v.  Burroughs,4  a  bill  was  brought  by  certain 
judgment  creditors  of  a  bank  against  a  portion  of  the  share- 
holders, to  compel  them  to  satisfy  the  plaintiffs'  judgments 
from  the  unpaid  subscriptions  due  on  the  defendants'  shares. 
The  bill  alleged  that  the  stock  of  the  bank  was  divided  into 
twentv  thousand  shares,  held  by  a  great  number  of  share- 
holders in  different  states,  some  of  whom  were  insolvent. 
Although  the  objection  was  made  that  the  proper  parties  were 
not  before  the  court,  Justice  Bradley  sustained  the  bill,  saying 
in  the  course  of  his  opinion  :  "  A  judgment  creditor  who  has 
exhausted  his  legal  remedy,  may  pursue  in  a  court  of  equity 
any  equitable  interest,  trust,  or  demand  of  his  debtor,  in 
whosesoever  hands  it  may  be.  And  if  the  party  thus  reached 
has  a  remedy  over  against  other  parties  for  contribution  or 
indemnity,  it  will  be  no  defence  to  the  primary  suit  against 
him  that  they  are  not  parties.  If  a  creditor  were  to  be  stayed 
until  all  such  parties  could  be  made  to  contribute  their  pro- 
portionate share  of  the  liability,  he  might  never  get  his 
money. " 5 


1  See  Pfohl  v.  Simpson,  74  N.  T. 
137;  Marru.  Bank  of  West  Tennes- 
see, 4  Coldw.  (Tenn.)  471;  Adler  v. 
Milwaukee  Patent  Brick  MTg  Co., 
13  Wis.  57;  Osgood  v.  Lay  tin,  3 
Keyes  (N.  Y.),  521. 

2  Suck  was  the  form  in  Hatch  v. 
Dana,  101  U.  S.  205,  and  Ogilvie  v. 
Knox  Ins.  Co.,  22  How.  380. 


3  See  Crawford  v.  Rohrer,  59  Md. 
599;  Martin  v.  South  Salem  Land  Co., 
94  Va.  28. 

4  1  Woods,  463. 

5  Marsh  v.  Burroughs,  1  Woods, 
463,  468.  See,  also,  Bartlettv.  Drew, 
57  N.  T.  587. 


703 


§  707.]       THE   LAW   OF   PRIVATE   CORPORATIONS.  [CHAP.  XIII. 


§  706.  So  in  Hatch  v.  Dana,1  a  creditor's  bill  brought 
against  a  portion  of  the  shareholders,  not  to  wind  up  the 
company,  but  simply  to  obtain  the  payment  of  the  plaintiff's 
debt  out  of  unpaid  subscriptions,  was  sustained  by  the  Su- 
preme Court  of  the  United  States.  "  The  liability  of  a  sub- 
scriber for  the  capital  stock  of  a  company  is  several,  and  not 
joint.  By  his  subscription  each  becomes  a  several  debtor 
to  the  company,  as  much  so  as  if  he  had  given  his  promissory 
note  for  the  amount  of  his  subscription.  At  law,  certainly, 
his  subscription  may  be  enforced  against  him  without  joinder 
of  other  subscribers ;  and  in  equity  his  liability  does  not  cease 
to  be  several.  A  creditor's  bill  merely  subrogates  the  creditor 
to  the  place  of  the  debtor,  and  garnishees  the  debt  due  to  the 
indebted  corporation.  .  .  .  We  hold  that  the  complainant 
was  under  no  obligation  to  make  all  the  shareholders  of  the 
bank  defendants  in  his  bill.  It  was  not  his  duty  to  marshal 
the  assets  of  the  bank,  or  to  adjust  the  equities  between  the 
corporators.  In  all  that  he  had  no  interest.  The  appellants 
may  have  had  such  an  interest,  and,  if  so,  it  was  quite  in  their 
power  to  secure  its  protection.  They  might  have  moved  for 
a  receiver,  or  they  might  have  filed  a  cross-bill,  obtained  a 
discovery  of  the  other  stockholders,  brought  them  in,  and 
enforced  contribution  from  all  who  had  not  paid  their  stock 
subscriptions.  Their  equitable  right  of  contribution  is  not 
yet  lost."  2 

§  707.  Instead  of  himself  suing,  a  creditor  may  apply  for 
the  appointment  of  a  receiver,  whose  function  it 
will  be  to  collect  unpaid  subscriptions.3  And  after 
the  appointment  of  a  receiver,  a  creditor  cannot 
bring  suit  in  his  own  name  for  unpaid  subscrip- 
tions ;  nor  prosecute  a  suit  further  if  he  has  already 


Appoint- 
ment of 
receiver. 
Assignee  in 
bank- 
ruptcy. 


1  101  U.  S.  205. 

2  Hatch  p.  Dana,  101  U.  S.  205,  211, 
214;  opinion  of  the  court  per  Strong, 
J.;  accord,  Ogilvie  w.  Knox  Ins.  Co., 
22  How.  380  ;  Cornell  &  Michler's 
Appeal,  114  Pa.  St.  153;  Baines  v. 
Babcock,  95  Cal.  581;  Pierce  v.  Mil- 
waukee Const'n  Co.,  38  Wis.  253; 
Palmer  v.  Woods,  149111.  146;  Fouche 
v.  Merchants'  Nat.   Bank,     110    Ga. 

704 


827;  Harrell  v.  Blount,  112  Ga.  711; 
Cooper  17.  Security  Co.,  127  N.  C. 
219.  See  Smith,  Rec'r,  v.  Johnson, 
57  Oh.  St.  48G;  Walter  v.  Merced 
Academy  Ass'n,  126  Cal.  582.  Com- 
pare Griffith  v.  Mangam,  73  N.  Y. 
611  ;  Thompson  v.  Reno  Savings 
Bank,  19  Nev.  103. 

3  See  §  542. 

A  receiver  should  not  call  on  share- 


CHAP.  XIII.]        SHAREHOLDERS  AND  CREDITORS. 


[§  708. 


begun  one.1  Unpaid  subscriptions,  moreover,  being  part  of 
the  assets  of  the  corporation,  pass  by  a  decree  in  bankruptcy  to 
its  assignee ;  after  which  he  and  not  the  creditors  should  sue 
for  them.  And  the  mere  fact  that  the  assignee  has  delayed 
for  two  years  in  bringing  suit  does  not  enable  creditors 
to  sue.2 

§  708.  Creditors  may  also  restrain  shareholders  from  with- 
drawing the   corporate  funds  to    the   injury   of   the   former, 
and  can  recover  such  funds  from  shareholders  who  have  im- 
properly received   them.3     For  instance,  the  share-   Ri„htsof 
holders  of  an  insolvent  bank  are  not  entitled  to  re-   creditors 
ceive  or  divide  among  themselves  any  of  its  assets   snare- 
until  its  debts  and  liabilities  are  fully  discharged.4   pr0periy 
And  an  action  may  be  maintained  by  the  receiver   ^g^p^." 
of  an  insolvent  corporation  against  its  shareholders   rate  funds. 
to  recover  sums  received  by  them  as  dividends  when  the  cor- 
poration   was   insolvent.5     But   where    dividends    have    been 


holders  for  the  balance  of  their  un- 
paid subscriptions  in  order  to  pay 
creditors,  until  the  whole  amount  of 
the  corporate  indebtedness  is  deter- 
mined and  the  liability  of  each  share- 
holder fixed.  Chandler  v.  Keith,  42 
Iowa,  99;  Mann  u.  Pentz,  3  New  York, 
415.  But  see  Dayton  v.  Borst,  31 
N.  Y.  435. 

iRankine  v.  Elliot,  16  N.  Y.  377; 
Brown  v.  Brink,  Rec'r,  57  Neb.  600. 
See  §  690,  note. 

In  a  creditor's  action  against  an 
insolvent  corporation  for  the  ap- 
pointment of  a  receiver,  a  court  has 
no  jurisdiction  to  grant  an  inter- 
locutory order  makiug  an  assess- 
ment on  the  unpaid  stock,  as  against 
shareholders  not  parties  to  the  bill, 
the  bill  containing  no  allegation 
that  they  are  too  numerous  to  be 
made  parties.  Lamar  Ins.  Co.  v. 
Hildreth,  55  Iowa,  248. 

2  Lane  v.  Nickerson,  99  111.  284. 
But  a  bill  brought  by  creditors, 
alleging  collusion  between  the  cor- 
poration, its  assignee,  and  its  debt- 

45 


ors,  may  be  sustained.  Stocks  v. 
Van  Leonard,  8  Ga.  511. 

s  Bartlett  v.  Drew,  57  N.  Y.  587; 
Singer  v.  Hutchinson,  183  111.  606. 
See  §  656. 

4  Wood  v.  Dummer,  3  Mason,  308; 
Hollister  v.  Hollister  Bank,  2  Keyes 
(N.  Y.),  245. 

6  Osgood  v.  Lay  tin,  3  Keyes  (N. 
Y.),  521;  Lexington  Life,  etc.,  Ins. 
Co.  v.  Page,  17  B.  Mon.  (Ky.)412; 
Grant,  Assignee,  v.  Ross,  100  Ky.  44; 
Grant  v.  Southern  Contract  Co.,  104 
Ky.  781;  Davenport,  Rec'r  v.  Lines, 
72  Conn.  118.  Especially  if  the  divi- 
dends were  paid  out  of  capital. 
William  v.  Boice,  38  N.  J.  Eq.  364. 
Although  a  statute  makes  the  direct- 
ors personally  liable  for  all  divi- 
dends paid  out  of  capital.  lb.; 
§§  566,  567.  It  has  been  held  that  a 
receiver  of  a  national  bank,  upon  the 
corporation's  becoming  insolvent, 
cannot  recover  dividends  paid  out 
of  capital  if  the  corporation  was 
solvent  at  the  time,  and  the  stock- 
holder received  them  in  good  faith. 

705 


Sharehold- 
ers in  what 
respect 
trustees  for 
creditors. 
Statute  of 
limitations. 


§  710.]       THE   LAW   OF   PRIVATE   CORPORATIONS.   [CHAP.  XIII. 

properly  paid  from  profits,  the  company  being  solvent  at  the 
time,   its  subsequently    accruing   insolvency  will    not    enable 
creditors  to  recover  such  dividends  from  the  shareholders  who 
have  received  them.1 
§  709.  Since  the  unpaid  subscriptions  just  as  much  as  those 
which  are  actually  paid  in,  are  held  to   constitute 
the  capital  of  the  corporation,2  shareholders  to  the 
extent  of   their  unpaid  subscriptions   have  in  their 
possession    funds   to  which  creditors  of   the   corpo- 
ration   may    be    entitled;    and    shareholders    may 
therefore,  to   the  extent  of   their  unpaid    subscrip- 
tions, be   regarded  as    trustees    for   creditors.3    Accordingly, 
the  statute  of  limitations  does  not    run  against  the  right  of 
creditors  to  enforce  the  payment  of  unpaid  subscriptions  until 
the  corporation  has  ceased  to  be  a  going  concern,4  or  until  a 
valid  call  has  been  made  by  the  directors  or  by  a  court  of  com- 
petent jurisdiction,  or  at  least  some  authorized  demand  has  been 
made  on  the  subscriber.5 

§  710.  Further,  the  body  corporate  derives  its  powers  to 
act  as  such  from  the  constitution  of  the  corporation ;  a  propo- 
sition which  involves  the  further  proposition  that  it  must  ex- 
ercise its  powers  in  accordance  with  the  terms  of  such  con- 
stitution.    These  powers,  accordingly,  cannot  be  exercised  in 


McDonald,  Rec'r,  v.  Williams,  174  U. 
S.  397.  Similarly  a  preferred  share- 
holder is  postponed  to  creditors.  St. 
John  v.  Erie  Railway  Co.,  22  Wall. 
136.  In  such  an  action  the  receiver 
may  make  the  creditors  parties  to 
restrain  them  from  bringing  separate 
suits  against  the  shareholders.  Os- 
good v.  Laytin,  supra. 

1  Reid  v.  Eatonton  M'fg  Co.,  40 
Ga.  98.  See  McLean  v.  Eastman,  21 
Hun,  312. 

2  See  §  661. 

8  See  §§  41-47. 

4  Allibone  v.  Hager,  46  Pa.  St.  48, 
54;  Payne  v.  Bullard,  23  Miss.  88; 
Curry  v.  Woodward,  53  Ala.  371,376. 
See  Harmon  v.  Page,  62  Cal.  448; 
First  Nat.  B'k  v.  Green,  64  Iowa,  445; 
Wilkins  v.  Worthen,  62  Ark.  401; 
706 


Swearingen  v. Dairy  Co. ,198  Pa.  St.  68. 
It  was  held  in  Glenn  v.  Marbury,  145 
U.  S.  499,  that,  though  a  corpora- 
tion is  insolvent  and  in  the  hands  of 
a  receiver,  the  statute  of  limitations 
does  not  begin  to  run  until  an  assess- 
ment has  been  made;  and  see  Semple 
v.  Glenn,  91  Ala.  245;  Van  Pelt  v. 
Gardner,  54  Neb.  702. 

5Scovill  v.  Thayer,  105  United 
States,  143,  155;  Hawkins  v.  Glenn, 
131  U.  S.  319;  Glenn  v.  Liggett,  135 
U.  S.  533;  Great  Western  Tel.  Co.  v. 
Gray,  122  111.630;  Washington  SVgs 
B'k  v.  B.  &  D.  B'k,  107  Mo.  133; 
Western  R.  R.  Co.  v.  Avery,  64  N.  C. 
491;  Harris  v.  Gateway  Land  Co., 
128  Ala.  652.  See  Glenn  v.  Saxton, 
68  Cal.  353. 


CHAP.  XIII.]        SHAREHOLDERS  AND  CREDITORS. 


[§  711. 


disregard  of  interests  which  just  as  much  as  the  interests  of 
shareholders  are  protected  by  rights  which  are  the  manifesta- 
tions of  legal  rules  contained  in  the  constitution.  And,  there- 
fore, in  so  far  as  shareholders,  constituting  the  body  corporate, 
have  power  to  control  the  funds  in  which  creditors  have 
legally  protected  interests,  shareholders  must  be  regarded  as 
occupying  towards  them  a  position  of  trust ;  for  the  latter  have 
ordinarily  no  voice  in  the  corporate  management.  As  Jus- 
tice Miller  said,  giving  the  opinion  of  the  Federal  Supreme 
Court,  in  Sawyer  v.  Hoag : l  "  But,  after  all,  this  artificial 
body  is  but  the  representative  of  its  stockholders,  and  exists 
mainly  for  their  benefit,  and  is  governed  and  controlled  by 
them  through  the  officers  whom  they  elect ;  and  the  interest 
and  power  of  legal  control  of  each  shareholder  is  in  exact 
proportion  to  the  amount  of  his  stock.  It  is,  therefore,  but 
just  that  when  the  interest  of  the  public,  or  of  strangers  deal- 
ing with  the  corporation,  is  to  be  affected  by  any  transaction 
between  the  stockholders  who  own  the  corporation,  and  the 
corporation  itself,  such  transaction  should  be  subjected  to  a 
rigid  scrutiny,  and  if  found  to  be  affected  with  anything  un- 
fair toward  such  third  person,  calculated  to  injure  him,  or 
designed  intentionally  and  inequitably  to  screen  the  stock- 
holder from  loss  at  the  expense  of  the  general  creditor,  it 
should  be  disregarded  or  annulled  so  far  as  it  may  inequitably 
affect  him."  a 

§  711.  Thus,  the  Federal  Supreme  Court  has  held  that  a 
foreclosure  sale,  made  after  a  railroad  company,  the  mortgagor, 
had  become  insolvent,  and  expedited  by  an  arrangement  be- 
tween the  mortgagees  and  the  shareholders,  by  which  the  former 
received   a   part   of   the   debt  due   them   and  the  latter  the 


1 17  Wall.  610,  623. 

8  Compare  Arkansas  River,  etc., 
Co.  v.  Farmers'  L.  &  T.  Co.,  13  Col. 
587.  Thus,  an  insolvent  bank  can- 
not convey  its  property  to  pay  a 
debt  due  its  sole  shareholder.  Swep- 
son  o.  Bank,  9  Lea  (  Tenn.),  713. 
But  it  has  been  held  that  a  share- 
holder may  avail  himself  of  his  supe- 
rior advantages  to  obtain  security 
for  debts  due  him,  to  the  exclusion 


of  other  creditors  of  the  corporation. 
The  court  said  that  shareholders  and 
strangers  who  are  creditors  stood  on 
very  unequal  terms;  but  it  seemed  to 
bean  inequality  allowed  by  the  law 
and  understood  by  persons  contract- 
ing with  the  corporation.  Whitwell 
B.  Warner,  20  Vt.  425,  444.  See 
Keichwald  v.  Commercial  Hotel  Co., 
106  111.  439,  452. 

707 


§  713.]       THE   LAW   OF   PRIVATE   CORPORATIONS.  [CHAP.  XIII. 


§  712. 


Classes  of 

statutes 

imposing 

personal 

liability. 


remainder  of  the  proceeds,  is  fraudulent  as  against  the  general 
creditors  of  the  company ;  and  this,  although  the  road  was 
mortgaged  far  above  its  value,  and  did  not  on  the  sale  in  open 
market  bring  nearly  enough  to  satisfy  even  the  mortgage 
debts.1 

Statutes  imposing  individual  liability2  fall  under 
two  heads :  those  which  make  the  shareholders 
jointly  and  severally  liable  for  all  the  debts  of  the 
corporation,  and  those  which  add  a  further  limited 
liability  to  the  liability  arising,  according  to  the 
general  rules  of  corporation  law,  from  subscribing  for  stock. 
The  extent  of  this  limited  liability  may  be  made  dependent 
on  the  number  of  shares  held,  or  on  the  proportion  which  that 
number  bears  to  the  whole  number  of  shares  in  the  capital 
stock.  Statutes  imposing  a  limited  liability  may  be  sub- 
divided into  those  in  accordance  with  the  tenor  and  import  of 
which  a  single  creditor  ina\T  sue  a  single  shareholder  at  law ; 
and  those  which  are  construed  to  render  the  shareholders  liable 
to  contribute  a  proportionate  amount  to  a  common  fund  for  the 
ratable  benefit  of  all  creditors.  To  enforce  the  liability  of 
shareholders  under  the  latter,  all  the  creditors  must  join  in  a 
suit  in  equity,  or  one  creditor  must  sue  in  equity  on  behalf 
of  all  other  creditors  ;  and  in  so  far  as  is  practicable,  all  the 
shareholders  must  be  joined  as  defendants. 

§  713.    It    is   ordinarily   provided   by  all   these   statutes — 


1  Railroad  Co.  v.  Howard,  7  Wall. 
392.  But  compare  Pennsylvania 
Transportation  Co.'s  Appeal,  101  Pa. 
St.  576,  where  it  was  held  that  the 
bondholders  aud  shareholders  of  a 
railroad  company  may  unite  for  the 
purchase  of  the  property  of  the  com- 
pany at  a  contemplated  foreclosure 
sale,  to  prevent  a  sacrifice  of  the 
property;  and  if  the  agreement  and 
sale  are  fair,  they  do  not  operate  as  a 
fraud  on  a  creditor,  who  had  notice 
of  the  sale  and  an  opportunity  of 
bidding.  But  a  creditor  who  is  also 
a  shareholder  and  votes  for  and  par- 
ticipates in  the  distribution  of   the 

708 


property  of  the  corporation  cannot 
invoke  the  doctrine  that  it  is  a  trust 
fund,  which  he  can  follow  into  the 
hands  of  the  individual  sharehold- 
ers. Fort  Madison  Bank  v.  Alden, 
129  U.  S.  372;  Thompson  v.  Bemis 
Paper  Co.,  127  Mass.  595. 

2  Statutes  imposing  a  further 
liability  on  shareholders  towards 
creditors,  do  not  impliedly  deprive 
creditors  of  their  right  to  enforce 
payment  of  subscriptions  for  stock. 
See  Bunn's  Appeal,  105  Pa.  St.  49; 
Warner  v.  Callender,  20  O.  St.  190; 
Washington  S'v'gs  B'k  v.  B.  &  D. 
B'k,  107  Mo.  133. 


CHAP.  XIII.]        SHAREHOLDERS  AND  CREDITORS. 


[§  714. 


those  which  impose  a  limited,  as  well  as  those  which 
impose  an  unlimited  liability — that  a  creditor  shall  ^5^^ 
obtain  judgment  against  the  corporation,  and  that   ®x^tti(i? 
execution  shall  be  levied  thereunder,  and  returned   eorpora- 
wholly  or  partially  unsatisfied  before  he  can  proceed 
against  a  shareholder  individually.1 

§  714.  The  general  nature  of  the  personal  statutory  liability 
of  shareholders  for  corporate  indebtedness  has  been   ^T 

•  it         Nature  of 

much  discussed;2  some  courts  having  held  such  ha-  statutory 
bility  to  be  that  of  partners  ;  while  in  Michigan  it  is  ia  *  *  y" 
said  to  be  that  of  guarantors.     The  truth  is,  the  liability  of 


1  But  these  conditions  precedent 
are  not  always  imposed.  Thus,  when 
it  was  provided  by  a  certain  charter 
that  the  "  members  of  the  company 
shall  be  jointly  and  severally  liable 
for  all  debts  and  contracts  made  by 
the  company  until  the  whole  amount 
of  the  capital  stock  fixed  and  limited 
by  the  corporation"  is  paid  in,  it 
was  held  that  the  liability  of  share- 
holders was  unconditional,  original, 
and  immediate,  not  dependent  on 
the  insufficiency  of  the  corporate 
assets,  and  not  collateral  to  that  of 
the  corporation,  upon  the  event  of 
its  insolvency;  and  that  upon  a  bill 
filed  against  a  corporation  for  a  debt 
under  seal,  the  shareholders  were 
properly  made  parties,  in  order  to 
avoid  a  multiplicity  of  suits.  Man- 
ufacturing Co.  v.  Bradley,  105  U.  S. 
175.  See,  also,  Culver  ».  Third  Nat. 
B'k,  64  111.  528;  Bird  v.  Calvert,  22 
S.  C.  292. 

On  the  other  hand,  such  conditions 
may  be  implied  from  the  tenor  of  the 
statute.  Thus,  where  shareholders 
in  a  bank  were  made  liable  jointly 
and  severally  to  creditors  for  the  de- 
posits, it  was  held  that  their  liability 
was  secondary,  and  could  not  be  en- 
forced until  the  assets  of  the  bank 
had  been  exhausted.  Mean's  Ap- 
peal, 85  Pa.  St.  75.  See,  also,  Har- 
per v.  Union  M'fg  Co.,   100  111.  225. 


Compare  Hatch  v.  Burroughs,  1 
Woods,  439;  Grindle  v.  Stone,  78 
Me.  176;  Trust  Co.  ».  Loan  Co.,  92 
Me.  444.  See,  also,  §  724.  After  an 
insolvent  corporation  has  made  an 
assignment,  the  rule  requiring  a  re- 
turn of  execution  against  it  unsatis- 
fied before  proceeding  against  share- 
holders on  their  statutory  liability 
no  longer  applies.  Barrick  v.  Gif- 
ford,  47  O.  St.  180. 

2  The  statutory  liability  of  share- 
holders, whether  limited  or  unlim- 
ited, which  last  is  unusual,  ordinarily 
arises  ex  contractu,  and  is  not  a  pen- 
alty. See  Norris  v.  Wrenschall,  34 
Md.  492;  Flash  ».  Conn,  109  U.  S. 
371.  Such  liability  cannot  be  re- 
pealed so  as  to  affect  the  vested 
rights  of  creditors.  Hawthorne  v. 
Calef,  2  Wall.  10;  Provident  SVgs 
Ins.  v.  Jackson  Place  Skating  Rink, 
52  Mo.  552.  Not  even  by  a  state  con- 
stitutional amendment.  St.  Louis 
R'y  Supplies  Co.  v.  Harbine,  2  Mo. 
App.  134.  See  §§  500,  501 ;  also  §  735. 
It  survives  the  death  of  a  share- 
holder, and  attaches  to  his  personal 
representatives.  Richmond  v.  Irons, 
121  U.  S.  27;  Grew  v.  Breed,  10  Met. 
(Mass.)  569;  Cochran  v.  Wiechers, 
119  N.  Y.  399;  Hansen  v.  Davison,  73 
Minn.  454. 

Where  this  liability  sounds  in  con- 
tract it  will  be  enforced  outside  the 

709 


§  715.]         THE  LAW  OF  PRIVATE  CORPORATIONS.     [CHAP.  XIII. 


shareholders  under  statutes  imposing  individual  liability  for 
corporate  indebtedness  is  the  liability  of  shareholders  under 
such  statutes,  and  to  speak  of  it  as  the  liability  of  guarantors, 
or  the  liability  of  partners,  is  to  call  it  what  it  is  not.1 

§  715.  That  it  is  not  the  liability  of  guarantors  seems  too 
evident  to  require  argument.  Suretyship  is  a  legal  institution 
composed  of  peculiar  rules  based  on  the  general  notion  that  a 
surety  is  a  man  conferring  a  benefit  and  receiving  none  in  re- 
turn, whose  contract,  therefore,  is  to  be  construed  strictly  in 
his  own  favor.2  It  is  evident  that  the  situation  of  a  share- 
holder is  very  different,3  and  the  decision  in  the  Michigan 
case,4  that  the  shareholder  was  a  guarantor  who  was  discharged 
because  time  was  given  the  corporation,  is  against  the  weight 
of  authority,  and  apparently  a  mistaken  decision.5 


limits  of  the  state  chartering  the 
corporation;  at  least,  if  the  necessary 
parties  can  be  brought  within  the 
jurisdiction  of  the  foreign  court. 
Hodgson  v.  Cheever,  8  Mo.  App.  318. 
Compare  Lowry  v.  In  man,  46  N.  Y. 
119.     See  §  394. 

Thus  liability  attaching  to  share- 
holders until  the  total  capital  stock 
is  paid  in,  and  a  certificate  to  that 
effect  filed  will  be  enforced  outside 
the  state.  Cuykendall  v.  Miles,  10 
Fed.  Rep.  342. 

On  the  other  hand,  any  liability  of 
shareholders  or  officers  contingent 
on  the  failure  of  the  latter  to  pub- 
lish or  file  reports  is  held  penal  and 
not  enforceable  outside  the  state. 
Wood  v.  Wicks,  7  Lea  (Teun.),  40. 
But  see  §§  764,  765.  Sucli  penal  lia- 
bility will  be  strictly  construed  in 
favor  of  the  shareholders.  Cady  v. 
Smith,  12  Neb.  628,  630.  Compare 
Smith  o.  Steele,  8  Neb.  115.  And  it 
has  been  held  not  to  survive  the  death 
of  the  person  affected  with  it.  Di- 
versey  v.  Smith,  103  111.  378. 

1  The  nature  of  this  liability  in  any 
particular  case  depends,  of  course, 
on  the  intent  of  the  statute  creat- 
ing it.     Under  some  statutes  it  will 

710 


resemble  the  liability  of  guarantors, 
and  under  others  that  of  partners. 
But  neither  the  rules  of  suretyship 
nor  the  rules  of  partnership  law  will 
ever  be  wholly  and  exclusively  appli- 
cable. 

2 Mobile,  etc.,  R.  R.  Co.  v.  Nicholas, 
98  Ala.  92,  125.     See   Ward  v.  Stahl, 

81  N.  Y.  406. 

3  See  Emerson  v.  Slater,  22  How.  28. 

4  Hanson  v.  Donkerly,  37  Mich.  184. 
See  Ball  El.  L't  Co.  v.  Child,  68  Conn. 
522.  Cf.  Nat.  Loan  Ass'nw.  Lichten- 
waluer,  100  Pa.  St.  100;  Milroy  v. 
Spur  Mountain  Iron  M'g  Co.,  43 
Mich.  231. 

5  Directly  contra  to  Hanson  v.  Don- 
kerly are  Harger  v.  McCullough,  2 
Denio  (N.  Y. ),  119;  Moss  v.  Averell, 
10  N.  Y.  449;  Aultman's  Appeal,  98 
Pa.  St.  505;  Young  v.  Rosenbaum,  39 
Cal.  646;  Sonoma  Valley  Bank  v. 
Hill,  59  Cal.  107;  Hatch  v.  Burroughs, 
1   Woods,  439;  Hyman  v.   Coleman, 

82  Cal.  650;  Boice  v.  Hodge,  51  Ohio 
St.  236.  The  view  taken  in  Hanson 
v.  Donkerly  seems  overruled  in 
Grand  Rapids  Sav'gs  Bank  v.  Warren, 
52  Mich.  557. 

To  be  sure,  where,  under  the  stat- 
ute, suit  must  be  commenced  against 


CHAP.  XIII.]        SHAREHOLDERS  AND  CREDITORS. 


[§  716. 


§  716.  The  temptation  to  speak  of  the  statutory  liability 
of  a  shareholder  as  the  liability  of  a  partner  is  more  insidious, 
because  of  the  resemblance  between  the  two  kinds  of  liability. 
But  it  is  evident  that  the  status  of  a  shareholder  in  a  corpora- 
tion, to  members  of  which  personal  liability  attaches,  differs 
much  from  that  of  a  partner.1  Shareholders  are  not,  like 
partners,  each  other's  agents ;  unlike  partners,  they  may  trans- 
fer their  shares  at  will ;  then  ordinarily,  even  in  respect  of  his 
statutory  liability,  a  shareholder  cannot  be  sued  until  the 
creditor  has  exhausted  his  legal  remedies  against  the  corpora- 
tion ;  and  finally,  under  some  statutes,  a  shareholder  may  be 
sued  alone,  though  in  the  end  he  is  entitled  to  contribution 
from  his  fellow  shareholders.  Undoubtedly  there  remains  the 
main  resemblance  between  the  liability  of  partners  and  the 
statutory  liability  of  shareholders,  that  a  shareholder  as  well 
as  a  partner  is  liable  individually  for  the  debts  of  the  corpora- 
tion or  firm,  a  resemblance  which  is  especially  prominent  in 
the  unlimited  liability2  of  a  shareholder  who  like  a  partner 
may  be  obliged  to  pay  all  the  debts  of  the  concern.  And  the 
danger  lies  here,  lest  with  eyes  fixed  on  this  main  resemblance 
courts  overlook  minute  differences,  and  in  consequence  fail  to 
do  accurate  justice.  The  perception  of  a  resemblance  is  often 
nothing  but  a  failure  to  see  differences.  Corporations  are 
largely  regulated  by  statute,  and  differ  in  so  many  respects 
from  partnerships  that  errors  must  be  introduced  by  an  indis- 
criminate reasoning  from  the  analogy  of  the  latter  institutions.3 


a  shareholder  within  one  year  after 
the  debt  of  the  corporation  became 
due,  the  liability  of  the  shareholder 
cannot  be  extended  by  any  exten- 
sion or  renewal  of  the  indebtedness 
of  the  corporation,  as  by  taking  its 
note.  Parrot  v.  Colby,  6  Hun,  55; 
S.  0.,  affd  71  N.  Y.  597;  Jagger 
Iron  Co.  v.  Walker,  76  N.  Y.  521. 
Compare  Dryden  v.  Kellogg,  2  Mo. 
App.  87.  But  this  is  very  different 
from  an  extension  to  the  corporation 
discharging  the  shareholder  before 
the  expiration  of  the  period  limited 
by  the  statute  for  the  commence- 
ment of  suit  against    him.     But  it 


was  held  in  Mohr  v.  Elevator  Co.,  40 
Minn.  343,  that  the  release  of  a  cor- 
poration through  proceedings  in  in- 
solvency releases  the  statutory  liabil- 
ity of  shareholders. 

1  Corporators  are  not  partners, 
even  though  rendered  liable  by  stat- 
ute for  certain  debts  of  the  corpora- 
tion. Baker  v.  Backus,  32  111.  79. 
Compare  United  States  v.  Knox,  102 
IT.  S.  422.  To  see  how  unlike  the 
liability  of  partners  is  the  statutory 
liability  of  shareholders,  see  §  727. 

2  Unusual  in  this  country. 

3  See  §§67-69.  See  Barrick  v.  Gif- 
ford,  47  O.  St.  180, 189.    Shareholders 

711 


§  717.]        THE    LAW    OF   PRIVATE   CORPORATIONS.   [CHAP.  XIII. 

"  Iii  order  to  contrast  the  nature  of  the  liability  of  share- 
holders with  that  of  partners,  companies  must  be  divided  into 
those  which  are  incorporated  and  those  which  are  not,  and  each 
class  must  be  again  subdivided,  for,  owing  to  the  diversity  of 
the  statutes  relating  to  companies,  little  is  common  to  them  all. 
The  general  principles  which  require  to  be  borne  in  mind,  are, 
first,  that  unincorporated  companies  are  not  at  common  law 
distinguishable  from  partnerships;  and,  secondly,  that  incor- 
porated companies  are  distinguishable  from  them,  and  that  the 
shareholders  in  such  companies  are  not  liable  for  the  corporate 
debts  and  engagements  save  so  far  as  they  are  rendered  so  by 
act  of  Parliament.  If  shares  in  an  incorporated  company  are 
registered  in  the  names  of  two  persons  and  one  of  them  dies, 
the  survivor  is  the  only  person  liable  to  be  made  a  contributory 
in  respect  of  them."  ' 

§  717.    This  doctrine  that  shareholders  in  corporations  are 

not  liable  for  the  corporate  debts,  save  so  far  as  they 

holders  not    are   ren^ere^  s0  Dy  tne  statute  imposing  the  indi- 

le/t,  but       vidual  liability,    does   not   accord    with    the    view 

made  liable.  ~ 

taken  in  Corning  v.  McCullougn/  where  it  was  said 
that  by  these  statutes  shareholders  are  not  made  but  left  liable 
for  the  corporate  indebtedness.  The  difference  is  important. 
If  the  shareholder  is  left  liable,  in  every  case  of  doubt  there 
is  a  presumption  in  favor  of  his  liability ;  while  if  he  is  made 
liable,  his  liability  is  to  be  deduced  from  a  fair  construction  of 
the  statute.  The  view  of  Baron  Lindley  seems  the  correct 
one,  and  accords  with  the  prevailing  doctrine  in  America. 
"Individual  liability  is  repugnant  to  the  law  of  corpora- 
tions, and  qualifies  in  this  case  an  exemption  which  would 
otherwise  exist.  Stockholders  in  such  cases  are  liable  accord- 
ing to  the  plain  meaning  of  the  terms  employed  by  the  legis- 
lature, and  not  otherwise." 3 

Moreover,  it  would  seem  that  if  shareholders  are  left  liable, 

made  "  individually  responsible  for 
an  amount  equal  to  the  amount  of 
stock  held  by  them  respectively " 
were  said  to  be  partners  in  Thomp- 
son v.  Meisser,  108  111.  359  ;  and 
Schalucky  v.  Field,  124  111.  617. 

1 1    Lindley   on   Partnership,    375, 
citing  Hill's  Case,  L.  R.  20  Eq.  595. 

712 


1  N.  Y.  47. 
8  Carroll  v.  Green,  92  U.  S.  509, 
512,  opinion  of  the  court  per  Swayne, 
J.  See,  also,  Terry  v.  Little,  101 
U.  S.  21G:  Chase  v.  Lord,  77  N.  Y.  1; 
Libby  v.  Tobey,  82  Me.  397. 


CHAP.  XHI.]       SHAREHOLDERS  AND  CREDITORS. 


[§  718. 


and  the  statute  "  leaving  "  them  so  prescribe  at  the  same  time 
a  way  of  enforcing  their  liability,  the  course  prescribed  by 
the  statute  may  be  disregarded,  and  the  shareholder  may  be 
proceeded  against  in  some  other  manner.  And  this  is  not  law.1 
§  718.  A  question  sometimes  very  difficult  to  answer  in 
regard  to  this  statutory  liability  is :  What  share- 
holders are  subject  to  it?  Those  who  were  such  ^j°a^at 
when    the   corporation   incurred   the   indebtedness,    nolders 

1  _       '    statutory 

or  those  who  are  such  when  suit  is  brought  against   liability 

attaches. 

them,  or  the  corporation  is  dissolved  or  wound  up. 

Many  cases  have  held  that  the  shareholder  who  was  such  at 

the  time  when  the  corporation  contracted  the  debt  is  the  one 

liable.2 

In  the  absence  of  any  indication  in  the  statute,  the  ques- 
tion seems  to  be  whether  the  analogy  of  partnership  or  corpo- 
ration law  is  to  be  followed.  The  transferability  of  shares  is 
a  universal  element  of  corporation  law  ;  just  as  much  is  it  the 
universal  doctrine  of  partnership  law  that  the  interest  of  a 
partner  is  not  transferable.  According  to  partnership  law,  it 
is  the  partner  who  was  such  at  the  time  when  the  debt  was 
contracted  who  is  liable ;  in  accordance  with  the  doctrine  of 
the  transferability  of  shares  by  which  a  transfer  constitutes  a 
complete  novation — a  doctrine  of  which  every  creditor  of  the 
corporation  has  notice — it  would  seem  equally  clear  that  the 
transferee  or  shareholder  who  holds  the  shares  when  suit  is 
brought  to  enforce  the  individual  liability,  or  who  holds  them 


1  Statutory  liability  can  be  en- 
forced only  in  the  mode  pi-escribed 
by  the  statute.  Hoard  v.  Wilcox, 
47  Pa  St.  51;  Youghiogheny  Shaft 
Co.  d.  Evans,  72  Pa.  St.  331 ;  Dauchy 
v.  Brown,  24  Vt.  197;  Peck  v.  Coal- 
field Coal  Co.,  3  111.  App.  619;  Minne- 
apolis B.  B.  Co.  v.  City  Bank,  66 
Minn.  441.  Provided,  of  course,  the 
statute  express  the  remedy.  See 
same  cases. 

2  Moss  v.  Oakley,  2  Hill  (N.  Y.), 
265;  Judson  v.  Rossie  Galena  Co.,  9 
Paige,  598;  Young  v.  New  York,  etc., 
Steamship  Co.,  15  Abb.  Pr.  (N.  Y.) 


69;  Tracy  v.  Yeates,  18  Barb.  152; 
Williams  v.  Hanna,  40  Indiana,  535; 
Wehrman  v.  Reakirt,  1  Cincinnati 
Supr.  Ct.  230;  Larrabee  v.  Baldwin, 
35  Cal.  155;  Windham  Provident  Ins. 
Co.  v.  Sprague,  43  Vt.  502;  Chesley 
».  Pierce,  32  N.  H.  388;  Brown  v. 
Hitchcock,  36  Ohio  St.  667;  Hanick  v. 
Ward  well,  58  Oh.  St.  294;  Voight  v. 
Dregge,97  Mich.  322;  see  Mokelumne 
Hill  Canal  Co.  v.  Woodbury,  14  Cal. 
265;  Davidson  v.  Rankin,  34  Cal. 
503;  Shueyu.  Holmes,  21  Wash.  223. 
Compare  McCullough  v.  Moss,  5 
Denio  (N.  Y.),  567. 

713 


§  719.]       THE    LAW    OF   PRIVATE   CORPORATIONS.    [CHAP.  XIII. 

at  the  winding  up  of  the  corporation,  is  the  person  liable.1  And, 
moreover,  the  chief  argument  in  favor  of  holding  liable  the 
shareholders  who  are  such  when  the  debt  is  contracted,  i.  e., 
that  persons  contracting  with  the  corporation  rely  on  the  credit 
of  the  then  shareholders,  loses  its  force  in  view  of  the  prevail- 
ing American  rule,  according  to  which  a  transfer  made  to  an 
irresponsible  person  when  the  corporation  is  in  failing  circum- 
stances is  void  as  to  creditors ;  a  rule  which  applies  as  fully  in 
regard  to  the  statutory  liability  of  shareholders  as  in  regard  to 
their  liability  for  unpaid  subscriptions.2 

§  719.  Let  us  test  the  analogy  of  partnership  law  in  this 
respect.  "  As  the  firm  is  not  liable  for  what  is  done  by  its 
members  before  the  partnership  between  them  commences,  so 
upon  the  very  same  principle  a  person  who  is  admitted  as  a 
partner  into  an  existing  firm  does  not  by  his  entry  become 
liable  to  the  creditors  of  the  firm  for  anything  done  before  he 
became  a  partner.  Each  partner  is,  it  is  true,  the  agent  of 
the  firm,  but  ....  the  firm  is  not  distinguishable  from  the 
persons  from  time  to  time  composing  it;  and  when  a  new 
member  is  admitted  he  becomes  one  of  the  firm  for  the  future, 
but  not  as  from  the  past,  and  his  present  connection  with  the 
firm  is  no  evidence  that  he  ever  expressly  or  impliedly  author- 
ized what  may  have  been  done  prior  to  his  admission.  It 
may,  perhaps,  be  said  that  his  entry  amounts  to  a  ratification 
by  him  of  what  his  now  partners  may  have  done  before  he 
joined  them.  But  it  must  be  borne  in  mind  that  no  person 
can  be  rendered  liable  for  the  act  of  another  on  the  ground 
that  he  has  ratified,  confirmed,  or  adopted  it,  unless  at  the 
time  the  act  was  done,  it  was  done  on  his  behalf."  3 

These  concise  remarks  of  Baron  Lindley  are  certainly  true 
as  to  partnerships ;  but  their  inapplicability  to  corporations 
shows  the  lameness  of  the  analogy  between  corporations  and 
partnerships.  As  the  learned  Baron  says :  "A  person  who  is 
admitted  as  a  partner  into  an  existing  firm,  does  not  by  his 
entry  become  liable  to  the  creditors  of  the  firm  for   anything 


i  See  §  720. 

2  See  dissenting  opinion  iu  Brown 
v.  Hitchcock,  36  Ohio  St.  667.  See 
§  749.  As  to  Brown  v.  Hitchcock, 
supra,  the  same  court  followed  it  in 

714 


Mason  v.  Alexander,  44  Ohio  St.  318, 
saying   that  they  were  not   prepared 
to  assume  the  responsibility  of  over- 
ruling it. 
a  Lindley  on  Part.,  389. 


CHAP.  XIII.]       SHAREHOLDERS  AND  CREDITORS. 


[§  719. 


done  before  he  became  a  partner."  But  by  purchasing  par- 
tially paid-up  shares,  the  buyer,  to  the  extent  of  the  unpaid 
subscriptions  due  on  them,  renders  himself  liable  for  the  debts 
of  the  corporation,  whether  contracted  before  or  after  he  be- 
came a  shareholder.1  Further  on  in  the  same  extract,  Baron 
Lindley  says  in  substance,  that  the  entry  of  a  new  partner 
into  a  firm  cannot  by  any  implied  ratification  make  him  liable 
for  the  previously  contracted  indebtedness  of  the  firm,  be- 
cause, in  contracting  such  indebtedness,  the  firm  did  not  act 
in  his  behalf.  But,  on  the  other  hand,  acts  of  a  corporation 
are  always  done  on  behalf  of  persons  occupying  in  respect  of 
that  corporate  enterprise  the  status  of  shareholder,  either  at 
the  time  the  acts  were  done,  or  subsequently.  This  is  im- 
plied by  the  principle  of  "  perpetual  succession,"  fundamental 
m  corporation  law.2  Accordingly,  the  general  rule  that  trans- 
ferees of  shares  succeed  to  the  rights  and  liabilities  of  their 
transferrers,  is  established  beyond  controversy.3 


1  Webster  v.  Upton,  91  TJ.  S.  65; 
Moses  v.  Ocoll  Bank,  1  Lea  (Tenn. ), 
398. 

2  See  §§  15,  17. 

8  Hartford  and  N.  H.  R.  R.  Co.  v. 
Boorman,  12  Conn.  530;  Mann  v. 
Currie,  2  Barb.  294;  Webster  v.  Up- 
ton, 91  U.  S.  65;  Moses  v.  Ocoll  Bank, 
1  Lea  (Tenn. ),  398;  Barton  Nat.  Bank 
v.  Atkins,  72  Vt.  33.     See  §  587. 

"When  a  person  takes  shares  in 
a  company,  he,  as  between  himself 
and  other  shareholders,  takes  these 
shares  with  all  the  rights  and  liabil- 
ities attaching  to  them,  so  that  his 
co-shareholders  have  a  perfect  right 
to  insist  upon  his  contributing  with 
them  towards  the  liquidation  of 
debts  contracted  before  he  joined 
the  company.  And  even  as  to  cred- 
itors, the  liability  of  shareholders  to 
them  does  not  depend  altogether 
upon  the  principles  of  partnership, 
but  upon  statutory  enactments.1' 
1  Lindley  on  Part.,  394,  citing  Taylor 
v.  Iflll,  1  N.  R.  566,  V.  C.  W.;  Cape's 
Executors'  Case,  2   De   G.  M.  &  G. 


562;  Mahew's  Case,  5  De  G.  M.  &  G. 
837.  It  may  be  stated  generally 
that  in  all  companies  regulated  by 
the  Companies  Act  of  1862,  an  in- 
coming shareholder  is,  so  long  as  he 
remains  a  shareholder,  liable  to 
creditors  in  respect  of  debts  in- 
curred by  the  company  before  he 
became  a  shareholder."  1  Lindley 
on  Part.,  395.  See  Olson  v.  Cook,  57 
Minn.  552;  First  Nat.  Bk.  v.  Plow 
Co.,  58  ib.  167.  Compare  Blundell 
v.  Winsor,  8  Sim.  601,  613. 

Under  certain  statutes,  however, 
e.  g.  (New  York  Mfg.  Co.'s  Act  of 
1848),  shareholders  are  held  not 
liable  to  creditors  for  the  debts  of  the 
company  contracted  before  they  be- 
came shareholders.  Tracy  v.  Yeates, 
18  Barb.  152;  Phillips  v.  Therasson, 

11  Hun,  141;  Weber  v.  Fickey,  47 
Md.   196;   contra,  Curtis   v.    Harlow, 

12  Mete.  3.  Compare  Longley  v. 
Little,  26  Me.  162.  Nevertheless,  a 
transferee  may  be  liable  to  indem- 
nity his  transferrer  in  respect  of  a 
debt    for    which,    to    creditors,    the 

715 


§  720.]       THK    LAW    OF    PRIVATE   CORPORATIONS.    [CHAP.  XIII. 

§  720.  Thus,  as  there  is  reason  to  hold  that  the  purchaser 
of  shares  assumes  all  the  liability  connected  "with  them,  the 
reasons  for  holding  that  the  seller  continues  liable  seem  to 
fail ;  as  presumably  the  legislative  intention  was  not  to  make 
two  sets  of  shareholders  liable  for  the  same  indebtedness  on 
the  same  shares.  The  creditors  in  contracting  may  have  re- 
lied on  the  individual  responsibility  of  the  then  shareholders, 
but  none  the  less  were  they  affected  with  notice  of  the  trans- 
ferability of  shares. 

In  view  of  the  preceding  discussion,  and  the  impropriety  of 
introducing  anomalies  into  corporation  law,  it  would  seem 
correct,  in  the  absence  of  provision  or  indication  in  the  statute 
to  the  contrary,1  to  hold  that  all  liability  in  respect  of  shares 
ceases  upon  the  absolute a  and  regular  transfer  of  them  to  a 
person  capable  of  succeeding  to  the  liabilities  of  the  former 
holder ;  provided  the  transfer  be  not  made  to  an  irresponsible 
person  in  defraud  of  creditors.3 


transferee  is  not,  under  the  statute, 
held  liable;  and  on  that  account,  if 
the  transferee  is  solvent  aud  within 
the  jurisdiction  of  the  court,  a 
creditor  suing  the  transferrer  6hould 
make  the  transferee  a  party.  Wheeler 
v.  Faurot,  37  Ohio  St.  26.  See  Brown 
v.  Hitchcock,  36  Ohio  St.  667. 

In  Massachusetts,  under  a  stat- 
ute, whereby  shareholders  are  made 
jointly  and  severally  liable  for  all 
debts  and  contracts  made  by  the 
corporation  until  the  whole  amount 
of  the  capital  stock  is  paid  in,  a 
shareholder  is  liable  for  debts  con- 
tracted while  he  remains  such,  al- 
though his  membership  cease  before 
the  debts  become  payable.  But  he 
is  not  liable  for  debts  contracted 
before  he  became  a  shareholder  if 
his  membership  expires  before  the 
debts  are  payable  or  suit  is  brought 
against  him.  Holyoke  Bank  v.  Burn- 
ham,  11  Cush.  183.  See  Johnson  v. 
Somerville  Dyeing,  etc.,  Co.,  15  Gray, 
216.  Compare  Curtis  v.  Harlow,  12 
Mete.  3.     The  liabilities  to  which  a 

716 


transferee  of  shares  succeeds  are 
those  incidental  to  the  relationship 
of  shareholder;  they  do  not  include 
the  liability  to  return  dividends  im- 
properly received  by  the  transferrer. 
Hurlbut  v.  Taylor,  62  Wis.  607. 

1  See  Hebdy's,  etc.,  Case,  L.  R.  2 
Eq.  167. 

2  See  Veiller  v.  Brown,  18  Hun,  571; 
§747. 

3  See  §§  747-749.  The  following  de- 
cisions support  the  result  reached  in 
the  text:  McLaren  v.  Franciscus,  43 
Mo.  452 ;  Shrainka  v.  Allen,  76  Mo. 
384;  Bond  v.  Appleton,  8  Mass.  472; 
Curtis  v.  Harlow,  12  Mete.  3;  Child  v. 
Coffin,  17  Mass.  64;  Middleton  Bk.  v. 
Magill,  5  Conn.  28  (a  case  of  unlim- 
ited liability);  Ball  Elec.  Light  Co.  v. 
Child,  68  Conn.  522;  People's  Live 
Stk.  Ins.  Co.,  In  re,  56  Minn.  180;  Olson 
v.  Cook,  57  Minn.  552;  Cleveland  v. 
Burnham,  55  Wis.  598;  Nixon  v. 
Green,  11  Exch.  550.  See  Marcy  v. 
(lark,  17  Mass.  330,  335;  Cape's 
Executors'  Case,  2  De  G.  M.  &  G. 
562;  Grisewood   &   Smith's   Case,  4 


CHAP.  XIII.]        SHAREHOLDERS  AND  CREDITORS. 


[§  722. 


§  721.  In    respect  to  enforcing   the   statutory  liability   of 
shareholders  to  creditors,  it  may  be  said  generally 
that  the  suit  must  be  brought  by  the  creditors  and   the  proper 
not  by  the  corporation  or  its  receiver.1     This  liabil-   ^ties  t0 
ity,  whether  limited  or  not,  is  a  security  provided 
by  law  for  the  benefit  of  the  creditors,  over  which  the  corpora- 
tion has  no  control ;  and,  consequently,  an  attempted  assign- 
ment by  the  corporation  of  the  statutory  liability  of  share- 
holders is  inoperative,  although  made  for  the  equal  benefit  of 
all  the  creditors.2 

§  722.  As  to  the  necessary  allegations  in  the  complaint,  it 
is  impossible  to  state  any  more  definite  rule  than 
simply  that  the  complaint  must  contain  the  allega-   averments 
tions  essential  to  make  out  a  case  under  the  partic-   |"  f,lead" 
ular  statute   relied   on.     Thus,    where   the   charter 
declares  that "  in  all  cases  of  losses  exceeding  the  means  of  the 
corporation,  each  stockholder  shall  be  held  liable  to  the  amount 
of  unpaid  stock  held  by  him,"  the  complaint  must  aver  that  the 
losses  or  liabilities  of  the  company  exceed  its  assets.3     But  it 


De  G.  &  J.  544;  Griswold  v.  Seligman, 
72  Mo.  110,  119.  See  Root  v.  Sinnock, 
120  111.  350. 

The  authorities  are  so  conflicting, 
and  the  statutes  so  diverse,  that  the 
only  safe  rule  for  a  practitioner  is  to 
seek  for  decisions  under  the  statute 
affecting  his  client,  or  statutes  pre- 
cisely similar  in  terms.  It  would  be 
well  for  the  legislature  always  to 
designate  the  class  of  shareholders 
intended  to  be  made  liable. 

The  Ohio  rule  is,  that  the  share- 
holder who  is  such  at  the  time  the 
corporation  contracts  the  debt,  is  the 
one  liable;  and  the  liability  is  not 
discharged  by  transfer,  but  transferee 
must  indemnify  transferrer.  Harp- 
old  v.  Stobart,  46  O.  St.  397.  See, 
also,  Sayles  v.  Bates,  15  R.  I.  342; 
Jackson  v.  Meek,  87  Tenn.  69. 

1Farnswortli  v.  Dewey,  91  N.  Y. 
308;  Hirshfeld  v.  Fitzgerald,  157  N. 
Y.  166;  Runner  v.  Dwiggins,  147  Ind. 
238;  Lane  v.  Morris,  8  Ga.  468,  476; 


Bristol  v.  Sandford,  12  Blatchf.  341; 
Jacobson  v.  Allen,  20  Blatchf.  525; 
S.  C,  12  Fed.  Rep.  454;  Wincock  v. 
Turpin,  96  111.  135;  Liberty  Female 
College  A.ss'n  v.  Watkins,  70  Mo.  13; 
Steinke  v.  Loofbowrow,  17  Ut.  252. 
Cf.  Parker  o.  Bank,  53  S.  C.  583; 
State  v.  Union  Stockyards  Bank,  103 
Iowa,  549;  Zang  v.  Wyant,  25  Col. 
551;  Colton  v.  Moyer,  90  Md.  711. 
Compare  the  two  cases  of  Harris  v. 
First  Parish,  23  Pick.  112,  and  Baker 
v.  Atlas  Bank,  9  Mete.  182. 

A  judgment  creditor  of  the  cor- 
poration may,  in  the  same  action, 
join  a  claim  to  compel  the  payment 
of  stock  subscriptions  and  a  claim 
to  enforce  the  individual  statutory 
liability.  Warner  v.  Callender,  20 
Ohio  St.  190. 

2  Wright  v.  McCormack,  17  Ohio 
St.  86;  Umsted  v.  Buskirk,  ib.  113; 
Dutcher  v.  Maine  Nat.  B'k,  12 
Blatchf.  435. 

3  Blair  v.  Gray,  104  U.  S.  769. 

717 


§  723.]      THK    LAW    OF   PRIVATE   CORPORATIONS.     [CHAP.  XIII. 

may  not  always  be  necessary  for  the  creditor  to  aver  that  the 
corporation  is  insolvent,  or  that  the  creditor  has  obtained  a 
judgment  against  it,  unless  the  statute  makes  the  liability  of 
the  shareholder  contingent  on  such  insolvency,  or  requires  the 
creditor  to  exhaust  his  remedies  against  the  corporation  before 
suing  a  shareholder.1 

§  723.  In  New  York,  under  the  Manufacturing  Companies 
Act  of  1848,2  the  stockholders  were  made  "severally  individ- 
ually liable  to  the  creditors  of  the  company,  .  .  .  .  to  an 
amount  equal  to  the  amount  of  stock  held  by  them  respec- 
tively, for  all  debts  and  contracts  made  by  such  company 
until  the  whole  amount  of  capital  stock  fixed  and  limited  by 
such  company  shall  have  been  paid  in,  and  a  certificate 
thereof  filed  and  recorded  as  prescribed.  .  .  ."3  Under  this 
act,  as  amended  by  chapter  333  of  the  Laws  of  1853,  by  which 
shares  could  be  paid  for  in  property,  in  order  to  charge  the 


1  Manufacturing  Co.  v.  Bradley, 
105  U.  S.  175;  Perkins  v.  Church,  31 
Barb.  84;  Hodges  v.  Silver  Hill  M'g 
Co.,  9  Oregon,  200;  Morrow  v.  Supe- 
rior Court,  64  Cal.  383.  See  Culver 
v.  Third  Nat.  Bank,  64  111.  528; 
Spence  v.  Shepard,  57  Ala.  598. 

Taking  a  pledge  of  corporate  prop- 
erty has  been  held  not  to  prevent  the 
creditor  from  suing  the  shareholders 
without  selling  the  pledge.  Sonoma 
Valley  Bank  v.  Hill,  59  Cal.  107. 

2  This  statute  is  now  repealed  ; 
but  the  writer  has  left  in  this  edition 
such  decisions  under  it  as  seem  pos- 
sibly applicable  to  statutes  now  in 
force  in  New  York  and  elsewhere. 
The  present  clause  in  the  New  York 
statute  (see  ch.  688,  §  54,  laws  of 
1892,  as  amended  by  laws  of  1901, 
ch.  354,)  reads:  "Every  holder  of 
capital  stock  not  fully  paid,  in  any 
stock  corporation,  shall  be  person- 
ally liable  to  its  creditors,  to  an 
amount  equal  to  the  amount  unpaid 
on  the  stock  held  by  him  for  debts 
of  the  corporation  contracted  while 
such  stock  was  held  by  him."     For 

718 


construction  of  New  York  statutes, 
see  Close  v.  Potter,  155  N.  Y.  145. 

8 Stockholders  are  not  liable  under 
this  clause  to  a  creditor  who  is  also 
a  director.  McDowall  v.  Shehan, 
129  N.  Y.  200.  But  see  contra, 
Janney  ».  Minneapolis  Industrial  Ex- 
position, 79  Minn.  488. 

A  stockholder  is  not  relieved  from 
this  liability  by  having  paid  in  full 
for  his  own  shares.  Wheeler  v. 
Millar,  90  N.  Y.  353;  ace.  Tibbals 
v.  Libby,  87  111.  142.  Compare 
Schricker  v.  Ridings,  65  Mo.  208, 
and  Lewis  v.  St.  Charles  County,  5 
Mo.  App.  225. 

Although  where  the  corporation 
has  no  power  to  increase  its  capital 
stock,  stock  issued  in  excess  of  the 
limit  is  void,  and  the  holders  of  it 
are  not  liable  to  creditors  thereon, 
yet  where  the  power  to  increase  the 
stock  exists,  and  there  is  a  way  in 
which  the  increase  may  lawfully  be 
made,  the  creditors  are  entitled  to 
rely  on  the  assumption  that  the  in- 
crease has  been  lawfully  effected, 
and  the  holders  of  the  stock  will  be 


CHAP.  XIII.]        SHAREHOLDERS  AND  CREDITORS. 


[§  724. 


bolder  of  stock  issued  for  property  individually  with  the  debts 
of  the  corporation,  it  was  not  enough  to  prove  that  the  property 
was  purchased  at  an  over-valuation  through  a  mere  mistake 
or  error  of  judgment  on  the  part  of  the  company's  trustees. 
The  purchase  had  to  be  shown  to  have  been  made  in  bad  faith, 
with  intent  to  evade  the  statute.  But  in  such  case  in  order  to 
establish  legal  fraud  it  was  only  necessary  to  prove,  (1)  that  the 
stock  exceeded  in  amount  the  value  of  the  property  in  exchange 
for  which  it  was  issued,  and  (2)  that  the  trustees  issued  it  de- 
liberately, and,  with  knowledge  of  the  real  value  of  the  prop- 
erty, overvalued  the  same.1  It  might  properly  be  left  with  the 
jury  to  say  whether  "  the  property  was  placed  and  taken  at  a 
higher  valuation  with  a  fraudulent  purpose,  with  the  intent  to 
evade  the  statute."  2 

§  724.  Where   the   statute   prescribes   conditions   precedent 
which  are  to  be  performed  by  a  creditor  to  entitle  him   perform- 
to  sue  a  shareholder,  the  plaintiff  must  allege  and   ^editS-sof 


estopped  from  setting  up  its  illegal 
or  irregular  issue  (see  §541),  when 
they  have  voted  for  the  increase, 
accepted  the  stock,  and  received  divi- 
dends thereon. 

The  new  shares  of  the  stock  so  in- 
creased become  subject  to  the  lia- 
bility of  this  section  until  fully  paid 
up  and  a  certificate  filed;  but  the 
fact  of  their  remaining  vinpaid  does 
not  revive  the  liability  of  the  hold- 
ers of  the  original  shares,  which  are 
paid  up,  and  a  certificate  filed  as 
required. 

The  provision  that  the  certificate 
shall  be  matte  tvithin  thirty  days  is 
but  directory.  Veeder  v.  Mudgett, 
95  N.  Y.  295. 

Interest  will  be  allowed  on  the 
creditor's  claim  from  the  time  when 
he  begins  his  action  against  the  stock- 
holder, even  though  such  allowance 
of  interest  increase  the  claim  to  a 
sum  exceeding  the  amount  of  stock 
held  by  the  defendant.  Burr  v. 
Wilcox,    22    N.    Y.    551;    Handy  v. 


Draper,  89  N.  Y.  334;  Shellington 
v.  Howland,  53  N.  Y.  371.  Contra, 
Cole  v.  Butler,  43  Me.  401,  405; 
Sackett's  Harbor  Bank  v.  Blake,  3 
Rich.  Eq.  (S.  C. )  225,  233.  And 
where  the  entire  principal  and  in- 
terest of  the  debt  do  not  exceed  the 
amount  of  the  stockholder's  liability 
as  limited  by  the  statute,  interest 
will  be  allowed  as  against  the  stock- 
holder from  the  maturity  of  the 
debt.  Wheeler  i>.  Millar,  90  N.  Y. 
353. 

1  Douglass  v.  Ireland,  73  1ST.  Y.  100. 
See,  also,  Schenck  v.  Andrews,  57  N. 
Y.  133;  Boynton  v.  Andrews,  63  N.  Y. 
93;  Boynton  v.  Hatch,  47  N.  Y.  225; 
National  Tube  Works  Co.  v.  Gilfillan, 
124  N.  Y.  302. 

2  Lake  Superior  Iron  Co.  v.  Drexel, 
90  N.  Y.  87.  For  the  present  New 
York  statute,  see  sec.  42,  chap.  688, 
laws  of  1892,  as  amended  by 
chap.  354,  laws  of  1901.  (Ante,  §  522c, 
n.  3.) 

719 


§  725.]       THE   LAW   OF   PRIVATE   CORPORATIONS.    [CHAP.  XIII. 


conditions     prove  his  fulfillment  of  them:1  and  the  shareholder 

precedent.       l 

may  plead  improper  or  non-performance  of  them.2 
Thus,  under  the  New  York  Manufacturing  Companies  Act  of 
1848,  before  referred  to,  it  was  a  condition  precedent  to  the 
maintaining  of  an  action  by  creditors  against  stockholders  that 
the  former  should  have  obtained  a  judgment  against  the  corpo- 
ration, and  that  an  execution  should  have  been  issued  there- 
under and  returned  wholly  or  partially  unsatisfied.3  A  pro- 
ceeding in  rem,  affecting  only  the  corporate  property  attached, 
was  not  a  compliance  with  this  condition.4  If,  however,  the 
conditions  precedent  to  a  liability  of  a  stockholder  under  this 
statute  were  rendered  impossible  by  the  paramount  law  of  the 
United  States,  set  in  operation  by  the  stockholder  himself,  per- 
formance of  them  by  creditors  was  excused.5 

§  725.  It  is  a  difficult  matter  to  state  rules  of  general  ap- 
plicability regarding  the  joinder  of  parties  in 
parties10  actions  to  enforce  the  statutory  liability  of  share- 
holders. For  there  is  great  diversity  in  the  lan- 
guage of  the  different  statutes ;  and  the  decisions  are  hard  to 
reconcile. 

When  shareholders  are  made  severally  individually  liable 
to  the  creditors  of  the  corporation  to  an  amount  equal  to  the 


i  Hirslifield  v.  Bopp,  145  N.  Y.  84; 
Cuykendall  v.  Corning,  88  N.  Y.  130, 
137. 

2  See  Fourth  Nat.  Bank  v.  Franklin, 
120  U.  S.  747.  Due  diligence  seems 
to  be  required  of  the  creditor  to  dis- 
cover property  of  the  corporation 
before  a  scire  facias  will  be  issued 
against  a  shareholder.  Hitchens  v. 
Kilkenny,  etc.,  R.  R.  Co.,  15  C.  B. 
459.  Still,  where  the  statute  pro- 
vides that  execution  against  the 
corporation  must  first  have  been 
returned  unsatisfied,  no  greater  dili- 
gence is  required  than  is  implied  in 
obtaining  judgment,  suing  out  an 
execution,  and  getting  a  return  of 
nulla  bona  thereunder.  Thornton  v. 
Lane,  11  Ga.  459,  514;  Bank  of  U.  S. 
v.  Dallam,  4  Dana  (Ky.),  574.  But 
notice   should  be   given   the   share- 

720 


holder,  that  he  may  point  out  cor' 
porate  property.  Lane  v.  Harris,  16 
Ga.  217,  224.  See,  also,  Lane  o.  Mor- 
ris, 8  Ga.  468;  Paine  ».  Stewart,  33 
Conn.  516,  531;  Toucey  v.  Bowen,  1 
Biss.  81 ;  Grew  v.  Breed,  10  Mete.  569, 
579.     See  §  713. 

3  Handy  v.  Draper,  89  N.  Y.  334, 
reversing  S.  C,  23  Hun,  256.  See 
Kincaid  ».  Dwindle,  59  N.  Y.  548; 
Dean  t\  Mace,  19  Hun,  391.  See  §  55, 
ch.  688,  N.  Y.  Laws  of  1892. 

4  Rocky  Mountains  National  Bank 
v.  Bliss,  89  N.  Y.  338. 

6  Shellington  v.  Howland,  53  N.  Y. 
371;  followed  in  Flash  v.  Conn,  109 
U.  S.  371.  The  Nat.  Bankruptcy 
Act  is  referred  to.  Compare  Ansonia 
B.  &  C.  Co.  v.  New  Lamp  Chimney 
Co.,  53  N.  Y.  123;  Glass  Co.  v.  Vary, 
152  N.  Y.  121. 


CHAP.  XHI.]        SHAREHOLDERS  AND  CREDITORS. 


[§  725. 


amount  of  stock  held  by  the  shareholders  respectively,  a 
single  creditor  may  sue  one  or  more  shareholders  as  he  deems 
proper  in  an  action  at  law.1  Where,  however,  the  share- 
holders are  simply  made  individually  liable  for  the  corporate 
indebtedness,  to  an  amount  equal  either  to  the  par  value  of 
the  shares  held  by  them  respectively  or  in  the  proportion 
which  their  shares  bear  to  the  total  amount  of  the  capital  stock, 
the  rule  applied  in  many  cases  is  that  all  the  shareholders,  so 
far  as  practicable,  should  be  joined  in  an  action  in  equity ; 
which  should  be  brought  by  all  the  creditors,  or  in  such  a  form 
that  all  the  creditors  may  come  in.2  "  The  creditors  should  all 
join  because  they  have  a  common  interest  in  the  funds  to  be 
realized ;  or,  if  the  action  is  commenced  by  one  or  more  of 


i  Flash  v.  Conn,  109  U.  S.  371; 
Garrison  v.  Howe,  17  New  York, 
458;  Mathezv.  Neidig,  72  New  York, 
100;  Weeks  v.  Love,  50  New  York, 
568;  Mann  v.  Pentz,  3  N.  Y.  415; 
Bank  of  Poughkeepsie  v.  Ibbotson, 
24  Wend.  473;  Wincock  v.  Turpin, 
96  111.  135;  Hull  v.  Burtis,  90  111. 
213;  Smith  v.  Londoner,  5  Colorado, 
365;  Culver  v.  Third  National  Bank, 
64  111.  528;  Norris  v.  Johnson,  34  Md. 
485;  Perry  v.  Turner,  55  Mo.  418; 
Gruud  v.  Tucker,  5  Kan.  70;  Gibbs  v. 
Davis,  27  Fla.  531;  Scbalucky  v. 
Field,  124  111.  617.  See  Merchants' 
Nat.  Bank  v.  Bailey  Mfg.  Co.,  34 
Minn.  323.  Compare  Abbey  v.  Dry 
Goods  Co.,  44  Kan.  415;  Wood  worth 
v.  Bolles,  61  Kas.  569.  When  the 
charter  provides  that  "  each  stock- 
holder shall  be  jointly  and  severally 
liable  to  the  creditors  in  an  amount," 
etc.,  a  single  creditor  can  sue  a  single 
shareholder  at  law.  Hall  &  Co.  v. 
Kliuck,  25  S.  C.  348;  Sadler  v.  Nichol- 
son, 49  S.  C.  7.  But  see  Harper  v. 
Union  Manufacturing  Co.,  100  111. 
225.  These  cases  hold  that  an  action 
at  law  is  open  to  the  creditor 
although  he  might  have  sued  in 
equity.  But  under  a  Pennsylvania 
statute   an   action   at  law  has  been 

46 


held  the  exclusive  remedy.  Brinham 
v.  Wellersburg  Coal  Co.,  47  Pa.  S.  43. 
See  Deming  v.  Bull,  10  Conn.  409; 
Simonson  v.  Spencer,  15  Wend.  548. 

2  Coleman  v.  White,  14  Wis.  700 
Overmyer  v.  Cannon,  82  Ind.  457 
Von  Glahn  v.  Harris,  73  N.  C.  323 
Johnson  v.  Fisher,  30  Minn.  173 
Terry  u.  Martin,  10  S.  C.  263;  Eames 
v.  Doris,  102  111.  350;  Tunesma  v. 
Schuttler,  114  111.  156;  Gianella  v. 
Bigelow,  96  Wis.  185.  See  Smith 
v.  Huckabee,  53  Ala.  191;  Jones  v. 
Jarmau,  34  Ark.  323;  and  cases  in 
following  notes.  Compare  Hull  v. 
Burtis,  90  111.  213.  Semble  contra, 
Morrow  v.  Supreme  Court,  64  Cal. 
383. 

Where  stockholders  are  made  lia- 
ble to  pay  up  their  shares  and  also 
to  an  amount  equal  to  the  amount 
of  their  stock,  a  creditor  may,  on 
behalf  of  himself  and  other  cred- 
itors, bring  a  suit  in  equity  against 
the  stockholders,  the  assignee  in 
bankruptcy  of  the  corporation  and 
such  creditors  as  have  brought  suits 
at  law,  to  collect  the  sums  due  from 
the  stockholders,  distribute  the 
same,  and  restrain  the  prosecution 
of  the  other  suits.  Pfhol  v.  Simp- 
son, 74  N.  Y.  137. 

721 


§  726.]       THE   LAW   OF   PRIVATE   CORPORATIONS.  [CHAP.  XIII. 

them,  the  complaint  should  be  so  framed  that  the  others  may 
come  in  and  prove  their  claims  before  the  court  or  a  referee, 
and  share  in  the  distribution  of  the  moneys  received.  All  the 
stockholders  should  be  made  defendants,  because  they  too 
have  a  common  interest,  and  without  their  presence  it  is  im- 
possible to  adjust  their  rights  and  liabilities,  and  protect  them 
from  unequal  and  oppressive  burdens.  The  same  reasons 
exist  for  making  all  the  stockholders  parties  to  such  actions 
as  in  proceedings  against  delinquent  stock  subscribers  to  com- 
pel them  to  contribute  towards  the  payment  of  the  debts  of  an 
insolvent  bankrupt  corporation.  The  corporation  should  be 
joined,  unless  it  has  been  dissolved  or  its  assets  wholly  ex- 
hausted, for  the  reason  that  both  creditors  and  stockholders 
are  interested  in  closing  its  affairs,  and  in  having  its  available 
property  appropriated  to  the  payment  of  debts,  without  which 
there  can  be  no  final  settlement  and  adjudication  of  the  rights 
and  liabilities  of  the  parties."  * 

§  726.  The  underlying  distinction  seems  to  be  as  follows: 
If  the  shareholders  are  made  severally  and  individ- 
ually liable  to  the  creditors  directly,  one  creditor 
alone  may  sue  a  single  shareholder,  and  at  law.  If,  however, 
from  the  general  tenor  of  the  statute  it  may  be  inferred  that 
the  legislative  intention  was  to  create  a  fund  which,  on  the  in- 
ability of  the  corporation  to  pay  its  debts,  should  be  collected 
and  ratably  distributed  among  its  creditors,  then  the  liability 
of  each  shareholder  is  rather  to  contribute  to  a  common  fund 
in  a  certain  proportion  than  to  pay  the  debt  of  any  one  cred- 
itor. In  such  case  one  creditor  cannot  sue  alone  ;  all  the  share- 
holders, so  far  as  practicable,  should  be  made  defendants ;  and 
equity  is  the  proper  tribunal.2 

Giving  the  opinion  of  the  Federal  Supreme  Court  in  Terry 
v.   Little,3  Chief    Justice   Waite  said :    "  The    individual  lia- 


i  Coleman  v.  White,  14  Wis.  700, 
702,  per  Dixon,  C.  J.  Compare 
Taylor  v.  Goss,  etc.,  M'f'g  Co.,  11 
Col.  419. 

2  Pollard  v.  Bailey,  20  Wall.  520; 

Terry  v.  Little,  101  U.  S.  216;  Eames 

v.   Doris,   102    111.    050;    Queenan   v. 

Palmer,  117   111.  619;  Crease  v.  Bab- 

722 


cock,  10  Mete.  (Mass.)  525;  Grew  v. 
Breed,  ib.  569;  Hansen  v.  Davison, 
73  .Minn.  454;  McLaughlin  v.  O'Neil, 
7  Wyo.  187.  Compare  Mills  c.  Scott, 
99  U.  S.  25;  Bates  v.  Day,  198  Pa.  St. 
513. 

3  101  U.  S.  216,  217. 


CHAP.  XIII.]       SHAREHOLDERS  AND  CREDITORS.  [§  727. 

bility  of  stockholders  in  a  corporation  is  always  a  creature  of 
statute.  It  does  not  exist  at  common  law.  The  first  thing 
to  be  determined  in  all  such  cases  is,  therefore,  what  liability 
has  been  created.  There  will  always  be  difficulty  in  attempt- 
ing to  reconcile  cases  of  this  class  in  which  the  general  ques- 
tion of  remedy  has  arisen,  unless  special  attention  is  given 
to  the  precise  language  of  the  statute  under  consideration. 
The  remedy  must  always  be  such  as  is  appropriate  to  the  lia- 
bility to  be  enforced.  The  statute  which  creates  the  liability 
may  declare  the  purpose  of  its  creation  and  provide  directly  or 
indirectly  a  remedy  for  its  enforcement.  If  the  object  is  to 
provide  a  fund  out  of  which  all  creditors  are  to  be  paid,  share 
and  share  alike,  it  needs  no  argument  to  show  that  one  cred- 
itor should  not  be  permitted  to  appropriate  to  himself,  without 
regard  to  the  rights  of  others,  that  which  is  to  make  up  the 
fund. 

"  The  language  of  the  charter  is  peculiar.  The  stockhold- 
ers are  not  made  directly  liable  to  the  creditors.  They  are 
not  in  terms  obliged  to  pay  the  debts,  but  are  '  liable  and  held 
bound  ....  for  any  sum  not  exceeding  twice  the  amount  of 
....  their  ....  shares.'  This  we  think  means  that  on  the 
failure  of  the  bank,  each  stockholder  should  pay  such  sum, 
not  exceeding  twice  the  amount  of  his  shares,  as  shall  be  his 
just  proportion  of  any  fund  that  may  be  required  to  discharge 
the  outstanding  obligations.  The  provision  is,  in  legal  effect, 
for  a  proportionate  liability  by  all  stockholders.  Undoubtedly 
the  object  was  to  furnish  additional  security  to  creditors,  and 
to  have  the  payments  when  made  applied  to  the  liquidation  of 
debts.  So,  too,  it  is  clear  that  the  obligation  is  one  that  may 
be  enforced  by  the  creditors ;  but  as  it  is  to  or  for  all  creditors, 
it  must  be  enforced  by  or  for  all.  The  form  of  the  action,  there- 
fore, should  be  one  adapted  to  the  protection  of  all.  A  suit  at 
law  by  one  creditor  to  recover  for  himself  alone  is  entirely  in- 
consistent with  any  idea  of  distribution.  As  the  liability  of  a 
stockholder  is  not  to  any  individual  creditor,  but  for  contribu- 
tion to  a  fund,  out  of  which  all  creditors  are  to  be  paid  alike, 
the  appropriate  remedy  is  by  suit  to  enforce  the  contribution, 
and  not  by  one  creditor  alone  to  appropriate  to  his  own  use 
that  which  belongs  to  others  equally  with  himself." 

§  727.  The   Federal  Supreme  Court  has  also  rendered  an 

723 


§  727.]    THE   LAW    OF    PRIVATE   CORPORATIONS.       [CHAP.  XIII. 

Liability  of   ^sfructive     decision     regarding     the     liability     of 
share-  '        shareholders  in  national  banks.     The   shareholders 

holders  in  .  ....... 

national  in  a  national  bank  are  "  individually  responsible 
equally  and  ratably,  and  not  one  for  another,  for 
all  contracts,  debts,  and  engagements  of  such  association,  to 
the  extent  of  the  amount  of  their  stock  therein,  at  the  par 
value  thereof,  in  addition  to  the  amount  invested  in  the 
shares."1  An  assessment  of  seventy  per  cent. of  the  value  of 
their  shares  was  made  on  the  shareholders  of  an  insolvent 
national  bank,  in  order  to  discharge  its  liabilities.  This 
assessment  was  not  sufficient,  but  would  have  been  if  all  the 
shareholders  had  been  solvent  and  within  the  jurisdiction  of 
the  court.  A  creditor  requested  the  comptroller  of  the  cur- 
rency to  order  a  further  assessment  of  thirty  per  cent,  and  to 
direct  the  receiver  to  proceed  as  before  to  collect  it.  The 
comptroller  refused,  and  was  sustained  in  his  refusal  by  the 
Supreme  Court,  who  held  that  this  liability  of  shareholders 
was  several  and  not  joint,  and  that  the  insolvency  of  one 
shareholder,  or  his  being  beyond  the  jurisdiction  of  the  court, 
did  not  affect  the  liability  of  another ;  and  if  the  bank  itself 
held  any  of  its  stock,  the  several  liability  of  the  other  share- 
holders would  not  thereby  be  increased,  but  would  be  computed 
as  if  the  stock  held  by  the  bank  was  in  the  hands  of  a  natural 
person.2  Giving  the  opinion  of  the  court,  Justice  Swayne 
said :  "  In  the  process  to  be  pursued  to  fix  the  amount  of  the 
separate  liability  of  each  of  the  shareholders,  it  is  necessary  to 
ascertain  (1)  the  whole  amount  of  the  par  value  of  all  the 


1  Shareholders  in  national  banks, 
liable  for  its  debts,  are  liable  for  in- 
terest thereon  (to  the  same  extent 
with  the  bank),  but  not  in  excess  of 
their  maximum  liability  fixed  by  the 
statute.  Richmond  v.  Irons,  121  U.  S. 
27. 

2  United  States  v.  Knox,  102  U.  S. 
422.  The  comptroller  may,  however, 
make  a  second  assessment.  Stude- 
baker  u.  Perry,  184  U.  S.  258.  See, 
also,  Crease  v.  Babcock,  10  Mete.  525; 
Matter  of  the  Hollister  Bank,  27 
N.  Y.  393.  The  Ohio  Revised  Stat- 
utes, §  3260,  provide  for  joint  action 

724 


and  ascertaining  the  proportion  each 
shareholder  shall  pay,  up  to  the 
amount  of  stock  held  by  him.  In  an 
action  by  a  creditor  to  enforce  the 
individual  liability  of  shareholders 
under  this  statute,  where  not  all  the 
shareholders  are  before  the  court, 
and  it  does  not  appear  that  those  not 
served  could  not  have  been  served, 
it  is  error  to  assess  on  the  share- 
holders served  the  whole  amount  of 
the  corporate  indebtedness.  Bone- 
witz  v.  Van  Wert  County  Bank,  41 
O.  St.  78. 


CHAP.  XIII.]       SHAREHOLDERS  AND  CREDITORS. 


[§  729- 


stock  held  by  all  the  shareholders ;  (2)  the  amount  of  the  de- 
ficit to  be  paid  after  exhausting  all  the  assets  of  the  bank ; 
(3)  then  to  apply  the  rule  that  each  shareholder  shall  contribute 
such  sum  as  will  bear  the  same  proportion  to  the  whole 
amount  of  the  deficit  as  his  stock  bears  to  the  whole  amount 
of  the  capital  stock  of  the  bank  at  its  par  value."  i 

§  728.  Under  statutes  by  which  shareholders  are  made  lia- 
ble to  a  certain  limited  amount,  determined  either 
by  the  number  of  shares  held  by  them  respectively,   guish-" 
or  by  the    proportion  borne  by  that  number  to  the   ^binty. 
total  capital  stock,   a   shareholder   may   extinguish 
his  liability  by  paying  a  debt   of   the   corporation    equal    in 
amount  to  the  sum  for  which  he  is  liable.2 

§  729.  A  shareholder,  however,  indebted  to  an  insol- 
vent corporation  for  unpaid  subscriptions,  cannot, 
against  his  liability  therefor,  set  off  a  debt  owing  him 


Set-off. 
Unpaid 
subscrip- 
tions. 


1  United  States  v.  Knox,  102  U.  S. 
425.  After  such  an  assessment  on 
the  shareholders  of  a  national  bank 
has  been  made,  a  suit  at  law  may 
properly  be  brought  by  the  receiver 
to  collect  it.  Bailey  «.  Sawyer,  4 
Dill.  463. 

Sec.  50  of  the  National  Banking  Act 
of  1864,  which  provides  that  suits  to 
which  officers  or  agents  of  the  United 
States  are  parties  shall  be  conducted 
by  the  district  attorney,  is  so  far  but 
directory  that  it  cannot  be  set  up  by 
shareholders  to  defeat  a  suit  brought 
against  them  by  a  receiver,  who, 
with  the  approval  of  the  Treasury 
Department,  had  employed  private 
counsel.  In  such  a  suit  it  is  neces- 
sary that  action  on  the  part  of  the 
comptroller  of  the  currency  touching 
the  personal  liability  of  the  share- 
holders, should  precede  the  institu- 
tion of  any  suit  by  the  receiver,  and 
the  fact  must  be  averred  in  the  bill. 
It  is  no  objection  to  such  a  bill  that 
shareholders  without  the  jurisdic- 
tion of  the  court  are  not  made  par- 
ties; and  creditors  are  not  proper 
parties  to  it.     Kennedy  v.  Gibson,  8 


Wall.  498,  followed  in  Casey  v.  Galli, 
94  U.  S.  673.  The  liability  of  share- 
holders in  national  banks  survives 
the  death  of  a  shareholder,  and  at- 
taches to  his  representatives.  Rich- 
mond v.  Irons,  121  U.  S.  27.  But  it 
does  not  arise  in  respect  to  debts 
contracted  after  the  bank  has  gone 
into  liquidation.    lb. 

3  Garrison  v.  Howe,  17  N.  Y.  458; 
Woodruff,  etc.,  Iron  Works  v.  Chit- 
tenden, 4  Bos.  (N.  Y. )  406;  Jones 
v.  Wiltberger,  42  Ga.  575;  Boyd  v. 
Hall,  56  Ga.  563;  San  Jose  Savings 
Bank  v.  Pharis,  58  Cal.  380;  Thomp- 
son v.  Meisser,  108  111.  359. 

When  shareholders  are  liable  to 
the  amount  of  their  stock,  and  a 
shareholder  pays  a  corporate  debt 
equal  to  the  amount  of  his  shares, 
he  cannot  be  held  liable  again  as  to 
those  shares,  nor  can  the  assignee 
of  them  be  held  liable.  Trebus  v. 
Smiley,  110  111.  316. 

After  a  creditor,  however,  has  be- 
gun a  suit  against  a  shareholder, 
then  the  latter  cannot  defeat  him  by 
paying  another  debt  of  the  corpora- 
tion.    Jones  v.  Wiltberger,  supra. 

725 


§  730.]       THE    r,AW    OF    PRIVATE    CORPORATIONS.   [CHAP.  XIII. 


from  the  corporation.1  He  is  first  bound  as  a  shareholder  to  pay 
whatever  may  be  due  on  his  shares,  whereupon  he  will  be 
entitled  to  participate  in  the  assets  of  the  corporation  ratably 
with  the  other  creditors.2  "The  debts  must  be  mutual;  must 
be  in  the  same  right.  .  .  .  The  debt  which  appellant  owed 
for  his  stock  was  a  trust  fund  devoted  to  the  payment  of  all 
the  creditors  of  the  company.  As  soon  as  the  company  be- 
came insolvent,  and  this  fact  became  known  to  the  appellant, 
the  right  of  set-off  for  an  ordinary  debt  to  its  full  amount 
ceased.  It  became  a  fund  belonging  equally  in  equity  to  all 
the  creditors,  and  could  not  be  appropriated  by  the  debtor  to 
the  exclusive  payment  of  his  own  claim."  3 
§  730.  Likewise,  a  shareholder,  who  has  been  paid  divi- 
dends by  an  insurance  company  when  insolvent, 
cannot,  in  a  suit  by  its  receiver  to  recover  them, 
set  off  his  claims  as  a  creditor  of  the  corporation.4 
"  The  defendant  must  restore  the  trust  funds  re- 
ceived in  violation  of  law  and  improperly  withheld,  and  then 
he  will  be  in  a  position  to  claim,  as  a  creditor  of  the  company, 
a  participation  in  common  with  other  creditors,  in  a  fund  real- 


SetK)ff. 
Dividends 
improperly 
received. 


A  shareholder  cannot,  under  a 
double  liability  clause,  get  a  friend 
to  buy  up  claims  at  a  discount,  con- 
fess judgment  in  his  favor,  and  then 
plead  this  judgment  as  a  bar  to 
other  creditors  of  the  corporation. 
Manville  v.  Karst,  16  Fed.  Rep.  173. 
See  Buchanan  v.  Meister,  105  111. 
638.  And  when  a  shareholder  is 
liable  to  creditors  to  an  amount 
equal  to  the  stock  held  by  him,  he 
cannot  buy  up  claims  at  a  discount 
and  set  them  off  at  their  face  in  a 
suit  by  a  creditor.  Gauch  v.  Har- 
rison, 12  111.  App.  459;  Thompson 
v.  Meisser,  108  111.  359;  Thebus  v. 
Smiley,  110  111.  316.  When  a  share- 
holder pays  a  debt  of  the  corpora- 
tion, and  takes  an  assignment,  the 
debt  is  extinguished,  and  the  share- 
holders cannot  revive  it  by  assign- 

726 


ing  it.  Hardy  v.  Norfolk  M'f'g  Co., 
80  Va.  404. 

1 A  statute  may  permit  such  set-off. 
Appletou  v.  Turnbull,  84  Me.  72. 

2  Sawyer  v.  Hoag,  17  Wall.  610.  See, 
also,  Lawrence  v.  Nelson,  21  N.  Y. 
158;  Singer  v.  Given,  61  Iowa,  93; 
Boulton  Carbon  Co.  v.  Mills,  78  Iowa, 
460;  Shickle  v.  Watts,  94  Mo.  410; 
Thompson  v.  Reno  Sav'gs  Bk.,  19 
Nev.  103;  Wilkinson  v.  Bertock,  111 
Ga.  187.  Cf.  First  Nat.  B'kt.  Rig- 
gins,  124  N.  C.  534;  Efrid  v.  Pied- 
mont Land,  etc.,  Co.,  55  S.  C.  78. 

s  Sawyer  v.  Hoag,  17  Wall.  G10.  622; 
opinion  of  court  per  Miller,  J.  Sem- 
ble  contra,  Sav'gs  Bank  v.  Butchers, 
etc.,  Bank,  130  Mo.  155. 

*  Osgood  v.  Ogden,  4  Keyes  (N.  Y.), 
70. 


CHAP.  XIH.]        SHAREHOLDERS  AND  CREDITORS. 


[§  732. 


ized  and  secured  for  their  common  benefit ;  but,  I  apprehend, 
not  till  then."  x 

§  731.  On   similar   principles,  if   the   statutory  liability  of 
shareholders  is  in  effect  to  contribute  to  a  common    _ 

Set-off. 

fund  to  be  ratably  distributed  among  creditors,  or  statutory 
if  their  statutory  liability  assumes  this  character  by 
virtue  of  the  nature  of  the  proceeding  brought  to  enforce  it,  a 
shareholder  cannot,  against  this  liability,  set  off  an  indebted- 
ness of  the  corporation  to  him.2  "  Under  a  proceeding  for 
winding  up  a  corporation,  where  an  account  of  all  the  debts 
and  of  the  effects,  including  the  aggregate  liabilities  of  the 
stockholders,  is  required  to  be  taken,  there  is  no  reason  why 
a  creditor  should  be  in  any  better  situation  on  account  of  being 
at  the  same  time  a  stockholder.  In  the  latter  character  the 
constitution  and  the  statute  make  him  liable  to  the  creditors  to 
an  amount  equal  to  his  stock,  or  to  his  just  proportion  of  that 
amount  if  the  whole  is  not  required  ;  but  as  a  creditor  he  is  en- 
titled only  to  a  dividend  in  proportion  to  the  other  creditors. 
In  a  case  of  deficiency  in  means  to  pay  all  the  debts,  he  must 
take  his  dividend  pro  rata.  But  if  he  could  set  off  his  claim  as 
a  creditor  against  his  liability  as  a  stockholder,  he  might  be 
paid  in  full,  while  the  other  creditors  would  receive  only  a  part 
of  the  amount  due  them." 3 

§  732.  When,  however,  a  single  creditor  can  and  does  sue 

Iron  Co.,  4  Barb.  382,  391.     This  rea- 


1  Osgood  v.  Ogden,  4  Keyes  (N.  Y. ), 
70,  89;  opinion  of  court  per  Bacon,  J. 

2  Matter  of  the  Empire  City  Bank, 

18  N.  Y.  199;  Matthews  v.  Albert,  24 
Md.  527;  Hillier  v.  Allegheny  Mut. 
Ins.  Co.,  3  Pa.  St.  470;  Thompson  v. 
Meisser,  108  111.  359;  Thebus  v. 
Smiley,  110  111.  316;  Grissell's  Case, 
L.  R.  1  Ch.  528;  Black  &  Co.'s  Case, 
L.  R.  8  Ch.  254;  Callisher's  Case,  L. 
R.  5  Eq.   214;  Barnett's    Case,  L.  R. 

19  Eq.  449.  See,  also,  Lawrence  v. 
Nelson,  21  N.  Y.  158;  Emmert  v. 
Smith,  40  Md.  123;  Weber  v.  Fickey, 
47  Md.  196;  Bulkley  v.  Whitcomb, 
121  N.  Y.  107;  Lauraglenn  Mills  v. 
Ruff,  57  S.  C.  53.  But  see,  perhaps, 
contra,  Briggs  v.  Penuiman,  8  Cow. 
(N.  Y.)     387;  Tallmadge   v.  Fishkill 


soning  is  not  applicable  when  the 
shareholders'  liability  is  unlimited; 
because  each  shareholder  "is  liable 
to  contribute  to  any  amount  until  all 
the  liabilities  of  the  company  are 
satisfied,  and  therefore  it  signifies 
nothing  to  the  creditors  whether  the 
set-off  is  allowed  or  not."  Grissell's 
Case,  L.  R.  1  Ch.  528,  536,  per  Lord 
Chelmsford. 

3  Matter  of  the  Empire  City  Bk.,  18 
N.  Y.  199,  227;  opinion  of  court  per 
Denio,  J.  In  a  recent  Connecticut 
case  of  questionable  reasoning,  set- 
off was  not  allowed  on  the  ground 
that  the  shareholder  was  a  guarantor, 
and  a  guarantor  when  sued  on  his 
guaranty  cannot  set  off   a  debt  due 

727 


§  732.]       THE   LAW    OF    PRIVATE   CORPORATIONS.    [CHAP.  XIII. 


a  shareholder  at  law,  to  enforce  the  statutory  liability  of  the 
latter,  it  is  then  competent  for  the  shareholder  to  set  off  a 
debt  owing  him  from  the  corporation.1  "The  statutory  lia- 
bility constitutes  a  fund  which  belongs  to  the  creditors  to 
secure  the  payment  of  their  debts ;  but  it  belongs  to  all  the 
creditors,  as  well  those  who  are  stockholders  as  those  who  are 
not.  The  defendant  as  a  creditor,  has  an  interest  in  the  fund 
as  well  us  the  plaintiff,  and  his  debt  was  one  that  would  be 
chargeable  against  the  fund,  because  it  was  a  debt  against  the 
company,  for  the  payment  of  which  stockholders  were  indi- 
vidually liable,  and  this  would  be  so  irrespective  of  the  ques- 
tion whether  the  money  advanced  by  the  defendant  was  used 
to  pay  obligations  for  which  he  was  individually  liable  or  not. 
An  action  at  law  cannot  be  maintained  against  a  stockholder, 
who  is  also  a  creditor  to  an  amount  equal  to  his  stock,  for  the 
reason  that  he  has  an  interest  in  the  fund  sued  for,  and  it  can- 
not be  known  but  that  the  whole  fund  is  sufficient  to  pay  all 
the  debts.  No  accounting  can  be  had,  because  the  proper 
parties  are  not  before  the  court."  2 

A  case  recently  arose  in  New  York,  where  the  defendant, 
who  was  indebted  to  the  corporation  for  his  unpaid  subscrip- 
tion, was  sued  by  a  creditor  to  recover,  under  the  Manufactur- 
ing Companies  Act  of  1848,  an  amount  equal  to  the  stock  held 
by  the  defendant.  The  corporation  was  also  indebted  to  the 
defendant,  and  this  indebtedness  he  sought  to  set  off  in  the 
action  brought  against  him  by  the  creditor.  The  Court  of 
Appeals  held  that  the  defendant  could  set  off  only  the  excess 
of  the  indebtedness  of  the  corporation  to  him  over  his  indebted- 
ness on  his  unpaid  subscription  to  it;  and  since,  as  a  matter 
of  fact,  the  balance  was  in  favor  of  the  corporation,  the  set- 
off was  entirely  disallowed.3 


him  from  the  principal  debtor  (i.  e., 
the  corporation).  Ball  Electric  Light 
Co.  v.  Child,  68  Conn.  522. 

iMathez  v.  Neidig,  72  N.  Y.  100; 
Jerman  v.  Benton,  79  Mo.  148;  con- 
tra, Lauraglenn  Mills  v.  Ruff,  57  S.  C. 
53.  Accord,  Pierce  ».  Security  Co., 
60  Kas.  164.  But  see  Buchanan  v. 
Meisser,  105  111.  638.  A  stockholder 
who  buys  up   claims  against  an  in- 

728 


solvent  corporation  can  set  them  off 
only  at  the  amount  he  paid  for  them. 
Abbey  v.  Long,  44  Kan.  688. 

2Mathez  v.  Neidig,  72  N.  Y.  100, 
104;  opinion  of  the  court  per  Church, 
C.  J.  See  Matter  of  Empire  City 
Bank,  18  X.  Y.  199,  227;  Agate  v. 
Sands,  73  N.  Y.  620. 

3  Wheeler  v.  Millar,  90  N.  Y.  353. 
Compare  Ernmert  v.  Smith,  40  Md. 


CHAP.  XIII.]        SHAREHOLDERS  AND  CREDITORS. 


[§  733. 


When 
shareholder 
who  is  also 
a  creditor 
cannot  sue 
another 


§733.  A  creditor  of  a  corporation  who  is  also  a  share- 
holder cannot  ordinarily  sue  another  shareholder  at 
law  to  recover  nis  debt  from  the  individual  statu- 
tory liability  of  the  latter.  For  the  same  liability 
affects  the  plaintiff  himself,  who  accordingly  is  not 
entitled    to    recover  his  full    claim    from    another  shareholder 

at  law. 

shareholder.  Contribution  from  the  other  share- 
holders is  all  that  he  is  entitled  to ;  and  only  a  court  of  equity 
is  competent  to  adjust  the  rights  of  the  plaintiff  and  defend- 
ant.1 It  has  even  been  held  that  a  creditor,  who  is  also  a 
shareholder,  is  estopped  from  enforcing  the  individual  liability 
of  another  shareholder,  when  such  liability  arises  on  a  default 
in  the  responsibility  for  which  both  plaintiff  and  defendant 
share.2 

If,  however,  one  shareholder  is,  as  against  a  certain  other 
shareholder,   entitled   to   the   full  amount  of  a  debt  due  the 


123;  Weber  v.  Fickey,  47  Md.  196. 
As  against  the  liability  as  share- 
holder, under  this  New  York  statute, 
shareholders  who  are  also  trustees 
cannot  set  off  the  amount  which  they 
have  paid  to  extinguish  their  liabil- 
ity as  trustees  to  creditors,  under 
another  section  of  the  same  statute, 
for  failure  to  file  an  annual  report. 
Veeder  v.  Mudgett,  95  N.  Y.  295. 
Not  the  full  amount  of  his  debt  from 
the  bank,  but  the  proportion  due  the 
shareholder  (in  a  national  bank  in 
the  hands  of  a  receiver)  out  of  the 
funds  to  pay  its  debts  (i.  e.,  the  statu- 
tory liability  of  shareholders,  etc. ), 
may  be  set  off  against  his  indebted- 
ness to  that  fund.  King  v.  Arm- 
strong, 50  Ohio  St.  222. 

1  Thayer  v.  Union  Tool  Co.,  4 
Gray,  75;  Bailey  v.  Bancker,  3  Hill 
(N.  Y.),  188;  Richardson  v.  Aben- 
droth,  43  Barb.  162;  Beers  v.  Water- 
bury,  8  Bosw.  (N.  Y.)396;  Thomp- 
son v.  Meisser,  108  111.  359.  See 
Bisset  v.  Kentucky  River  Nav.  Co., 
15  Fed.  Rep.  353.  Compare  Clark  v. 
Myers,  11  Hun,  60S;  Oswald  v.  Times 


Co.,  65  Minn.  249.  But  it  has  been 
held  that  an  assignee  of  a  judgment 
obtained  in  a  suit  against  the  corpo- 
ration, of  which  the  plaintiff  in  the 
suit  was  a  shareholder,  may  sue  a 
shareholder  at  law.  Woodruff,  etc., 
Iron  Works  v.  Chittenden,  4  Bosw. 
(N.  Y.)  406.  But,  see,  Potter  v. 
Stevens  Machine  Co.,  127  Mass.  592. 

The  New  York  courts  rest  their 
decisions  on  the  not  altogether  satis- 
factory grounds  that  plaintiff  and 
defendant  are  partners.  A  moment's 
consideration  will  show  that  even 
when  a  shareholder  sues  his  corpo- 
ration and  obtains  from  it  the  pay- 
ment of  his  demand,  he  does  not  in 
reality  obtain  the  face  of  his  debt; 
for  the  corporate  assets  in  which  he 
is  interested  as  a  shareholder  are  so 
much  diminished  by  the  satisfaction 
of  his  claim  as  a  creditor.  Only 
when  one  shareholder  sues  another, 
then  it  is  apparent  that  he  is  not  en- 
titled to  the  full  amount  of  the  debt. 

2  Potter  v.  Stevens  Machine  Co., 
137  Mass.  592.     See  §  701,  note. 

729 


§  734.]        THE   LAW    OF    PRIVATE   CORPORATIONS.   [CHAP.  XIH. 


for  debts  of 
a  particular 
class. 
"Debts." 


former  from  the  corporation,  there  is  no  reason  why  he  should 
not  sue  the  other  shareholder  at  law.  Thus,  where  a  statute 
provides  that  all  shareholders  shall  be  severally  individually 
liable  to  creditors  to  the  amount  of  unpaid  stock  held  by  them 
respectively,  a  creditor  may  maintain  an  action  at  law  against 
a  shareholder ;  even  though  the  former  is  also  a  shareholder, 
provided  his  stock  is  paid  in  full.1 

§  734.  When  the  shareholders  are  made  liable  only  for 
Liability  debts  of  a  particular  class,  as  for  money  due  em- 
ployes, they  may  plead  that  the  debt  sued  on  does 
not  come  within  that  class.2  For  instance,  by  a 
New  York  statute  stockholders  are  made  liable  for 
all  debts  due  "  labourers,  servants,  and  apprentices,  for  services 
performed  for  such  corporation."  The  Court  of  Appeals  hold 
that  the  services  referred  to  are  menial  or  manual ;  and  that 
he  who  performs  them  must  be  of  a  class  whose  members 
usually  look  to  the  reward  of  a  day's  labor  or  service  for 
immediate  or  present  support,  from  whom  the  company  does 
not  expect  credit,  and  to  whom  its  future  ability  to  pay  is  of 
no  consequence ;  one  who  is  responsible  for  no  independent 
employment,  but  does  a  day's  work  or  a  stated  job  under  the 
direction  of  a  superior.  Accordingly,  a  bookkeeper  who 
"  worked  by  the  year,"  and  often  acted  as  manager,  is  not  in 
this  category,3  nor  an   assistant   chief   engineer.4     So    where 


1  Smith  v.  Londoner,  5  Colorado, 
365;  Brown  v.  Merrill,  107  Cal.  446; 
Knowles  v.  Sandercock,  107  Cal.  629. 
A  shareholder  in  a  corporation,  to 
the  members  of  which  personal  lia- 
bility attached,  became  bankrupt. 
He  pledged  with  one  of  his  creditors 
some  bonds  of  the  company  which 
itself  had  become  insolvent.  The 
assignee  in  bankruptcy  disputed  the 
creditor's  title,  but  settled  and  gave 
up  all  claim  to  the  bonds,  the  creditor 
agreeing  to  indemnify  the  assignee 
from  any  liability  as  shareholder  in 
the  company.  The  creditor  then 
sued  on  the  bond  to  enforce  the  in- 
dividual liability  of  the  shareholders. 


His  agreement  to  indemnify  the 
assignee  was  set  up  in  defence.  But 
the  defence  was  held  bad,  as  the 
agreement  was  only  an  agreement 
to  indemnify  the  assignee,  who  was 
not  liable  as  a  shareholder;  it  was 
no  agreement  to  indemnify  the  bank- 
rupt. American  File  Co.  v.  Garrett, 
110  U.  S.  288. 

2  Wakefield  v.  Fargo,  90  N.  Y.213; 
Conant  v.  Van  Schaick,  24  Barb.  87; 
Larrabee  v.  Baldwin,  35  Cal.  155. 
Compare  Wilson  v.  Shareholders,  43 
Pa.  St.  424. 

!  Wakefield  v.  Fargo,  90  X.  Y.  213. 
Compare  Short  v.  Medberry,  29  Hun, 
39.     The  riffht  of  action  under  this 


4  For  note  4  see  page  731. 


730 


CHAP.  XIII.]        SHAREHOLDERS  AND  CREDITORS. 


[§  735. 


shareholders  are  made  liable  for  the  "  debts  "  of  the  corporation 
a  shareholder  may  plead  that  the  claim  of  the  creditor  is  not  a 
"debt"  in  the  sense  in  which  the  term  is  used  in  the  statute. 
Thus,  a  judgment  against  a  corporation  for  personal  injuries 
is  not  a  "debt  contracted"  by  it.1 

§  735.  Shareholders  may  also  plead  that  their  individual 
liability  has  been  waived  in  respect  of  the  claim  on 
which  suit  is  brought  against  them,2  or  that  the 
statutory  provision  on  which  rests  their  liability 
had  been  repealed  either  before  they  became  share- 
holders,3 or  before  the  debt  on  which  suit  is  brought  withstat- 
was  contracted ; 4  or  that  the  statutory  liability  was 
created  after  the  debt  was  contracted  by  the  corporation,  and 


Waiver  or 

repeal  of 

statutory 

liability. 

Substantial 

compliance 


statute  is  assignable.  Oneida  Bank 
v.  Ontario  Bank,  21  N.  Y.  490.  A  suit 
in  equity  against  all  the  other  share- 
holders is  the  proper  means  of  en- 
forcing contribution  when  a  share- 
holder has  paid  wages  of  an  employe. 
Clark  v.  Myers,  11  Hun,  608.  So  a 
travelling  salesman  was  held  not  to 
be  a  laborer.  Jones  v.  Avery,  50 
Mich.  326.  See  Clark,  Appeal  of, 
100  Mich.  448.  See  Sleeper  v.  Gor- 
dium,  67  Wis.  577,  for  a  construction 
of  a  statute  of  this  nature. 

The  liability  of  shareholders  to 
creditors,  to  the  extent  of  their  un- 
paid subscriptions,  is  not  excluded 
by  the  existence  of  a  statute  render- 
ing shareholders  individually  liable 
to  the  amount  of  stock  held  by  each 
of  them,  for  all  work  or  labor  done, 
or  materials  furnished  to  carry  on 
the  operations  of  the  corporation  ; 
even  though  the  claims  of  the  judg- 
ment creditors  suing  to  enforce  the 
payment  of  the  unpaid  subscriptions 
arose  from  labor  done  and  materials 
furnished.  Bunn's  Appeal,  105  Pa. 
St.  49. 

4  Brockway  v.  Innes,  39  Mich.  47; 
nor  a  railroad  contractor.  Peck  v. 
Miller,  39  Mich.  594.     A  corporation 


cannot  be  an  "  employe  "  of  another 
corporation  within  the  purview  of  a 
statute  making  shareholders  liable 
for  debts  due  employes.  Dukes  v. 
Love,  97  Ind.  341.  As  to  who  are 
"employes,"  see  Palmer  v.  Van 
Sautvoord,  153  N.  Y.  612. 

1  Bohn  v.  Brown,  33  Mich.  257  ; 
Hacock  v.  Sherman,  14  Wend.  58  ; 
Doolittle  v.  Marsh,  11  Neb.  243. 
Compare  Dryden  v.  Kellogg,  2  Mo. 
App.  87.  Liability  for  "  dues  "  covers 
damages  arising  from  a  tort  of  the 
corporation.  Rider  v.  Fritchey,  49 
O.  St.  285.     See  §  773. 

2  French  v.  Teschemaker,  24  Cal. 
518;  Basshor  v.  Forbes,  36  Md.  154. 
See  Brown  v.  Eastern  Slate  Co.,  134 
Mass.  590. 

3  Ochiltree  v.  Railroad  Company, 
21  Wall.  249. 

4  But  where  bonds  were  issued  by 
a  corporation  while  personal  liabil- 
ity attached  to  its  shareholders,  the 
holder  of  them,  though  he  became 
such  after  the  repeal  of  this  per- 
sonal liability,  has  all  the  rights  of 
his  assignor,  including  the  latter's 
right  of  action  against  the  share- 
holders. Blakeman  v.  Benton,  9 
Mo.  App.  107. 

731 


§  736.]        THF    LAW    OF    PRIVATE   CORPORATIONS.  [CHAP.  XIII. 

repealed  before  suit  was  brought  against  the  shareholder.1 
And  when,  a  statute,  on  failure  to  comply  with  which  share- 
holders are  made  liable,  has  been  substantially  complied  with, 
this,  where  the  creditor  is  not  injured,  may  absolve  a  share- 
holder from  liability.2 

§  736.  When,  according  to  the  construction  put  on  the 
statute,  the  individual  liability  of  shareholders  is 
fimitatlons  primary  or  co-ordinate  with  that  of  the  corporation, 
and  not  contingent  on  the  inability  of  the  creditor 
to  satisfy  his  claim  from  the  corporate  assets,  the  statute  of 
limitations  begins  to  run  from  the  time  when  the  debt  matures 
against  the  corporation.3  And  under  a  statute  providing  that 
"  if  any  loss  or  deficiency  of  the  capital  stock  in  any  bank  shall 
arise  from  the  official  mismanagement  of  the  directors,  the 
stockholders  at  the  time  of  such  mismanagement  shall  in  their 
individual  capacities  be  liable  to  pay  the  same,"  the  Massa- 
chusetts Supreme  Court  holds  that  the  statute  begins  to  run 
from  the  happening  of  the  loss  or  deficiency  in  respect  of 
which  the  liability  exists.4  If,  however,  the  liability  of  share- 
holders is  contingent  on  the  inability  of  the  corporation  to 
discharge  the  debt  and  the  exhaustion  of  the  legal  remedies  of 
the  creditor  against  it,  then  the  statute  of  limitations  does  not 
run  against  the  liability  of  the  shareholders  until  the  creditor 
has  had  a  reasonable  time  to  exhaust  his  remedies  against  the 
corporation.5 


1  Jerman  v.  Benton,  79  Mo.  148. 

a  Booth  v.  Campbell,  37  Md.  522. 

3  Davidson  v.  Rankin,  34  Cal.  503; 
Hyman  v.  Coleman,  82  Cal.  650 ; 
Lindsay  v.  Hyatt,  4  Edw.  Ch.  (N.  Y.) 
97;  compare  Allibone  v.  Hager,  46 
Pa.  St.  48.  See,  also,  Terry  v.  Mc- 
Lure,  103  U.  S.  442;  Carroll  v.  Green, 
92  U.  S.  509.  But  see  Mitchell  v. 
Beckman,  64  Cal.  117  ;  Hawkins  v. 
Furnace  Co.,  40  O.  St.  507;  Young- 
love  v.  Lime  Co.,  49  O.  St.  663. 

*  Baker  v.  Atlas  Bank,  9  Mete. 
182. 

5  Longley  v.  Little,  26  Me.  162. 
See  Handy  o.  Draper,  89  N.  Y.  334: 
Kilton  Warren  Co.  v.  Prov.  Tool  Co., 

732 


22  R.  I.  605.  Where  a  statute  enacts 
that  when  "a  corporation  has  un- 
lawfully made  a  division  of  its  prop- 
erty, or  has  property  which  cannot 
be  attached  or  is  not  by  law  attach- 
able, any  judgment  creditor  may  file 
a  bill  in  equity"  to  obtain  the  satis- 
faction of  his  debt  from  such  prop- 
erty, the  right  of  action  conferred 
does  not  accrue  until  the  return  of 
execution  unsatisfied;  and  not  till 
then  does  the  statute  of  limitations 
begin  to  run.  Taylor  v.  Bowker,  111 
U.  S.  110. 

Wben  a  bank  charter  contains 
provision  making  shareholders  lia- 
ble for  the  "  ultimate  redemption  of 


CHAP.  XIII.]        SHAREHOLDERS  AND  CREDITORS. 


[§  737. 


§  737.    Where  the  suit  against  the  shareholder  is  brought 
to  enforce  his  statutory  liability,  and   a  judgment   Effectof 
on    the   claim    of    the   creditor   has  been  obtained   judgment 
against  the  corporation,  it  is  held  in  some  cases  that   corpora- 
the  shareholder  may  contest  the  suit  as  being  based   tlon' 
on  a  debt  not  due  from  the  corporation,  thus  virtually  having 
the  whole  matter  retried,  and  compelling  the  creditor  to  prove 
again  his  original  right  to  recover  against  the  corporation.1 
But  the  weight  of  authority  is,  perhaps,  in  favor  of  the  view 
that  judgment  against  the  corporation  can,  in  a  suit  by  cred- 
itors to  enforce  the  statutory  liability  of  shareholders,  be  im- 
peached by  a  shareholder  only  on  grounds  of  collusion  or  lack 
of  jurisdiction  in  the  court  rendering  it.2    This  view  seems  at 
least  well  established  when  the  liability  sought  to  be  enforced 
is  not  statutory,  but  merely  that  attaching  to  shareholders  on 


the  bills,1'  the  liability  of  the  share- 
holders arises  when  the  bank  refuses 
to  redeem  or  becomes  notoriously 
insolvent,  and  from  that  time  the 
statute  of  limitations  runs  in  favor 
of  the  shareholders.  Terry  v.  Tub- 
man, 92  U.  S.  156.  See  Godfrey  v. 
Terry,  97  U.  S.  171;  Long  v.  Bank 
of  Yanceyville,  90  N.  C.  405. 

When,  however,  the  statute  re- 
quires suit  within  a  certain  time  to 
be  begun  against  the  shareholder, 
that  time  is  not  extended  by  the 
recovery  of  judgment  against  the 
corporation.  Stilphen  ».  Ware,  45 
Cal.  110.  This  liability  is  upon  an 
implied  not  au  express  contract 
within  the  meaning  of  a  statute  of 
limitations.  McDonald  v.  Thomp- 
son, 184  U.  S.  71. 

1  Union  Bank  v.  Wando  Mfg.,  etc., 
Co.,  17  S.  C.  339;  Strong  v.  Wheaton, 
38  Barb.  616;  MacMahon  v.  Macy,  51 
N.  Y.  155;  Miller  c.  White,  50  N.  Y. 
137;  Whitman  v.  Cox,  26  Me.  335; 
Heard  v.  Sibley,  52  Ga.  310.  See  Mer- 
rill ».  Shaw,  38  Me.  267;  Trippe  v. 
Huncheon,  82  Ind.  307;  Neilson  v. 
Crawford,  52  Cal.  248.  Directly  op 
posed  to  this  view  are  Holyoke  Bank 


v.  Goodman  Paper  Mfg.  Co.,  9  Cush. 
576;  Farnum  v.  Ballard  Vale  Ma- 
chine Shop,  12  Cush.  507;  Robbins  v. 
Justices,  12  Gray,  225,  which  hold 
that  when  a  shareholder,  whom  cred- 
itors intend  to  hold  individually,  is 
required  to  be  summoned  in  the  suit 
against  the  corporation,  he  cannot 
dispute  the  merits  of  the  claim 
against  it. 

2  Milliken  u.  Whitehouse,  49  Me. 
527  ;  Barron  v.  Paine,  83  Me.  312; 
Wilson  v.  Pittsburg,  etc.,  Coal  Co., 
43  Pa.  St.  424;  Donworth  v.  Cool- 
baugh,  5  Iowa,  300;  Slee  v.  Bloom, 
20  Johns.  (N.  Y.)669;  Lowry  v.  Par- 
sons, 52  Ga.  357;  Oswald  v.  Times  Co., 
65  Minn.  249;  Holland  v.  Iron  Co.,  ib. 
324;  Nichols  v.  Stevens,  123  Mo.  96; 
Ball  v.  Reese,  58  Kas.  614.  See  Black 
v.  Womar,  100  111.  328;  Manufactur- 
ing Co.  v.  Bradley,  105  U.  S.  175; 
Singer  ».  Given,  61  Iowa,  93.  In  such 
case  judgment  against  the  corpora- 
tion is  prima  facie  evidence  against 
the  shareholder  according  to  Grund 
v.  Tucker,  5  Kans.  70;  Schaeffer  v. 
Missouri  Home  Ins.  Co.,  46  Mo.  248; 
Hoagland  v.  Bell,  36  Barb.  57. 

733 


§  738.]       THE   LAW   OF   PRIVATE   CORPORATIONS.  [CHAP.  XIII. 


account  of  unpaid  subscriptions  or  corporate  property  improp- 
erly received  by  them.1 

§  738.  In  a  suit  brought  by  a  creditor  against  a  shareholder 
share-  either  for   unpaid  subscriptions,  or  on  account  of 

bolder  can-  his  statutory  liability,  the  shareholder  cannot  deny 
corporate  the  legal  existence  of  the  corporation.2  If  the  cor- 
existence.  p0ration  is  illegally  or  irregularly  formed,  very 
likely  there  will  be  all  the  more  reason  and  justice  in  holding 
persons  who  purport  to  be  shareholders  therein  to  their  full 
liability.3    And,  although  where  the  capital  stock  is  fixed  at 


1  Wetherbee  v.  Baker,  35  N.  J.  Eq. 
501;  Bisset  v.  Kentucky  River  Nav. 
Co.,  15  Fed.  Rep.  353;  Clapp  v.  Peter- 
son, 104  111.  26;  Glenn  v.  Williams, 
60  Md.  93,  116;  Tatum  v.  Rosenthal, 
95  Cal.  129.  Held  prima  facie  evi- 
dence in  Hastings?;.  Drew,  76  N.  Y.  9; 
Stevens  v.  Fox,  83  N.  Y.  313.  In  a 
suit  to  enforce  the  statutory  liability 
of  shareholders,  where  the  statute 
provides  that,  on  return  of  execution 
against  the  corporation  unsatisfied, 
plaintiff  may  proceed  against  share- 
holders, the  action  may  be  founded 
on  the  judgment  against  the  corpo- 
ration. Guerney  v.  Moore,  131  Mo. 
650. 

2  Casey  v.  Galli,  94  U.  S.  673;  Eaton 
v.  Aspinwall,  19  N.  Y.  119;  Hickling 
v.  Wilson,  104  111.  54;  Hause  v.  Mann- 
heimer,  67  Minn.  194 ;  Gardner  v. 
Minneapolis  &  St.  L.  Ry.,  73  Minn. 
517;  Danbury  &  N.  R.  R.  Co.  v.  Wil- 
son, 22  Conn.  435 ;  McFarlan  v.  Teuton 
Ins.  Co.,  4Denio  (N.  Y.),  392;  Eppes 
v.  Railroad  Co.,  35  Ala.  33;  Beck  v. 
Henderson,  76  Ga.  361;  Aultman  v. 
Waddle,  40  Kan.  195 ;  Hughes  v.  Bank 
of  Somersett,  5  Litt.  (Ky. )  47;  Tar 
River  Nav.  Co.  v.  Neal,  3  Hawks 
(N.  C),  520;  McHose  v.  Wheeler,  45 
Pa.  St.  32;  Hammond  v.  Straus,  53 
Md.  1 ;  Slocum  v.  Providence  Steam, 
etc.,  Co.,  10  R.  I.  112;  Wheelock  v. 
Kosl,77Ill.  29r.;  Central  Agricultural 
Ass'n  o.  Alabama  Gold  Life  Ins.  Co., 

734 


70  Ala.  120;  McDonnell  v.  Alabama 
Gold  Life  Ins.  Co.,  85  Ala.  401;  Na- 
tional Com.  B'k  v.  McDonnell,  92 
Ala.  388  (the  last  five  cases  were  ac- 
tions brought  by  creditors  to  enforce 
statutory  liability);  Ossipee Hosiery, 
etc.,  Co.  v.  Canney,  54  N.  H.  295; 
Keyser  v.  Hitz,  2  Mackey  (Dist.  of 
Col.),  473;  Estate  of  Davis  v.  Wat- 
kins,  Rec'r,  56  Neb.  288.  See  §§  145 
et  eeo.,  and  §  537. 

Shareholders,  who  form  under  a 
special  charter,  whereby  they  render 
themselves  liable  to  creditors  in  an 
amount  equal  to  double  the  amount 
of  their  stock,  cannot  escape  by 
pleading  that  the  charter  contra- 
venes the  state  constitution.  Mc- 
Carthy v.  Lavasche,  89  111.  270.  As 
against  creditors  suing  for  unpaid 
subscriptions  a  shareholder  cannot 
deny  the  corporate  existence,  even 
when  a  judgment  of  ouster  has  been 
rendered.  Rowland  v.  Meader  Fur- 
niture Co.,  38  Ohio  St.  269. 

8  Thus  a  shareholder  cannot  de- 
feat an  action  by  the  receiver  of  his 
bank  to  recover  the  amount  of  a 
note  given  for  his  stock,  by  showing 
that  he  and  other  shareholders  ille- 
gally gave  notes  for  stock  instead  of 
paying  cash,  in  fraud  of  the  banking 
laws.  Farmers',  etc.,  Bank  v.  Jenks, 
7  Mete.  592.  See,  also,  Abbott  v. 
Aspinwall,  26  Barb.  202. 

Nor  can  a  shareholder  plead  that 


CHAP.  XIII.]        SHAREHOLDERS  AND  CREDITORS. 


[§  739. 


a  certain  amount  no  action  ordinarily  lies  against  a  shareholder 
to  enforce  his  subscription  until  the  entire  amount  is  sub- 
scribed for,  yet  if  the  directors  undertake  to  organize  the  com- 
pany upon  a  partial  subscription  of  the  capital  stock,  and  a 
subscriber  takes  part  in  such  organization,  knowing  that  the 
whole  amount  has  not  been  taken,  and  attends  corporate  meet- 
ings at  which  money  is  voted  and  contracts  are  made  for  pur- 
chases, he  will  be  estopped  in  a  suit  by  a  creditor  from 
pleading  that  the  capital  stock  had  never  been  fully  subscribed 
for.1 

§  739.    On  the  other  hand,  persons  who  have  contracted 
with  a  de  facto  corporation  as  a  corporation,  cannot   „ 

J  L  .         Nor  can  the 

deny  its  corporate  existence  in  order  to  charge  its  creditor 
shareholders  individually  as  partners.2  But  it  is 
held  that  when  the  enabling  act  under  which  a  corporation  is 
formed  provides  that  a  substantial  failure  to  comply  with  its 
requirements  shall  render  the  shareholders  individually  liable, 
ami  the  statute  is  not  complied  with,  they  are  primarily  liable, 
and  may  be  sued  by  a  creditor  before  the  corporate  assets  are 
exhausted;  and  this,  although  the  creditor  has  dealt  with  the 
corporation  as  a  corporation.3 


the  corporate  enterprise  has  been 
abandoned,  in  an  action  brought 
against  him  by  a  creditor.  Bish  v. 
Bradford,  17  Ind.  490. 

i  Garling  v.  Baechtel,  41  Md.  305. 
When  sued  upon  his  statutory  lia- 
bility a  shareholder  who  has  accepted 
his  certificate  and  received  dividends, 
cannot  plead  that  the  certificate  was 
issued  before  an  increase  of  capital 
stock  was  all  paid  in,  although  the 
statute  provided  that  no  such  in- 
crease should  be  valid  until  it  was 
all  paid  in.  Scott  v.  Demeese,  181 
U.  S.  202;  cf.  Lantry  v.  Wallace,  182 
U.  S.  536. 

2  Stout  v.  Zulick,  48  N.  J.  L.  599; 
Merchants',  etc.,  Bank  v.  Stone,  38 
Mich.  779;  Am.  Mirror  Co.  v.  Bulk- 
ley,  107  Mich.  447;  Richards  v.  Min- 
nesota Savings  Bank,  75  Minn.  196; 
Humphrey  u.   Mooney,   5   Colorado, 


282;  Second  National  Bank  c.  Hall, 
35  Ohio  St.  158;  Stafford  Nat.  Bk.  v. 
Palmer,  47  Conn.  443;  First  Nat.  Bk. 
i\  Almy,  117  Mass.  476;  Laflin,  etc., 
Powder  Co.  v.  Sinsheimer,  46  Md.  315. 
Sniders'  Sons  Co.  v.  Troy,  91  Ala.  224; 
Cory  v.  Lee,  93  Ala.  468;  Larned  v. 
Beal,  65  N.  H.  184;  Rutherford  v. 
Hill,  22  Oreg.  218;  Boyington  ».  Van 
Etten,  62  Ark.  63;  Kleckner  v.  Turk, 
45  Neb.  176.  See  Trowbridge  v. 
Scudder,  11  Cush.  83;  New  York 
Iron  Mine  v.  First  Nat.  Bk.,  39  Mich. 
644;  Heald  v.  Owen,  79  Iowa,  23. 
But  see  Johnson  v.  Corser,  34  Minn. 
355,  and  compare  Foster  v.  Moulton, 
35  Minn.  458.     See  §  148. 

3  Clegg  v.  Hamilton,  etc.,  Grange 
Co.,  61  Iowa,  121;  Marshall  v.  Har- 
ris, 55  Iowa,  182;  Kaiser  v.  Lawrence 
Sav'gs  Bk.,  56  Iowa,  104;  Eisfield  v. 
Kenworth,   50   Iowa,    389;  Heuer  v. 

735 


§  740.]      THE   LAW   OF   PRIVATE   CORPORATIONS.    [CHAP.  XIII. 


Who  are 

sharehold 
ers  as  to 

creditors. 


§  740.  As  evidently  the  most  obvious  plea  which  a  defend- 
ant can  interpose,  when  sued  either  for  unpaid  sub- 
scriptions or  on  account  of  statutory  liability,  is 
that  he  is  not  a  shareholder,  it  is  important  to  de- 
termine the  circumstances  or  conditions  which  con- 
stitute a  person  a  shareholder  as  to  creditors.1  Where  the 
name  of  an  individual  appears  on  the  stock  book  of  a  corpora- 
tion as  a  shareholder,  the  prima  facie  presumption  is  that  he 
is  the  owner  of  stock,  and  in  an  action  against  him  by  or  on 
behalf  of  creditors,  the  burden  of  proving  that  he  is  not  such 
rests  on  him.2    If,  however,  the  defendant  has  never  consented 


Carmichael,  82  Iowa,  288;  see  Smith 
v.  Colorado  Fire  Ins.  Co.,  14  Fed. 
Rep.  399;  Lehman  v.  Knapp,  48  La. 
Ann.  1148;  Cincinnati  C.  Co.  v.  Bate, 
9ii  Ky.  356.  In  Bigelow  v.  Gregory, 
73  111.  197,  it  is  said  that  there  is 
a  difference  between  corporations 
formed  under  a  general  enabling  act, 
in  this  respect;  that  if  the  provisions 
of  an  enabling  act  are  not  substan- 
tially complied  with,  the  would-be 
corporators  will  be  liable  as  partners. 
Thus,  shareholders  have  been  held 
liable  as  partners  for  contracts  made 
before  the  articles  of  incorporation 
were  filed.  Garnett  v.  Richardson, 
35  Ark.  145;  Ferris  v.  Thaw,  72  Mo. 
446.  See  Loverin  v.  McLaughlin,  161 
111.  417;  Creswell  v.  Oberly,  17  111. 
App.  281;  see  §451,  note.  Compare 
Curtis  v.  Tracy,  169  111.  233.  Under 
such  circumstances  shareholders 
would  certainly  be  liable  as  partners 
to  people  dealing  with  them  without 
knowledge  of  their  attempted  incor- 
poration. Guckert  v.  Hacke,  159  Pa. 
St.  203;  New  York,  etc.,  Bank  v. 
Crowell,  177  Pa.  St.  313.  Of  course 
persons  who  engage  in  business  to- 
gether without  taking  any  steps  to 
incorporate  themselves,  will  be  lia- 
ble as  partners,  though  they  have 
regarded  themselves  as  "  stockhold- 
ers." Faruum  o.  Patch,  60  N.  II.  294. 
736 


And  when  persons  deal  as  partners 
through  a  common  agent,  and  after- 
wards become  incorporated,  but  do 
not  change  their  style  or  manner  of 
doing  business,  they  will  be  liable  as 
partners  for  debts  contracted  in  the 
business  to  persons  who  have  had  no 
notice  of  their  incorporation.  Mar- 
tin v.  Fewell,  79  Mo.  401. 

1  See  Wilson  v.  Seligman,  143  U.  S. 
41.  In  general  these  conditions  will 
be  the  same  as  those  which  render  a 
person  liable  on  his  subscription  to 
the  corporation.     See  §§  510  et  seq. 

2  Turnbull  v.  Payson,  95  U.  S.  418; 
Iloagland  v.  Bell,  36  Barb.  57;  Rock- 
ville,  etc.,  Turnpike  Road  v.  Van  Ness. 
2  Cr.  C.  Ct.  449;  Pittsburgh,  W.  and 
R.  R.  R.  Co.  v.  Applegate,  21  W.  Va. 
172;  South  Branch  R'y  Co.  v.  Long's 
Adm.,  43  W.  Va.  131.  See  Stratton 
v.  Lyons,  53  Vt.  130. 

A  stockholder  named  in  a  cer- 
tificate is  liable  as  such  unless  he 
promptly  disavow  the  relation.  Mc- 
Ilose  v.  Wheeler,  45  Pa.  St.  32.  If 
the  certificate  show  the  stock  sub- 
scribed for,  but  unpaid,  it  is  conclu- 
sive as  to  the  liability  of  the  holder 
to  this  extent,  that  he  cannot  show 
that  the  stock  was  subscribed  for 
by  him  as  an  agent  of  the  company, 
and  that  such  as  was  owned  by  him 
individually  was  fully  paid  up.     Alii- 


CHAP.  XIII.]        SHAREHOLDERS  AND  CREDITORS. 


[§  741' 


to  become  a  shareholder,  or  held  himself  out  as  such,  or  ac- 
cepted a  certificate,  he  may  plead  that  his  name  was  placed  on 
the  books  of  the  corporation  without  his  authority  1  unless  the 
circumstances  are  such  as  affect  him  with  notice  of  its  having 
been  placed  there.2  If  a  person  subscribes  for  shares,  signs  the 
articles  of  association,  acts  as  an  officer,  and  appears  as  a  share- 
holder on  the  books,  he  will  not,  as  against  creditors,  be  per- 
mitted to  deny  that  he  is  such,  although  no  certificate  has  ever 
been  issued  to  him.3  And  when  sued  by  a  creditor,  mere  ir- 
regularities in  becoming  a  shareholder  will  not  avail  the  de- 
fendant.4 

It  has  also  been  held  that  if  a  person  makes  a  subscription 
conditioned  on  an  amendment  to  the  charter  being  obtained 
from  the  legislature,  and  subsequently  the  corporation  is  organ- 
ized without  obtaining  the  amendment,  the  defendant  taking 
no  active  part  in  its  organization,  he  may  be  held  as  a  share- 
holder if  he  pays  up  a  portion  of  his  subscription,  and,  through 
his  clerk,  takes  a  receipt  wherein  the  corporation  receipts  for 
"  ten  per  cent  of  his  stock  in  this  bank." 5 

§  741.  One  to  whom  shares  have  been  transferred  in  pledge 
or  as  collateral  security  for  money  loaned,  but  who 
appears   on   the   books   of    the   corporation   as   the   of  shines 
owner  of  the  shares,  is  liable  to  creditors,  or  for   security6™1 
their  benefit  as  a  shareholder.6     For  this  the  Fed- 


bone  v.  Hager,  46  Pa.  St.  48;  com- 
pare Chapman  and  Barber's  case, 
Law  Rep.  3  Eq.  361. 

»Mudgett  v.  Horrell,  33  Cal.  25; 
see  Matter  of  Reciprocity  Bauk,  22 
N.  Y.  10,  17;  Simmons  v.  Hill,  96 
Mo.  679. 

2  As,  for  instance,  if  defendant  be- 
comes cashier  of  a  bank  and  acts  as 
such.     Finn  v.  Brown,  142  U.  S.  56. 

3  Wheeler  v.  Millar,  90  N.  Y.  353- 
In  general  a  certificate  is  not  essential 
to  constitute  a  person  a  shareholder, 
§511. 

4  Holyoke  Bank  v.  Goodman  Paper 
Mfg.  Co.,  9  Cush.  576;  Burr  v.  Wil- 
cox, 22  N.  Y.  551.  Compare  Ex  parte 
Hennessy,  2  McNaghten  &  Gordon, 
201;  Blien  v.  Rand,  77  Minn.  110. 

47 


6  Lehman  v.  Warner,  61  Ala.  455; 
See  §§517-521,  as  to  conditional  sub- 
scriptions. 

e  Nat.  Bk.  v.  Case,  99  U.  S.  628; 
Pullman  v.  Upton,  96  U.  S.  328; 
Fouche  v.  Merchants'  Nat.  Bank,  110 
Ga.  827;  Adderly  v.  Storm,  6  Hill 
(N.  Y.),  624;  Roosevelt  v.  Brown,  11 
N.  Y.  148;  Holyoke  Bnnk  v.  Burn- 
ham,  11  Cush.  183;  Magruder  v. 
Colston,  44  Md.  349;  Crease  v.  Bab- 
cock,  10  Mete.  525;  Wheelock  v. 
Kost,  77  111.  296;  Hale  v.  Walker,  31 
Iowa,  344;  Bowden  v.  Farmers',  etc., 
Bk.,  1  Hughes,  307;  Erskine  v.  Loe- 
wenstein,  82  Mo.  301.  Nat.  Comm'l 
Bk.  v.  McDonnell,  92  Ala.  388;  Tut- 
hill  Spr'g  Co.  v.  Smith,  90  Iowaf 
331.     Semble     contra,   McMahon    v. 

737 


§  742.]       THE   LAW   OF   PRIVATE   CORPORATIONS.  [CHAP.  XIII. 


eral  Supreme  Court  say  there  are  several  reasons.  "  One  is 
that  he  is  estopped  from  denying  his  liability  by  voluntarily 
holding  himself  out  to  the  public  as  the  owner  of  the  stock, 
and  his  denial  of  ownership  is  inconsistent  with  the  representa- 
tions he  has  made ;  another  is,  that  by  taking  the  legal  title  he 
has  released  the  former  owner  ;  and  a  third  is,  that  after  hav- 
ing taken  the  apparent  ownership,  and  thus  become  entitled  to 
receive  dividends,  vote  at  elections,  and  enjoy  all  the  privileges 
of  ownership,  it  would  be  inequitable  to  allow  him  to  refuse 
the  responsibilities  of  a  shareholder."  ' 

A  mere  pledgee  of  shares,  however,  who  is  not  registered  as 
owner,  and  never  receives  dividends  or  exercises  any  of  the 
rights  of  a  shareholder,  is  not  liable  as  a  shareholder  to  cred- 
itors of  the  corporations.2  Thus  it  is  held  by  the  Federal 
Supreme  Court  that  a  pledgee  of  shares  in  the  stock  of  a 
national  bank,  who  in  good  faith  while  the  bank  is  not  in 
failing  circumstances,  takes  the  transfer  in  the  name  of  an 
irresponsible  person,  for  the  avowed  purpose  of  avoiding  lia- 
bility as  a  shareholder,  and  who  never  exercises  any  rights  of 
a  shareholder  or  receives  any  dividends,  incurs  no  liability  as 
a  shareholder  to  the  creditors  of  the  bank.  The  dividends  were 
paid  to  the  pledgor,  the  real  owner.3 

§  742.  On  the  other  hand,  if  a  person  is  the  real  owner  of 


Macy,  51  N.  Y.  155.  So  an  executor 
holding  shares  may  be  chargeable 
with  the  individual  liability  of  his 
testator.  Diven  v.  Duncan,  41  Barb. 
520.     Compare  Rev.  St.,  §5152. 

i  Nat.  Bk.  v.  Case,  99  U.  S.  628, 
631.  Compare  Union  Savings  Ass'n 
v.  Seligman,  92  Mo.  635  (overruling 
Griswold  v.  Seligman,  72  Mo.  110); 
Fisber  v.  Seligman,  75  Mo.  13;  Bray 
v.  Seligman,  ib.  31;  Burgess  v.  Selig- 
man, 107  U.  S.  20.  In  respect  of 
Federal  courts  following  state  deci- 
sions, in  construing  a  state  statute, 
see  Flash  v.  Conn,  109  U.  S.  371. 
Brokers  wbo  purchase  shares  and 
cause  themselves  to  be  registered  on 
the  books  of  the  company  as  sbare- 
holders,  are  liable  as  shareholders, 
although  the  sbares  be  purchased  for 

738 


a  customer.     McKim   v.   Glenn,    66 
Md.  479;  see  Kerr  v.  Urie,  86  Md.  72. 

2  Anderson  v.  Phila.  Warehouse 
Co.,  Ill  U.  S.  479;  Henkle  v.  Salem 
Mfg.  Co.,  39  O.  St.  547.  A  person 
who  receives  a  transfer  of  shares  in  a 
national  bank  as  security  for  debt, 
and  surrenders  the  certificates  and 
takes  out  new  ones  in  his  name  de- 
scribed as  "  pledgee  "  on  the  books 
of  the  bank,  and  holds  them  still  in 
good  faith  as  security,  is  not  a  share- 
bolder  as  to  creditors.  Pauley  v. 
Loan,  etc.,  Co.,  165  TJ.  S.  606.  Cf. 
Matteson  v.  Dent,  176  U.  S.  521. 
This  case  summarizes  the  law  as  to 
liability  of  pledgees  of  stock,  under 
various  circumstances,  to  creditors 
of  the  corporation. 

3  Anderson  v.   Philadelphia  Ware- 


i 


CHAP.  XIII.]       SHAREHOLDERS  AND  CREDITORS. 


[§  745. 


shares,  and,  as  between  himself  and  the  apparent   „    , 

'  i  »     •  •  Real  owner 

holder,  entitled  to  the  profits  thereof,  it  will  not   of  shares 

liable 

avail  him  as  a  defence   against  creditors  that  the 
shares  did  not  stand  in  his  name.1     And  thus  a  person  cannot 
escape  liability  as  a  shareholder  by  taking  his  shares  in  the 
name  of  an  infant.2 

§  743.  Summing  up,  the  rationale  of  the  preceding  deci- 
sions may  be  said  to  be  this.     Any  person  who  ap-  Rationale 
pears  to  be  a  shareholder,  or  any  person  who  is  ac- 
tually entitled  to  the  emoluments  of  shares  in  a  corporation, 
is  liable  as  a  shareholder  to  creditors.3 

§  744.  When,  after  the  insolvency  of  the  corporation,  suit 
is   brought  bv   or   on  behalf  of    creditors   against   „     , 

°  J  ...  Fraud, 

shareholders,  either  on  their  statutory  liability  or  when  no 

(Icf  G11C6 

for  unpaid  subscriptions,  the  latter  cannot  success- 
fully plead  that  they  were  induced  to  subscribe  by  fraudulent 
misrepresentations  on  the  part  of  the  corporation  or  its  officers 
or  agents.4     Nor  can  he  set  up  a  counterclaim  for  money  paid 
for  his  stock.5 

§  745.  It  is  in  view  of  the  right  of  shareholders  to  contri- 
bution among  themselves,  that  the  English  courts  Releases 
hold  that  directors  cannot  release  shareholders  from  no  defence- 
liability,  except  in  accordance  with  the  provisions  of  the 
deed  of  settlement.6  But  in  America,  it  is  recognized  to  be 
the  right  of  creditors  that  no  shareholder  shall  be  released 
from  his  liability  except  in  accordance  with  the  constitution 


house  Co.,  Ill  IT.  S.  479.  The  court 
said  that  the  creditors  of  the  bank 
were  put  in  no  worse  position  by  the 
transfer  thau  they  would  have  been 
in  had  the  shares  remained  in  the 
name  of  the  pledgor. 

1  See  Burr  v.  Wilcox,  22  N.  Y.  551; 
Stover  v.  Flack,  30  N.  Y.  64. 

2  Roman  v.  Fry,  5  J.  J.  Marsh. 
(Ky. )  634.  See,  also,  Cox's  Case,  4 
De  G.  J.  &  S.  53 ;  Pugh  &  Sharman's 
Case,  L.  R.  13  Eq.  566;  Richardson's 
Case,  L.  R.  19  Eq.  588.  Compare 
Maxwell's  Case,  24  Beav.  321. 

3  See  §  749,  as  to  colorable  trans- 
fers. 


4  Ogilvie  o.  Knox  Ins.  Co.,  22  How. 
380;  Upton  v.  Tribilcock,  91  U.  S.  45; 
Lantry  v.  Wallace,  182  U.  S.  536; 
Schaeffer  v.  Missouri  Home  Ins.  Co., 
46  Mo.  248;  Upton  v.  Englehart,  3 
Dill.  496;  Turner  v.  Grangers'  Life 
Ins.  Co.,  65  Ga.  549;  Bissell  v.  Heath, 
98  Mich.  472.  See  Fouche  v.  Mer- 
chants' Nat.  Bank,  110  Ga.  827.  See 
§  525;  compare  Weber  v.  Fickey,  52 
Md.  500. 

5  Lantry  v.  Wallace,  182  U.  S.  536. 

6  See  Directors,  etc.,  v.  Kisch,  L. 
R.  2  H.  L.  99;  Smith's  Case,  L.  R.  2 
Ch.  604. 

739 


§  745.]       THE   LAW   OF   PRIVATE   CORPORATIONS.  [CHAP.  XHI. 

of  the  corporation.1  "  It  must  also  be  conceded  that  if  the 
company  has,  in  fraud  of  its  creditors,  released  subscribers  to 
its  stock  from  the  payment  of  their  subscriptions,  the  release 
is  inoperative  to  protect  those  subscribers  against  claims  of 
the  creditors.  ...  It  has  been  settled  by  very  numerous 
decisions  that  the  directors  of  a  company  are  incompetent  to 
release  an  original  subscriber  to  its  capital  stock,  or  to  make 
any  arrangement  with  him  by  which  the  company,  its  cred- 
itors or  the  state,  shall  lose  any  of  the  benefit  of  his  subscrip- 
tion. Every  such  arrangement  is  regarded  in  equity  not 
merely  as  ultra  vires,  but  as  a  fraud  upon  the  other  share- 
holders, upon  the  public,  and  upon  the  creditors  of  the  com- 
pany." 2  When  a  subscription  payable  in  property  is  made 
for  shares,  it  is  no  defence  to  a  suit  by  creditors  against  the 
subscriber,  that  the  corporation  has  returned  the  property  and 
the  subscriber  has  released  all  claim  to  the  shares.3 


1  Slee  v.  Bloom,  19  Johns.  (N.  Y.) 
456;  Eisenlord  v.  Oriental  Ins.  Co., 
29  N.  J.  Eq.  437;  Allen  v.  Mont- 
gomery R.  R.  Co.,  11  Ala.  437,  450; 
Mann  v.  Cooke,  20  Conn.  178;  Pey- 
chaud  v.  Hood,  23  La.  Ann.  732; 
Putnam  v.  New  Albany,  4  Biss.  365; 
Bouton  v.  Dement,  123  111.  142;  com- 
pare Cooper  v.  Frederick,  9  Ala.  737 
Thus,  an  unauthorized  cancellation 
of  a  subscription  when  the  corpora- 
tion is  insolvent,  does  not  as  to 
creditors  release  the  subscriber 
Rider  v.  Morrison,  54  Md.  429.  See, 
also,  Ailing  v.  Wenzel,  133  111.  264 
So  the  withdrawal  of  shareholders, 
in  pursuance  of  a  resolution  of  the 
directors  in  a  probably  insolvent 
corporation  to  allow  shareholders  to 
withdraw  on  payment  of  five  per 
cent,  of  their  shares  on  which  ninety 
per  cent,  was  unpaid,  is  void  as  to 
creditors.  Gill  v.  Balis,  72  Mo.  424. 
A  shareholder,  however,  who  surren- 
ders unpaid  stock  to  a  corporation  is 
not  liable  thereon  to  a  creditor 
whose  claim  accrues  after  the  sur- 
render.    Johnson  v.  Lullman,  15  Mo. 

740 


App.  55;  S.  C,  88  Mo.  567;  Erskine 
v.  Peck,  13  Mo.  App.  280;  compare 
Carter  v.  Union  Printing  Co.,  54 
Ark.  576. 

On  the  other  hand,  a  majority  of 
shareholders  cannot  by  a  by-law  im- 
pose individual  liability  on  share- 
holders. Reid  v.  Eatonton  M'f'g 
Co.,  40  Ga.  98. 

2  Burke  v.  Smith,  16  Wall.  390, 
394,  per  Strong,  J.  Where  share- 
holders were  by  statute  individually 
liable  to  the  amount  of  the  unpaid 
balance  on  their  subscriptions,  for 
corporate  debts  contracted  during 
their  ownership  of  stock,  and  it  was 
provided  that  such  liability  should 
continue  for  one  year  after  a  trans- 
fer, it  was  held  that  a  solvent  corpo- 
ration could  not  release  a  sharehold- 
er so  as  to  affect  creditors,  even  in 
consideratian  of  a  payment  by  him 
of  an  amount  in  excess  of  the  calls 
made  or  due  at  the  time  of  his  re- 
lease. Vick  v.  La  Rochelle,  57  Miss. 
602. 

8  Singer  v.   Given,    61    Iowa,   93. 

But  it  is  held  that  a  shareholder 


CHAP.  XIII.]        SHAREHOLDERS  AND  CREDITORS. 


[§  747. 


§  746.  A  hona  fide  compromise  between  a  shareholder  and 
the  corporation  has,  however,  been  sustained.1  And 
if  the  company  actually  forfeits  the  shares  for  non- 
payment of  calls,  creditors  cannot  hold  the  person 
whose  shares  have  been  forfeited  liable  for  the  re- 
maining instalments,  unless  the  forfeiture  was  collusive.3 

§  747.  Upon  a  transfer  of  shares  made  in  accordance  with 
the  constitution  and  by-laws  of  the  corporation,  the 
liability  of  a  shareholder  to  creditors  ordinarily 
ceases;3  and  the  transferee  succeeds  to  all  the  rights 
and  liabilities  of  the  transferrer.4  The  transfer, 
however,  in  order  to  free  the  transferrer  from  further 
liability  on  account  either  of  unpaid  subscriptions  or  stat- 
utory liability,  must  be  absolute  so  that  the  transferee  does 
not  become  a  trustee  for  the  transferrer  ;5  and,  moreover,  must 
be  to  a  person  capable  of  succeeding  to  all  the  liabilities  of 
the  transferrer.  Accordingly,  a  transfer  to  an  infant  leaves 
the  transferrer  liable/'  as  does  a  transfer  to  the  corporation  or 
its  nominee;7  for  it  is  held  that  the  person  succeeding  to  the 


Compro- 
mises. 
Forfeit- 
ures. 


Effect  of 
transfers 
of  shares. 
Transfer 
to  corpo- 
ration. 


who  surrenders  unpaid  shares  to  the 
corporation  is  not  liable  thereon  to 
creditors  whose  claims  accrue  after 
such  surrender.  Johnson  v.  Lull- 
man,  88  Mo.  567. 

1  New  Albany  v.  Burke,  11  Wall. 
90;  New  Haven  Trust  Co.  v.  Nelson, 
73  Conn.  477.  See  Gelpke  v.  Blake. 
19  Iowa,  263,  267;  but  compare  Put- 
nam v.  New  Albany,  4  Biss.  365. 

2  Mills  v.  Stewart,  41  N.  Y.  384; 
Allen  v.  Montgomery,  etc.,  R.  R.  Co., 
11  Ala.  437. 

8  Huddersfield  Canal  Co.  v.  Buck- 
ley, 7  T.  R.  36;  Cole  v.  Ryan,  52 
Barb.  168;  Tucker  v.  Gilman,  121 
N.  Y.  189.  Except  according  to  the 
cases  holding  otherwise  in  regard  to 
statutory  liability.     See  §  718. 

4  Hartford  and  N.  H.  R.  R.  Co.  ». 
Boorman,  12  Conn.  530.  Transferee 
is  liable  to  creditors  for  unpaid  sub- 
scriptions. Webster  ».  Upton,  91 
U.  S.  65.     See  §§  719,  720. 

5  National  Bank  i\  Case,  99  U.  S. 


1628;    Davis    v.    Stevens,   17   Blatchf. 
j  259.     Cf.  Matteson  v.  Dent,  176  U.  S. 
I  521.     To  relieve  a  stockholder  in  a 
!  manufacturing  corporation  from  per- 
j  sonal   statutory  liability,   his   stock 
i  must  have  been  transferred  on  the 
books   of    the    company,    and   such 
transfer   must    have   been    made   in 
pursuance   of    an   actual    bona  fide 
sale,  without  any  secret  understand- 
ing or  trust  in  favor  of  the  trans- 
ferrer.     Veiller  v.    Brown,  18  Hun, 
571. 

6  Symon's  Case,  L.  R.  5  Ch.  298; 
Weston's  Case,  ib.  614;  Costello's 
Case,  L.  R.  8  Eq.  504.  See  Reave- 
ley's  Case,  1  De  G.  &  Sm.  520;  S.  C, 
aff'd  1  Ha.  &  Tw.  168;  Richardson's 
Case,  L.  R.  19  Eq.  588. 

7  Morgan's  Case,  1  De  G.  &  Sm. 
750;  Bennett's  Case,  5  De  G.  M.  &  G. 
284;  Zulueta's  Claim,  L.  R.  5  Ch. 
444;  Richmond's  Exrs  Case,  2  De  G. 
&  Sm.  244;  Ex  parte  Henderson,  19 
Beav.  107;  Daniell's  Case,   22  Beav. 

741 


§  748.]       THE   LAW    OF    PRIVATE   CORPORATIONS.    [CHAP.  XIII. 


Irregular 
transfers. 


liability  of  the  transferrer  must  be  one  who  succeeds  to  a  per- 
sonal liability  distinct  from  and  in  addition  to  that  of  the 
corporation ;  some  one  who  can  assume  the  full  liability  of  a 
shareholder.1 

§  748.  If  a  transfer  is  irregular,  as,  for  instance,  not  re- 
corded on  the  books  of  the  company,  when  that 
formality  is  required,  the  transferrer  is  not  freed 
from  his  liability;2  though  it  does  not  follow  that 
no  liability  attaches  to  his  transferee.3  Creditors  are  entitled 
to  treat  as  shareholders  all  persons  whose  names  appear  on  the 
books  of  the  corporation  ;  and  until  the  name  of  a  shareholder 
is  removed  from  those  books,  a  creditor  is  justified  in  acting  on 
the  assumption  that  that  person  is  a  shareholder.  It  has  been 
held,  however,  that  when  a  person  has  done  "  all  in  his  power  " 
to  have  his  name  removed  from  the  company's  books,  he  is 
freed  from  liability,  although,  in  fact,  his  name  continues 
there.4     This  decision  seems   of   doubtful   correctness.     It   is 


43;  Hunt's  Case,  ib.  55;  Eyre's  Case, 
31  Beav.  177.  But  these  are  English 
cases;  and  in  England  a  corporation 
cannot  purchase  its  own  shares.  See 
also  cases  in  following  note,  and  § 
552. 

1  Matter  of  Reciprocity  Bank,  22 
N.  Y.  9.  See  Currier  v.  Lebanon 
Slate  Co.,  56  N.  H.  262.     See   §  134. 

A  person  who  is  a  creditor  at  the 
time  of  the  transfer  to  the  corpora- 
tion, may  follow  the  property  re- 
ceived by  the  shareholder  in  ex- 
change for  his  shares,  and  subject 
it  to  the  satisfaction  of  the  full 
amount  of  his  claim.  The  defend- 
ant may  have  equities  over  against 
other  shareholders;  but  this  fact  the 
creditor  need  not  heed.  Clapp  v. 
Peterson,  104  111.  26. 

2  Richmond  v.  Irons,  121  U.  S.  27; 
Matteson  v.  Dent,  176  U.  S.  521; 
Worrall  v.  Judson,  5  Barb.  210;Shel- 
lington  v.  Rowland,  53  N".  Y.  371 ; 
Dane  v.  Young,  61  Me.  160;  Fowler 
».  Ludwig.  34  Me.  455;  Cutting  v. 
Damerel,  23  Hun,  339;  In  re  Bach- 

742 


man,  12  Nat.  Bankr.  Reg.  223;  Plumb 
v.  Bank,  48  Kan.  484;  Herri ck  v. 
Wardwell,  58  Oh.  St.  294.  Compare 
Jones  v.  Dunn,  70  Ala.  164;  O'Brien 
o.  Cummings,  13  Mo.  App.  197. 

3  "So  far  from  its  being  necessary 
to  make  a  man  a  contributory,  that 
he  should  be  modo  et  forma  a  mem- 
ber according  to  the  strict  provisions 
of  the  deed  of  settlement,  that  on 
the  contrary,  if  a  man,  by  repre- 
sentations that  he  is  entitled  to  be 
registered,  becomes  registered  and 
admitted  de  facto  as  a  shareholder, 
he  is  not  at  liberty  as  against  those 
who  do  not  dispute  his  liability,  to 
refer  to  or  insist  on  any  invalidity 
as  a  ground  for  not  being  treated  as 
a  shareholder.  So,  if  the  directors 
themselves  do  an  irregular  act,  and 
admit  a  man  and  treat  him  as  a 
shareholder,  they  are  also  bound." 
Straffon's  Exr's  Case,  1  DeG.  M.  & 
G.  576,  594,  per  Lord  Chan.  St. 
Leonards. 

4  Shortbridge  v.  Bosanquet,  16 
Beav.    84.     See   Whitney  v.   Butler, 


CHAP.  XIIII.]      SHAREHOLDERS  AND  CREDITORS. 


[§  749. 


Transfers 
in  fraud 
of  credit- 
ors. 


submitted  the  shareholder  did  not  do  all  he  could  to  have  his 
name  removed,  for  he  could  have  appealed  to  the  courts ;  and 
if  in  the  mean  time  any  one  acted  on  the  faith  of  his  being  a 
shareholder,  the  loss  should  fall  on  the  shareholder  whom  the 
corporation  represents,  rather  than  on  an  innocent  outsider.1 

§  749.  When  shares  are  not  fully  paid  up  and  the  corpora- 
tion is  in  failing  circumstances,  it  is  the  general 
rule  throughout  the  United  States,  that  the  holder 
cannot  validly  transfer  them  to  an  irresponsible  per- 
son for  the  purpose  of  avoiding  further  liability 
in  regard  to  them.  The  right  of  transfer  cannot  be  exercised 
in  defraud  of  creditors  of  the  corporation.2  A  similar  rule 
applies  to  transfers  of  shares  in  the  stock  of  a  corporation 
whose  shareholders  are  by  statute  rendered  personally  liable  to 
creditors.3 

The  English  cases,  on  the  other  hand,  hold  that  a  share- 
holder may  transfer  his  shares  to  an  irresponsible  person  for 
the  sole  purpose  of  freeing  himself  from  further  liability  on 
them ;  and,  provided  the  transfer  be  absolute,  so  that,  as  be- 
tween transferrer  and  transferee,  the  latter  does  not  hold  the 


118  U.  S.  655;  Matteson  v.  Dent,  176 
U.  S.  521;  Cox  v.  Elmendorf,  97 
Tenn.  518;  Nation's  Case,  L.  R.  3 
Eq.  77;  Fyfe's  Case,  L.  R.  4  Ch.  768; 
Ward  &  Garfit's  Case,  L.  R.  4  Eq. 
188. 

1  See  §  525. 

2  Dauchy  v.  Brown,  24  Vt.  197; 
Nathan  v.  Whitlock,  9  Paige  (N.  Y.), 
152;  Marcy  v.  Clark,  17  Mass.  330; 
Rider  v.  Morrison,  54  Md.  429;  Gaff 
v.  Flesher,  33  Ohio  St.  107;  Nat.  Car- 
riage Mfg.  Co.  v.  Story,  etc.,  Co.,  Ill 
Cal.  531;  Burt  v.  Real  Est.  Exch., 
175  Pa.  St.  619.  See  Angell  and 
Ames  on  Corp.,  §  535;  2  N.  Y.  Rev. 
Stat.,  7th  ed.  1482. 

3  Bowden  v.  Johnson,  107  U.  S. 
251;  Richmond  v.  Irons,  121  U.  S. 
27;  Stuart  v.  Hayden,  169  U.  S.  1; 
Aultmann's  Appeal,  98  Pa.  St.  505; 
McLaren  v.  Franciscus,  43  Mo.  452; 
Provideut  Saviugs   Ins.    v.   Jackson 


Place  Skating,  etc.,  Rink,  52  Mo. 
557;  Bowden  v.  Santos,  1  Hughes, 
158;  Magruder  v.  Colston,  44  Md. 
349;  Central  Agricultural,  etc.,  Ass'n 
v.  Alabama  Gold  Life  Ins.  Co.,  70 
Ala.  120.  See  Miller  v.  Great  Repub- 
lic Insurance  Company,  50  Mo.  55. 

Where  a  general  banking  law  im- 
posed on  shareholders  individual 
liability  while  they  continued  such, 
and  for  one  year  thereafter;  and  a 
creditor  of  a  bank  made  demand  on 
a  shareholder  for  payment,  and  the 
latter  requested  delay,  promising  not 
to  transfer  his  shares,  but  did  secretly 
and  fraudulently  transfer  them,  it 
was  held  that  the  transfer  was  void 
as  against  such  creditor,  although 
his  suit  was  brought  more  than  one 
year  after  it  had  taken  place.  Paine 
v.  Stewart,  33  Conn.  516.  Compare 
also  Marr  ».  Bank  of  West  Tennessee, 
4  Lea  (Tenn.),  578. 

743 


§  750.]       THE    LAW    OF    PRIVATE   CORPORATIONS.    [CHAP.  XIII. 


shares  in  trust  for  the  former,  the  transferrer  will  be  free 
from  further  liability  in  respect  of  the  shares.1  The  English 
law  does  not  recognize  the  doctrine  that  corporate  funds  are 
held  in  trust  for  creditors  as  well  as  shareholders,  and  the 
English  decisions  respecting  the  transfer  of  shares  seem  con- 
sistent with  the  general  English  view  of  corporation  law. 
Provisions  in  English  deeds  of  settlement  are  regarded  as 
existing  for  the  security  of  shareholders;  and  creditors  are 
held  to  derive  few  rights  directly  from  them.  And  so,  in 
regard  to  the  "  Winding-up  Act,"  Lord  Romilly  says :  "  The 
object  of  the  Winding-up  Act  was  only  to  settle  the  equities 
between  the  partners  in  order  that  when  the  partnership  was 
wound  up,  they  might  obtain  contribution  from  each  other."2 
§  750.  From  what  has  been  said  of  the  relations  between 
Relation  creditors  and  shareholders,  it  is  plain  that  upon  the 
between  insolvency  or  winding-up  of  a  corporation,  a  cred- 
hoiders  and  itor  has  a  right  to  be  paid  the  debt  due  him  prior 
whiiiing^up!  to  any  of  the  rights  of  shareholders  in  respect  of 
Dividends.  j-he  corporate  funds.3  When  a  dividend,  however, 
has  been  duly  declared  from  surplus  profits,  the  capital  of 
the  company  being  left  entire,  a  shareholder  is  entitled  to  his 
portion  of  the  dividend  in  preference  to  the  claims  of  creditors; 
even  though  he  may  not  call  for  it  until  the  company  has  be- 


1  Jessopp's  Case.  2  De  G.  &  J.  638; 
De  Pass's  Case,  4  De  G.  &  J.  544; 
Harrison's  Case,  L.  R.  6  Ch.  286; 
King's  Case,  ib.  196;  Master's  Case, 
L.  R.  7  Ch.  292;  Williams's  Case,  1 
Ch.  Div.  576.  In  the  following  cases 
the  transfer  was  held  merely  color- 
able, and  the  transferrer  remained 
liable:  Chinnock'sCase,  Johns.  (Eng. 
Ch.)714;  Hyam's  Case,  1  De  G.  F. 
&  J.  75;  Costello's  Case,  2  De  G.  F. 
&  J.  302;  Budd's  Case,  3  De  G.  F. 
&  J.  297;  Ex  parte  Kintrea,  L.  R.  5 
Ch.  95. 

2  In  re  Philips,  18  Beav.  629;  com- 
pare, regarding  the  English  view, 
§  524. 

3  Brewer  v.  Michigan  Salt  Ass'n, 
58  Mich.  351;  compare  Banigan  v. 
Hard,    134    U.    S.    291.      Rights    of 

1U 


creditors  of  the  corporation  are  su- 
perior as  to  corporate  assets  to  the 
rights  of  creditors  of  a  stockholder, 
though  he  own  the  concern.  State 
v.  Commercial  State  Bank,  28  Neb. 
677.  Where  a  national  bank  is  de- 
clared in  default  by  the  comptroller, 
and  a  sufficient  f und  is  realized  from 
its  assets  to  pay  all  claims  against  it, 
and  leave  a  surplus,  interest  should 
be  allowed  on  claims  during  the 
period  of  administration,  before  ap- 
propriating the  surplus  to  the  share- 
holders. Chemical  Nat.  B'k  r.  Bailey, 
12  Blatchf.  480.  See,  also,  Hart's 
Appeal,  96  Pa.  St.  355;  Lura  ».  Rob- 
ertson, 6  Wall.  277;  and  compare 
Cochran  v.  Ocean  Dry  Dock  Co.,  30 
La.  Ann.  Pt.  II.  1365. 


CHAP.  XIH.]       SHAREHOLDERS  AND  CREDITORS. 


[§  751- 


come  insolvent.1  For  the  moment  a  dividend  is  thus  declared, 
it  becomes  the  property  of  the  individual  shareholders.2  In  a 
controversy  coming  before  the  New  York  courts,  the  Erie  Kail- 
way  had  declared  a  dividend  and  deposited  money  to  pay  it 
with  D.  S.  &  Co.  Thereafter  the  company  withdrew  what  re- 
mained of  such  money  ;  and  this  subsequently  passed  with  the 
corporate  property  into  the  possession  of  a  receiver  of  the  road. 
Application  was  made  by  a  shareholder  to  compel  the  receiver 
to  pay  him  the  amount  of  his  dividend.  It  was  held  that  the 
fund  deposited  with  D.  S.  &  Co.  should  be  regarded  as  specific- 
ally appropriated  for  the  payment  of  the  dividend,  and  that  the 
shareholders  acquired  an  equitable  lien  upon  such  fund  to  the 
extent  of  the  amounts  to  which  they  were  respectively  entitled  ; 
and  that  the  lien  followed  the  fund  into  the  hands  of  the  re- 
ceiver.3 

§751.  The    dissolution  of  a  corporation  does  not    increase 
the  personal  liability  of  shareholders    as    towards    „    ,. 

On  clisscv 

creditors,4  nor  make  the  former  liable  as  partners,    lution. 

even  as  to  debts  contracted  by  the  corporate  agents 

after  the  dissolution,  provided  there  is  nothing  to  show  fraud 

on  their  part,  or  an  actual  intention  to  transact  business  as 

partners.5 


1  Le  Roy  v.  Globe  Insurance  Co., 
2  Edw.  Ch.  (N.  Y.)  657.  See  Albany 
Fertilizer  Co.  v.  Arnold,  103  Ga.  145. 
See  §  708. 

2  Van  Dyck  v.  McQuade,  86  N.  Y. 
38;  cf.  Hunt,  Rec'r,  v.  O'Shea,  69  N. 
H.  600. 

sIn  re  Petition  of  Julius  LeBlanc, 

14  Hun,  8;  S.  C,  aff'd  75  N.  Y.  598. 

^Tarbell  v.  Page,  24  111.  46;  Stearn 


Stone  Cutter  Co.  v.  Scott,   157  Mo. 
520. 

5  Central  City  Savings  B'k  v. 
Walker,  66  N.  Y.  424.  But  they 
will  become  chargeable  as  partners 
if,  knowing  of  the  expiration  of  the 
charter,  they  agree  to  continue  busi- 
ness and  appoint  one  of  their  num- 
ber as  manager.  National  Bank  v. 
Landon,  45  N.  Y.  410. 

745 


§  752.]       THE   LAW   OF   PRIVATE   CORPORATIONS.    [CHAP.  XIV. 


CHAPTER  XIV. 

LEGAL  RELATIONS  BETWEEN   OFFICERS  AND   CREDIT- 
ORS OF  A  CORPORATION. 


Liability  of  officers  acting  on  behalf 
of  their  corporation,  §§  752,  753. 

When  the  contract  is  ultra  vires, 
§754. 

Officers'  liability  to  outsiders  for  the 
acts  of  other  agents,  §  755. 

Responsibility  of  directors  to  cred- 
itors, §  756. 

For  misapplication  of  the  corporate 
funds,  §  757. 

For  neglect  of  duty,  §  758. 

Director's  duties  to  creditors  on  the 
insolvency  of  the  corporation, 
§§  759,  760. 


Statutory  liability  of  officers  to  cred- 
itors.    Four  classes,  §  761. 

First  class,  §  762. 

Second  class,  §  763. 

Third  and  fourth  classes,  §§  764- 
766. 

Liability  for  failure  to  file  annual 
reports,  §§  767-771. 

What  debts  are  included  in  this  lia- 
bility, §§  772,  773. 

Liability  for  signing  false  reports, 
§774. 

Forms  of  action.  Joinder  of  parties, 
§775. 


Liability  of 
officers 
acting  on 
behalf  of 
their  corpo- 
ration. 


§  752.  Before  entering  on  the  discussion  of  the  legal  rela- 
tions between  the  officers  of  a  corporation  and  cred- 
itors whose  rights  in  respect  of  the  corporate  assets 
have  already  accrued,  it  will  be  well  to  notice  the 
relations  between  officers  acting  on  behalf  of  the  cor- 
poration and  persons  with  whom  they  deal,  whose 
legal  relations  in  respect  of  the  corporate  enterprise  are  first 
occasioned  by  their  transaction  with  the  officers. 

In  contracting  on  behalf  of  a  corporation,  its  officers  owe  to 
the  person  with  whom  they  contract  usually  no  duties  which 
ordinary  agents  do  not  owe  to  persons  with  whom  they  con- 
tract on  behalf  of  their  principals.  The  same  degree  of  fair- 
ness and  good  faith  is  to  be  observed  by  officers  as  is  ordi- 
narily required  in  the  dealings  between  man  and  man.1     And 


1  See  Edgington  v.  Fitzmaurice,  29 
Ch.  Div.  459.  An  officer  who  states 
to  a  person  about  to  sell  goods 
to  the  corporation  that  in  his  opin- 
ion the  corporation  is  solvent,  will 
not  be  liable  for  his  misrepresen- 
tation  if  honestly   made,    although 

746 


the  corporation  was  insolvent  at 
the  time.  Searightu.  Payne,  2  Tenn. 
Ch.  175;  but  will  be  liable  for  fraud- 
ulent misrepresentations.  Phillips 
v.  AVortendyke,  31  Hun  (N.  Y.),  192. 
The  president  of  a  corporation  is 
liable   in    damages   for   putting  his 


CHAP.  XIV.] 


OFFICERS  AND  CREDITORS. 


[§  753. 


in  general  the  responsibility  of  corporate  officers  to  outsiders 
for  whatever  torts  the  former  may  commit  would  be  regulated 
by  the  rules  applicable  to  the  responsibility  of  ordinary  agents 
under  similar  circumstances.1  Thus  if,  acting  on  behalf  of 
their  corporation,  officers  commit  a  fraud  or  other  palpable 
wrong  or  tort,  there  would  seem  to  be  no  reason  why  they 
and  their  corporation  might  not  be  joined  as  defendants  in  the 
same  action  by  the  injured  person.2 

§  753.  It  may  be  stated  as  a  general  proposition,  drawn 
from  the  principles  of  the  law  of  agency  as  applicable  to 
officers  of  corporations,  that  corporate  officers  contracting  as 
such  in  good  faith  will  not  be  personally  liable  to  the  other 
contracting  party,  if  (1)  the  other  party  when  contracting 
knows  or  ought  to  know  that  the  officers  are  acting  on  behalf 
of  their  corporation,  and  (2)  the  officers  have  authority  to 
make  the  contract,  and  (3)  the  contract  is  made  in  such  form 


name  to  statements  known  to  him  to 
be  false,  or  to  statements  which  he 
had  no  reasonable  ground  to  suppose 
to  be  true.  Trimble  v.  Reid,  97  Ky. 
713.  Cf.  Prewitt  v.  Trimble,  92  Ky. 
176.  If  directors  knowingly  issue 
spurious  stock  and  borrow  money  on 
it  as  collateral,  representing  it  to  be 
genuine,  they  are  liable  to  the  lender 
in  an  action  for  deceit.  Nat.  Ex- 
change Bank  v.  Sibley,  71  Ga.  726. 
So  directors  issuing  bonds  falsely 
purporting  to  be  "first  mortgage 
bonds,"  are  liable  for  the  fraud  to 
an  innocent  purchaser  who  buys 
from  the  agent  in  whose  hands  the 
directors  placed  them  for  sale. 
Clark  v.  Edgar,  84  Mo.  106.  Direct- 
ors of  a  bank  are  liable  on  insolvency 
of  the  bank  for  false  representations 
made  by  the  directors  to  the  public 
as  to  the  bank's  solvency,  whereby 
the  depositor  is  induced  to  deposit. 
Seale  v.  Baker,  70  Texas.  283;  Kink- 
ier v.  Junica,  84  Tex.  116.  It  makes 
no  difference  that  the  plaintiff  was  a 
stockholder  (last  case).  Compare 
Hunnewell   v.   Duxbury,    154   Mass. 


286;  Miller  v.  Howard,  95  Tenn. 
407;  Townsend  v.  Williams,  117  N. 
C.  330. 

1  If  the  agent  of  a  bank  without 
authority — either  because  the  au- 
thority has  not  been  conferred  by 
the  bank  as  a  matter  of  fact,  or  be- 
cause the  bank  has  no  power  under 
its  charter  to  confer  such  authority 
— pays  away  its  money  to  the  officer 
of  another  bank,  and  the  latter  officer 
knows  that  the  agent  has  no  author- 
ity to  pay  the  money,  and  that  his 
bank  has  no  right  to  take  it,  he  is 
liable  personally  to  the  first  bank  for 
the  money,  whether  he  has  paid  it 
over  to  its  own  bank  or  not.  Ameri- 
can Nat.  Bk.  v.  Wheelock,  45  N.  Y. 
Super.  Ct.  205. 

2  See  Hewett  v.  Swift,  3  Allen,  420; 
Campbell  v.  Portland  Sugar  Co.,  62 
Me.  552;  In  re  Imperial  Land  Co., 
L.  R.  10  Eq.  298;  Wright  v.  Wilcox, 
19  Wend.  343;  Suydam  v.  Moore,  8 
Barb.  358;  Phelps  v.  Wait,  30  N.  Y. 
78.  But  see  Parsons  v.  Winchell,  5 
Cush.  592. 

747 


§  753.]        THE   LAW   OF   PRIVATE   CORPORATIONS.  [CHAP.  XIV. 


as  to  bind  the  corporation,  and  (4)  there  are  no  circumstances 
leading  to  the  conclusion  that  the  officers  intended  to  make 
themselves  personally  responsible.1  In  some  states,  however, 
the  liability  of  officers  to  persons  with  whom  they  contract  on 
behalf  of  their  corporation,  has  been  extended  by  statute.2 


1  Thus,  a  treasurer  of  a  corpora- 
tion, to  whose  order  as  such  a  uote 
is  made  payable,  and  who  indorses 
the  note  "  R.  Beraan,  Treasurer," 
and  negotiates  it  on  behalf  of  the 
corporation,  is  not  personally  liable 
as  indorser.  Babeock  u.  Beman,  11 
N.  Y.  200.  See,  also,  Hicks  v.  Hin.le, 
9  Barb.  528;  Farmers'  at,d  Mec.  B'k 
v.  Colby,  64  Cal.  352;  McCormick  v. 
Stockton  R.  R.  Co.,  130  Cal.  100. 
But  see  contra  the  questionable  case 
of  Heffner  v.  Brownell,  70  Iowa, 
591. 

If  the  covenants  in  the  body  of  a 
sealed  instrument  are  expressed  as  if 
made  by  a  corporation  directly  with 
the  plaintiff,  and  in  the  instrument 
the  defendant  is  not  named,  but 
signs,  and,  with  his  own  seal,  seals 
it  as  president  of  the  corporation, 
and  on  their  behalf,  an  action  does 
not  lie  on  it  against  him  individu- 
ally. Hopkins  v.  Mehaffy,  11  S.  & 
R.  (Pa.)  126.  See,  also,  Randall  v. 
Van  Vechten,  19  Johns.  (N.  Y.)  60; 
Aggs  v.  Nicholson,  1  H.  &  N.  165. 
The  officers  of  a  corporation  de- 
scribed themselves  in  a  contract  as 
the  president,  vice-president,  secre- 
tary, treasurer,  and  directors  of  the 
corporation,  and  covenanted  on  be- 
half of  "  themselves  and  their  suc- 
cessors in  office.11  They  signed  and 
sealed  the  contract  without  adding 
their  official  titles,  and  the  corpo- 
rate seal  was  not  attached.  Held, 
they  were  not  liable  personally. 
Whitford  v.  Laidler,  94  N.  Y.  145. 
Compare  City  of  Kansas  v.  Hannibal 
and  St.  Jo.  R.  R.  Co.,  77  Mo.  ISO. 

But   the   directors  of  a  joint  stock 

748 


company  will  be  liable  if  they  exe- 
cute a  note  in  the  following  form: 
"  On  demand,  we  jointly  and  sev- 
erally promise  to  pay  to  H.  or  order, 
the  sum  of  £250,  value  received,  for 
and  on  behalf  of  the  Wesleyan 
Newspaper  Association,"  "  P.  S., 
J.  W.,  Directors."  For  the  word 
"severally11  is  equivalent  to  "per- 
sonally." Healey  v.  Story,  3  Exch. 
3.  Accord,  Bradlee  v.  Boston  Glass 
Manufactory,  16  Pick.  347.  See,  also, 
Brockway  v.  Allen,  17  Wend.  40. 
A  promissory  note  in  the  form  '  I 
promise  to  pay,11  and  signed  by 
"E.,  Pies,  and  Treas.  C.  Co.,11  is 
the  note  of  E.,  who  is  liable  thereon, 
and  it  is  not  competent  to  introduce 
parol  evidence  to  show  that  the  par- 
ties at  the  time  understood  the  note 
to  be  the  note  of  the  company. 
Davis  v.  England,  141  Mass.  587. 
See  McClure  v.  Livermore,  78  Me. 
390.  So  a  draft  accepted  by  "  E.  T. 
L.,  Agent,"  may  bind  the  acceptor 
personally,  where  nothing  further  in 
the  draft  appears  to  show  that  E.  T. 
L.  did  not  intend  to  bind  himself 
personally.  Slawson  v.  Loring,  5 
Allen,  340.  And  persons  who  per- 
sonally covenant  in  a  deed,  and  exe- 
cute it  with  their  own  signatures 
and  seals,  will  likely  be  held  per- 
sonally on  the  covenants;  although, 
from  the  general  tenor  of  the  deed, 
it  might  appear  reasonably  probable 
that  they  executed  it  as  representa- 
tives of  a  corporation.  See  Stinch- 
field  v.  Little,  1  Me.  231;  Trippets 
v.  Walker,  4  Mass.  595. 

2  E.  g.,  "  Any  officer  of  a  corpora- 
tion making,  or  professing  to  make 


CHAP.  XIV.] 


OFFICERS  AND  CREDITORS. 


[§754 


If  corporate  officers,  on  behalf  of  their  corporation,  entei 
into  a  contract  which  they  have  no  authority  to  make,  yet  if, 
under  the  circumstances,  by  the  operation  of  any  rule  of  law,1 
the  contract  binds  the  corporation  to  the  other  contracting 
party,  the  officers  will  not  be  personally  liable  to  him,  for  he 
has  suffered  no  damage  from  the  fact  that  in  reality  the  con- 
tract was  unauthorized.  If,  however,  officers  make  an  unau- 
thorized contract  on  behalf  of  their  corporation,  allowing  the 
other  contracting  party  acting  as  a  reasonable  man  to  infer  that 
they  have  the  requisite  authority,  and  in  consequence  of  their 
lack  of  authority,  the  other  party  is  unable  to  hold  the  corpo- 
ration on  the  contract,  what  is  their  liability  to  him  ?  Here 
distinctions  must  be  drawn.  The  officers  may  have  no  author- 
ity to  contract  either  (1)  because  their  superior  officers  or  the 
corporation  has  not  authorized  them  to  make  the  contract,  or 
(2)  because  the  corporation  itself  has  no  power  to  make  such  a 
contract,  or  (3)  both  of  these  reasons  may  unite. 

§  754.  In  the  first  supposed  case,  the  officers  would  be 
liable,  either  on  the  ground  of  fraud,  or  implied 
warrant}''  of  the  requisite  authority.2  In  the  third  extract  fs 
supposed  case  there  would  usually  be  present  suffi-  ultra  vires. 
cient  fraud  or  misrepresentation  of  fact  on  their  part  to  ren- 
der them  liable.  In  the  second  case,  where  the  corporate  offi- 
cers may  have  conceived  themselves  authorized  to  make  the 
contract,  but  the  contract  is  ultra  vires  the  corporation,  as  a 
rule  the  officers  acting  in  good  faith  would  not  be  personally 
liable ;  because  the  powers  of  a  corporation  are    matters  of 


any  contract  not  in  writing,  in  the 
name  of  or  in  behalf  of  any  corpo- 
ration, of  the  value  of  one  hundred 
dollars  or  less,  shall  be  liable  as 
surety  for  such  corporation  upon 
such  contract  ;  and  may  be  sued 
either  with  the  corporation  or  sepa- 
rately for  a  breach  thereof."  Bat- 
tle's Rev.  Stat,  of  N.  C,  p.  266,  §  24. 

»  See  §§  193,  75. 

2  Where  two  directors  wrote  to  a 
bank  saying  that  they  had  author- 
ized the  manager  of  the  company 
to  overdraw  on  the  company's  ac- 
count, the  directors  themselves  hav- 


ing no  authority  to  overdraw,  it  was 
held  that  they  impliedly  warranted 
that  the  manager  had  authority,  and 
were  personally  liable.  Cherry  v. 
Colonial  Bank,  38  L.  J.  P.  C.  49;  S. 
C,  L.  R.  3  P.  C.  24.  See  Jefts  t». 
York,  4  Cush.  371;  S.  C,  10  Cush. 
392;  Weare  v.  Oove,  44  N.  H.  196. 
Directors  are  personally  liable  when 
they  make  a  contract  on  behalf  of  the 
corporation  before  sufficient  stock 
has  been  subscribed  to  authorize  the 
corporation  (under  a  statute)  to 
begin  business.  Trust  Co.  v.  Floyd, 
47  O.  St.  526. 

749 


§  754. J        THE    LAW    OF    PRIVATE   CORPORATIONS.  [CHAP.  XIV. 

law  with  knowledge  of  which  persons  dealing  with  it  are 
affected.1  Accordingly,  the  correct  rule  seems  as  follows :  if 
officers  contract  as  such  with  a  person  who  acts  in  good  faith, 
believing  them  to  be  authorized  to  make  the  contract  in  ques- 
tion, such  contracting  party  cannot  hold  the  officers  personally 
liable  if,  in  order  to  make  out  his  case,  it  is  necessary  for  him 
to  base  his  claim  against  them  on  such  honest  though  mis- 
taken misrepresentation  of  the  powers  of  the  corporation  as 
arises  by  implication  from  their  having  executed  the  contract 
in  its  behalf.2  And  even  if  the  representations  by  the  officers 
of  the  powers  of  the  corporation  were  express,  nevertheless 
such  representations  would  be  only  as  to  matters  of  law  pre- 
sumably as  much  within  the  knowledge  of  the  other  contract- 
ing party  as  of  the  officers  of  the  company,  and  so  if  they  were 
honestly  made  and  did  not  amount  to  a  warranty,  there  would 
still  seem  to  be  no  sufficient  reason  for  holding  the  officers 
personally  liable.  Still,  it  is  to  be  borne  in  mind  that  prob- 
ably the  contracting  parties  do  not  stand  on  equal  footing  in 
regard  to  actual  knowledge  of  the  corporate  powers;  for  the 
person  contracting  with  the  officers  as  a  matter  of  fact  is  very 
likely  ignorant  of  the  scope  of  the  corporate  powers;  with 
which  the  officers  are  just  as  likely  conversant.  So  it  would 
require  but  slight  evidence  in  such  cases  to  show  fraud  on  the 
part  of  the  latter;  and,  indeed,  the  rule  ignorcmtia  legis  nemi- 
nem  excusat  has  been  relaxed  as  between  persons  who  actually 


1  Ellis  v.  Colmau,  25  Beav.  662; 
Rashdall  v.  Ford,  L.  R.  2  Eq.  750; 
Beattie  v.  Ebury,  L.  R.  7  Ch.  777. 
Contra,  Wilson  v.  Goodman,  4  Hare, 
54;  Richardson  v.  Williamson,  L.  H. 
6  Q.  B.  276;  Weeks  v.  Propert,  L.  R. 
8  C.  P.  427.  In  the  three  last  cases 
the  person  contracting  with  the 
officers  had  executed  his  side  of  the 
contract,  and  would  have  been  reme- 
diless had  the  decision  been  the 
other  way.  Still  they  seem  to  the 
writer  to  be  wrong  in  principle,  and 
to  afford  illustrations  of  hard  cases 
making  bad  law.  See  cases  in  next 
note. 

2  Abeles    v.    Cochrane,    22    Kans. 

750 


405;    Humphrey    v.    Jones,   71   Mo. 
62. 

"  If  the  defect  of  authority  arises 
from  a  want  of  legal  capacity,  and 
if  the  parties  act  under  a  mutual 
mistake  of  the  law,  and  are  both 
equally  well  informed  in  regard  to 
the  facts,  so  that  the  lender  is  not 
misled  by  any  word  or  act  of  the 
agent,  he  would  have  no  legal  rem- 
edy against  the  agent;  not  in  as- 
sumpsit, for  it  was  not  his  contract; 
not  in  tort,  for  he  is  chargeable  with 
no  deceit."  Jefts  v.  York,  10  Cush. 
392,  395,  per  Shaw,  C.  J.  Compare, 
however,  AVeare  v.  Gove,  44  N.  H. 
196. 


CHAP.  XIV.] 


OFFICERS  AND  CREDITORS. 


[§  755. 


are  very  unequal  in  tbeir  knowledge  of  the  law.1  Very  likely, 
moreover,  if  the  contract  were  in  such  a  form  that  an  intention 
on  the  part  of  the  officers  to  bind  themselves  personally  could 
in  any  way  be  inferred,  the  fact  that  the  contract  was  not  with- 
in the  powers  of  the  corporation  might  strengthen  the  presump- 
tion that  they  intended  to  make  themselves  personally  liable ; 
since  otherwise  the  contract  would  be  invalid,  a  result  which 
cannot  be  presumed  to  have  been  intended  by  the  parties.2 

§  755.  An  agent  is  not  liable  to  third  persons  for  the  frauds 
or  other  tortious  acts  or  omissions  of  inferior  agents,    -.,_ 

°  '    Officers' 

although  they  may  have  been  appointed  by  him.     If   liability  to 
the  superior  agent  fails  to  use  due  care  in  selecting  for  the 
sub-agents  or  servants,  he  will  be  liable  to  his  prin-   other° 
cipal  for  damages  resulting  from  their  dishonesty  or   asents- 
inefficienc}7 ;  but,  should  parties  dealing  with  such  sub-agents 
or  servants  suffer  injury,  the  maxim  respondeat  superior  would 
fix  the  liability  therefor  on  the  common  principal  and  not  on 
the  superior  agent.3 

A  similar  rule  applies  to  directors  and  other  corporate 
officers.  Ordinarily,  they  would  not  be  liable  to  outsiders  for 
the  wrongful  acts  of  agents  of  the  corporation  other  than 
themselves,  unless  they  authorized  the  wrong,  or  in  some  way 
participated  in  it,  or  knowingly  derived  benefit  from  it.4 
Accordingly,  the  New  York  Court  of  Appeals  has  held  that 
the  facts  that  the  name  of  a  person  was  published  as  a  trustee 
of  a  corporation  and  a  certificate  of  stock  issued  to  him,  were 
not  sufficient  to  warrant  a  verdict  against  him  for  a  fraud 
perpetrated  by  other  trustees  and  agents  of  the  corporation.5 
But  should  a  director  lend  his  name  or  influence  in  any  man- 

!See  Wheeler  v.  Smith,  9  How. 
55;  Carrugi  W.Atlantic  Fire  Ins.  Co., 
40  Ga.  135. 

2  See  Weare  v.  Gove,  44  N.  H.  196. 

3  Stone  v.  Cartwright,  6  Term  Rep. 
411;  Bath  v.  Caton,  37  Mich.  199. 

4  Scott  v.  Depeyster,  1  Edw.  Ch. 
(N.  Y.)  513;  Weir  v.  Barnett,  3 
Excli.  Div.  32;  Lewis  v.  Montgom- 
ery, 145  111.  30;  Davenport  v.  New- 
ton, 71  Vt.  11. 

But  where  a  person  acts  as  the 
president  of  a  spurious  bank,  which 


never  had  any  legal  organization,  he 
may  be  personally  liable  for  deposits 
lost  through  the  mismanagement 
and  fraud  of  his  associates.  Hauser 
v.  Tate,  85  N.  C.  81.  A  superior 
officer  directing  a  servant  of  the  cor- 
poration to  commit  a  tort  is  liable  to 
the  injured  person.  Peck  v.  Cooper, 
112  111.  192. 

5  Arthur  v.  Griswold,  55  N.  Y. 
400;  Wakeman  v.  Dalley,  51  N.  Y. 
27;  See  Hume  v.  Commercial  Bank, 
9  Lea  (Tenn.),  728. 

751 


§  756.]        THE  LAW   OF   PRIVATE   CORPORATIONS.  [CHAP.  XIV. 


§  756. 


Responsi- 
bility of 
directors 
to  credit- 
tors. 


ner  to  promote  the  fraud  of  another  agent  of  the  company,  he 
would  be  liable  to  the  persons  injured,  as  by  so  doing  he 
would  make  the  fraud  his  own ; *  and  for  issuing  false  certifi- 
cates of  stock,  officers  of  a  corporation  have  been  held  liable 
to  assignees  of  the  certificates  who  purchased  them  in  good 
faith.* 

Coming  now  to  the  relations  between  directors  and 
creditors  of  the  corporation — relations,  that  is,  be- 
tween directors  and  persons  whose  claims  against 
the  corporation  have  already  arisen — we  shall  find 
the  rules  heretofore  stated  not  always  applicable. 
To  the  extent  of  creditors'  interests,  corporate  funds  are  held 
in  trust  for  creditors  as  well  as  shareholders.  Consequently, 
directors  having  in  their  charge  funds  on  which  creditors  have 
valid  claims  and  equitable  liens,  but  in  the  management  of 
which  creditors  have  ordinarily  no  voice,  hold  a  position  of 
trust  towards  creditors  as  well  as  shareholders ;  and  owe  it 
accordingly  to  creditors  to  protect  their  interests,  as  they  owe 
it  to  shareholders  to  protect  the  interests  of  the  latter.3 

The  only  claim  of  creditors  is  to  be  paid  what  is  due  them, 
and  their  main  right  is  that  the  corporate  funds  shall  not  be 
wasted,  embezzled,  or  managed  with  reckless  improvidence, 
and  that  those  funds  shall  not,  to  the  injury  of  the  creditors, 
be  applied  to  purposes  manifestly  beyond  the  objects  of  incor- 
poration. It  is,  moreover,  a  duty  owed  by  directors  to  cred- 
itors to  use  reasonable  care  to  keep  the  corporation  solvent,  a 
duty  qualified  by  the  duty  of  directors  towards  shareholders 
to  use  the  corporate  funds  for  the  purposes  of  the  corporate 


1  Salmon  r.  Richardson,  30  Conn. 
300;  Morgan  v.  Skiddy,  62  N.  Y. 
319;  Clarke  v.  Dickson,  5  Jur.  X.  S. 
1029.  Subordinate  officers  concerned 
may  be  liable  as  well  as  their  superi- 
ors. Cullen  r.  Thomson,  6  L.  T.  N. 
S.  870. 

2  Bruff  v.  Mali,  36  X.  Y.  200;  see, 
also,  Shotwell  v.  Mali,  38  Barb.  445; 
Cazeaux  v.  Mali,  25  Barb.  578;  §  696; 
but  compare  Peck  v.  Gurney,  L.  R. 
6  H.  L.  377. 

3  Thomas  v.  Sweet,  37  Kan.  183; 
Seale  v.    Baker,   70  Tex.   283;    com- 

752 


pare  Heywood  v.  Lincoln  Lumber 
Co.,  (54  Wis.  639;  Sturges  v.  Knapp, 
31  Vt.  1,  53;  Baxter  v.  Moses,  77 
Me.  465;  Hurlbut  v.  Marshall,  62 
Wis.  590.  The  managers  and  treas- 
urer of  a  savings  bank,  when  charged 
with  malfeasance  by  its  receiver,  are 
to  be  regarded  as  trustees  for  depos- 
itors, and  the  statute  of  limitations 
applying  to  legal  actions  does  not 
apply.  Williams  v  McKay,  40  N.  J. 
Eq.  189;  Williams  v.  Reilly,  41  N.  J. 
Eq.  137. 


CHAP.  XIV.] 


OFFICERS  AND  CREDITORS. 


[§  757. 


enterprise,  and  by  the  right  of  directors  in  so  doing  to  incur 
whatever  risks  may  be  reasonably  necessary.1 

And,  accordingly,  directors  will  be  liable  to  the  persons  for 
whom  they  hold  the  funds  of  the  corporation  in  trust,  in  the 
number  of  whom  creditors  are  to  be  included,  if  they  commit 
either  a  positive  breach  of  trust  by  misapplying  the  corporate 
funds,  or  a  negative  breach  by  grossly  neglecting  their  duties.2 

§  757.  In  the  first  place,  as  to  the  liability  of  directors  to 
creditors  for  positive  misapplication  or  mismanage-   „ 

,  pi  ,  For  misap- 

ment  of  the  corporate  funds :  "  All  creditors  have  plication  of 
the  right  to  look  to  it  [the  capital  of  the  corpora-  rate^unds. 
tion]  and  to  its  faithful  administration  for  the 
payment  of  their  debts  ....  and  they  have  an  interest  in  and 
claim  upon  the  fund  set  apart  by  law  for  their  payment,  and 
may  hold  the  directors  responsible  for  its  unfaithful  distribu- 
tion, or  may  follow  it  into  the  hands  of  the  distributees  who 
hold  it  as  volunteer  recipients,  having  no  rightful  claim  upon 
it."8     There  is  no  doubt  that  creditors  may  follow  corporate 


1  See  Bank  of  Mutual  Redemption 
v.  Hill,  56  Me.  385. 

2  Peun  Bk.  v.  Hopkins,  17  Weekly 
Notes  (Pa. ),  49;  Brockway  Mfg  Co.,  In 
re,  89  Me.  121;  see  cases  cited  in  fol- 
lowing notes  and  text.  But  in  such 
suits  judgment  must  first  be  had 
.against  the  corporation,  and  unless 
this  is  alleged  the  bill  is  demurrable. 
Van  Weel  v.  Winston,  115  U.  S.  228; 
Baxter  v.  Moses,  77  Me.  465. 

According  to  some  decisions,  to 
render  directors  liable  to  creditors, 
they  must  have  beeu  guilty  of  some 
fraudulent  or  malicious  act.  Fusz 
v.  Spaunhorst,  67  Mo.  256;  Zinn  v. 
Mendel,  9  W.  Va.  580;  Minton  v. 
Stahlman,  96  Tenn.  98.  Two  special 
term  cases  in  "New  York,  both  de- 
cided by  the  same  judge,  go  even 
further,  and  hold  that  directors  are 
not  liable  to  creditors  even  for  wilful 
and  fraudulent  mismanagement  of 
the  corporate  assets.  Winter  v. 
Baker,  34  How.  Pr.  183;  Branch  v. 
Roberts,  50  Barb.  435.     But  the  rea- 

48 


soning  in  these  two  cases  is  palpably 
erroneous.  Moreover,  it  is  submit- 
ted that  every  breach  of  trust  on  the 
part  of  a  trustee,  whether  it  consist 
in  a  positive  misapplication  of  the 
trust  funds,  or  merely  in  wilful  neg- 
lect of  the  duties  of  the  trust,  will 
be  regarded  as  fraudulent  by  a  court 
of  equity.  And  it  is  thought  that 
the  weight  of  authority  sustains  the 
proposition  in  the  text.  Compare 
Lyman  v.  Bonney,  101  Mass.  562;  S. 
C,  118  Mass.  222.  The  position  of 
a  treasurer  is  held  to  be  different; 
and  that  he,  being  a  mere  ministerial 
officer  having  no  control  over  corpo- 
rate funds,  or  discretion  in  paying 
them  out,  owes  no  duties  to  credit- 
ors. Taylor  v.  Taylor,  74  Me.  582. 
Still,  semble,  he  would  be  liable  to 
creditors  if  he  embezzled  the  funds, 
and  thereby  rendered  the  corpora- 
tion insolvent.  See  Brockway  Mfg. 
Co.,  In  re,  89  Me.  121. 

"Grata  v.  Redd,  4  B.  Mon.   (Ky.) 
178,  196  per  Ewing,  C.  J.     This  case 

753 


§  757.]        THE   LAW   OF   PRIVATE   CORPORATIONS.  [CHAP.  XIV. 

property  into  the  hands  of  those  who  have  wrongfully  acquired 
it ; '  and  of  this  rule,  it  is  not  only  a  necessary  consequent, 
but,  as  it  were,  a  necessary  antecedent,  that  the  directors 
being  the  trustees,  will,  for  their  wrongful  disposal  of  this 
property,  be  personally  liable  to  creditors.  Whether  a  person 
acquiring  trust  funds  will  be  liable  to  account  to  the  bene- 
ficiary of  the  trust,  will  depend  on  the  circumstances  of  their 
acquisition.  But  the  trustee  will  always  be  liable  to  his 
beneficiary  for  their  wrongful  disposal.2 

Accordingly,  the  directors  of  a  bank  who,  in  order  to  sub- 
serve their  personal  interests,  accept  in  payment  for  stock, 
securities  not  authorized  to  be  taken,  instead  of  cash,  will  be 
personally  liable  to  note-holders  and  other  creditors  for  the 
whole  amount  of  the  so-called  paid-up  capital.3  Similarly, 
if  the  charter  of  a  bank  require  a  certain  portion  of  the  capital 
stock  to  be  paid  up  in  specie  before  the  bank  has  authority  to 
issue  bank  notes,  and  the  stock  is  subscribed,  but  the  specie  is 
not  paid,  yet  the  directors  nevertheless  circulate  bank  notes, 
"  if  the  bank  fail  or  become  insolvent,  the  bill-holders  and 
creditors  may  proceed  at  once  against  the  directors  for  a 
breach  of  trust  in  so  acting  contrary  to  their  duty  under  the 
charter."4 

If  a  director  of  a  bank  withdraws  a  large  amount  of  its 
funds,  giving  no  security,  and  uses  them  in  his  own  business, 
and  in  consequence  thereof  the  bank  becomes  insolvent,  he  will 
be  liable  to  account  to  the  creditors  of  the  bank  for  the  funds 
so  withdrawn.5     But  it  would  seem  that  directors  are  not  liable 


held  directors  liable  to  refund  to  the 
creditors,  dividends  improperly  re- 
ceived by  themselves. 

1  See  §§  656,  657.  And  see  in  par- 
ticular Union  Nat.  Bank  v.  Douglass, 
1  McCrary,  86;  Jones  v.  Arkansas 
Mechanical  Co.,  38  Ark.  IT. 

2Theassignees  of  an  insolventbank 
may  recover  damages  from  the  di- 
rectors for  a  fraudulent  sale  by  them 
to  the  bank  of  its  own  stock.  Shultz 
v.  Christ  man,  6  Mo.  App.  338.  In 
Railway  Co.  v.  Ailing,  99  U.  S.  463, 
it  is  said  that  directors  represent  cred- 
itors. 

754 


3  Moses  v.  Ocoee  Bank,  1  Lea 
(Tenn. ),  398. 

4  Schley  v.  Dixon,  24  Ga.  273,  277. 
A  receiver  may  in  the  interest  of 
creditors  sue  directors  for  such  in- 
juries as  have  accrued  to  the  cred- 
itors nt  universi,  through  the  unlaw- 
ful management  by  the  directors  of 
the  corporate  affairs.  Raymond  v. 
Palmer,  35  La.  Ann.  276. 

5  Bank  of  St.  Mary's  v.  St.  John, 
25  Ala.  566.  See  Brockway  Mfg.  Co., 
In  re,  89  Me.  121. 


CHAP.  XIV.] 


OFFICERS  AND  CREDITORS. 


[§  758. 


to  account  to  creditors  for  the  profits  they  have  made  from  the 
use  of  the  corporate  funds  for  their  personal  advantage,  although 
they  might  be  accountable  to  shareholders  for  such  profits.1 

§  758.  Through  gross  neglect  of  their  duties,  directors  may 
render  themselves  liable  to  creditors  for  the  frauds 
or  other  wrongful  acts  of  officers  and  agents  of  the  of°dut|.leCt 
corporation  other  than  themselves,  by  which  cred- 
itors have  suffered  injury.  If  it  is  the  duty  of  directors  to 
supervise  the  actions  of  each  other  and  of  the  other  officers  of 
the  corporation,  and  through  gross  neglect  of  duty  on  the  part 
of  directors,  the  funds  of  the  corporation  are  embezzled  or 
wasted  by  others,  as  they  could  not  have  been  had  the  directors 
attended  to  their  duties,  the  delinquent  directors  will  be  lia- 
ble to  the  persons  to  whom  they  owe  the  duty  of  supervising 
the  corporate  affairs  for  the  loss.  This  duty  directors  owe  to 
the  corporation  as  the  representative  of  the  interests  of  all 
persons  in  the  corporate  funds.  If  the  corporation  fails  to 
enforce  it,  or  to  sue  for  the  damages  which  a  breach  of  it  has 
occasioned,  the  shareholders  may  proceed  against  the  directors.2 
Directors  also  owe  this  duty  to  creditors,  since  for  them  as 
well  as  for  shareholders  the  corporate  funds  are  held  in  trust. 
Consequently,  if  it  can  be  shown  that  had  it  not  been  for  the 
gross  negligence  of  directors,  the  wrongful  acts  of  the  other 
officers  could  not  have  been  committed,  all  the  directors  who 
have  been  either  dishonest  or  delinquent  will  be  liable  for  the 
consequences  of  such  acts  to  creditors  of  the  corporation  who 
are  injured.3     If,  indeed,  it  should  be  held  that  the  creditor 


1  Lexington  R.  R.  Co.  v.  Bridges,  7 
B.  Mon.  (Ky.)  556.  But  see  Thomas 
v.  Sweet,  37  Kan.  183. 

2  See  §  694. 

3  Directors  who  misappropriate 
corporate  funds  or  through  culpable 
negligence  allow  other  corporate 
agents  to  do  so,  will  be  individually 
liable  to  judgment  creditors,  whose 
executions  against  the  corporation 
have  been  returned  unsatisfied.  Shea 
v.  Mabry,  1  Lea  (Tenn. ),  319.  See, 
also,  Maisch  v.  Saving  Fund,  5  Phila. 
30;  Penn  Bank  v.  Hopkins,  17  Weekly 
Notes  (Pa.),  49.      When   the  guilty 


directors  control  the  corporation  no 
previous  demand  on  the  corporation 
to  sue  need  be  alleged.  lb.  And 
compare  Robinson  v.  Smith,  3  Paige 
(N.  Y.),  222. 

In  an  action  against  the  directors 
of  an  insolvent  bank,  the  complaint 
charged  that  bonds,  specially  de- 
posited with  the  bank,  were  wrong- 
fully taken  by  its  officers,  and  by 
them  converted  to  the  use  of  the 
bank  without  authority  from  the 
plaintiffs,  and  that  the  defendants 
had,  or  by  the  most  ordinary  dili- 
gence and  investigation,  could   have 

755 


§  759.]      THE   LAW   OF   PRIVATE   CORPORATIONS.    [CHAP.  XIV. 


himself  could  not  sue  in  the  absence  of  some  enabling  statutory 
provision,  he  could  in  case  of  the  insolvency  of  the  corporation 
— the  only  case  in  which  his  interests  ordinarily  would  have 
been  injured1 — apply  for  the  appointment  of  a  receiver,  whose 
duty  it  would  then  be  to  sue  the  delinquent  directors,  and  ap- 
ply the  moneys  recovered  to  the  discharge  of  the  corporate  in- 
debtedness.2 

§  759.  When  a  corporation  becomes  insolvent,  the  duty  of  its 
directors  towards  its  creditors  becomes  even  stricter 
and  more  imperative  ;  for,  under  such  circumstances, 
the  rights  of  creditors  are  paramount,  and  it  has  be- 
come probable  that  they  will  be  somewhat  damaged  ; 
and  the  plain  duty  of  directors,  who  control  the  funds 
from  which  corporate  debts  are  paid,  is  to  see  that 
the  loss  is  as  small  as  possible.  Moreover,  since,  upon  the  in- 
solvency of  the  corporation,  the  rights  of  unsecured  creditors 
are  equal,  it  would  seem  to  be  improper,  even  in  the  absence 
of  a  statute  expressly  forbidding  it,  for  directors  to  make  pref- 


Di  rectors' 
duties  to 
creditors 
on  the  in- 
solvency 
of  the  cor- 
poration. 


had  ample  notice  of  this.  The  com- 
plaint was  held  good;  the  following 
being  in  substance  the  views  taken 
by  the  court.  The  defendants  could 
not  rely  on  any  lack  of  privity  be- 
tween them  and  the  plaintiffs.  In 
a  certain  sense,  directors  are  the 
bank,  and  the  public  has  a  right  to 
expect  reasonable  care  from  them. 
They  owe  this  duty  to  creditors  of 
the  bank.  It  is  the  duty  of  directors 
to  use  ordinary  diligence  to  acquaint 
themselves  with  the  business  of  the 
bank,  and  whatever  information 
might  be  acquired  by  ordinary  atten- 
tion to  their  duties,  they  may,  in 
controversies  with  persons  doing 
business  with  the  bank,  be  presumed 
to  have.  They  canuot  then  be  heard 
to  say  that  they  were  not  apprised 
of  facts  showu  to  exist  by  the  books 
of  the  bank,  and  which  would  have 
come  to  their  knowledge  except  for 
their  gross  neglect.  It  is  not  neces- 
sary in  many  cases  to  show  that  the 

756 


directors  actually  had  their  attention 
called  to  the  mismanagement  of  the 
bank's  affairs  or  to  the  misconduct 
of  the  subordinate  officers.  It  is 
sufficient  to  show  that  the  evidence 
of  such  mismanagement  or  miscon- 
duct was  sufficient  to  apprise  them 
of  it,  had  they  not  been  grossly  neg- 
ligent or  wilfully  careless  in  the  dis- 
charge of  their  duties.  United 
Society  of  Shakers  v.  Underwood,  9 
Bush  (Ky.),  C09.  Cf.  Miller  v.  How- 
ard, 95  Tenn.  407. 

1  Compare  Frost  Mfg.  Co.  v.  Foster, 
76  Iowa,  535;  Houston  v.  Thornton, 
122  N.  C.  365. 

For  the  question  of  the  liability  of 
directors  for  the  death  of  a  person 
killed  by  an  explosion  of  powder 
kept  by  the  corporation  in  violation 
of  law,  see  Cameron  v.  Kenyon-Con- 
nell  Com.  Co.,  22  Mont.  312. 

2  Compare  Attorney-General  v. 
Guardian  Mut.  Insurance  Co.,  77  N. 
Y.  272. 


CHAP.  XIV.] 


OFFICERS  AND  CREDITORS. 


[§  759. 


erences  among  them.1  And  certainly,  when  directors  are 
themselves  among  the  number  of  corporate  creditors,  they  can- 
not make  use  of  their  official  position  in  order  to  secure  to 
themselves  advantages  over  other  creditors  in  the  settlement  of 
the  corporate  indebtedness.  Any  such  unfair  transaction  will 
be  set  aside  at  the  suit  of  creditors ;  and  directors  will  be  com- 
pelled to  account  for  the  ratable  benefit  of  all  the  creditors,  for 
whatever  corporate  assets  they  have  taken  possession  of  or  as- 
signed to  themselves,  after  the  insolvency  of  the  corporation,  for 
the  securing1  of  their  own  claims.2     Nor  will  directors  in  defence 


1  Richards  v.  New  Hampshire  Ins. 
Co.,  43  N.  H.  263;  Haywood  v.  Lin- 
coln Lumber  Co.,  64  Wis.  639.  See 
Casserly  v.  Manners,  9  Hun,  695; 
Atlas  Tack  Co.  v.  Exchange  Bank, 
111  Ga.  713.     Also  §  668. 

2  Olney  y.  Conancut  Land  Co.,  16  R. 
I.  597;  Sweeny  v.  Sugar  Co.,  30  W. 
Va.  443;  Kersteter's  Appeal,  149  Pa. 
St.  148;  Hopkins  &  Johnson's  Ap- 
peal, 90  Pa.  St.  69;  Smiths.  Putnam, 
61  N.  H.  632;  Wilkinsons.  Bauerle, 
41  N.  J.  Eq.  635;  Haywood  v.  Lum- 
ber Co.,  64  Wis.  639;  Bradley  v.  Far- 
well,  1  Holmes,  433;  Corbett  v. 
Woodward,  5  Sawyer,  403;  Stout  v. 
Yaeger  Milling  Co.,  13  Fed.  Rep.  802; 
Gaslight  Imp't  Co.  v.  Terrell,  L.  R. 
10  Eq.  168.  See  Throop  v.  Hatch 
Li th.  Co.,  125  N.  Y.  530;  Kingsley  v. 
First  Nat.  Bk.,  31  Hun  (X.  Y.),  329; 
Gottlieb  v.  Miller,  154  111.  44;  Love 
Mfg.  Co.  v.  Mfg.  Co.,  74  Miss.  290; 
King  v.  Woolridge,  78  Miss.  179; 
Gibson  v.  Trowbridge  Furniture  Co., 
96  Ala.  357;  Goodyear  Rubber  Co. 
v.  George  D.  Scott  Co.,  ib.  439; 
Corey  v.  Wadsworth,  99  Ala.  68. 
(These  three  cases  limited  in  O'Bear 
Jewelry  Co.  v.  Volfer,  106  Ala.  205. ) 
Sutton  Mfg.  Co.  v.  Hutchinson,  24 
U.  S.  App.  145;  Bos  worth  v.  Bk., 
ib.  413;  Mercantile  Co.  v.  Co-opera- 
tive Ins.,  12  Utah,  213;  Hays  v.  citi- 
zens' Bk.,  51  Kan.  535;  Bridge  Co. 
v.  Fowler,  55  Kan.  17;  Plow  Co.  v. 


Rude,  60  Kas.  145;  Ingwersen  w. 
Edgecombe,  42  Neb.  740;  Wyman  ». 
Williams,  52  Neb.  833;  S.  C,  53  Neb. 
670;  Stough  v.  Ponca  Mill  Co.,  54 
Neb.  500;  Seeds  Dry  Plate  Co.  v. 
Heyer  Photo-Supply  Co.,  57  Neb.  214; 
cf.  Nebraska  Nat.  B'k  v.  Clark,  58 
Neb.  183;  Reynolds  v.  Smith,  60  Neb. 
197;  Hill  v.  Lumber  Co.,  113  N.  C. 
173;  Smith  v.  Bradt  Printing  Co.,  97 
Tenn.  351;  Taylor  u.  Mitchell,  80 
Minn.  493.  See  Mary  Lee  Coal,  etc., 
Co.  v.  Knox,  110  Ala.  632;  Mont- 
gomery v.  Phillips,  53  N.  J.  Eq.  203. 
Cf.  Duncomb  v.  N.  Y.,  Housatonic, 
etc.,  R.  R.  Co.,  88  N.  Y.  1;  S.  C,  84 
N.  Y.  190;  Larrabee  v.  Franklin  Bk., 
114  Mo.  592;  Bassett  o.  Monte  Christo 
Mining  Company,  15  Nev.  293;  Sav- 
age v.  Miller,  56  N.  J.  Eq.  432;  Taylor 
v.  Gray,  59  N.  J.  Eq.  621;  Clark  v. 
Colton,  91  M'd,  195;  Hill  v.  Standard 
Tel.  Co.,  198  Pa.  St.  446;  Symonds  v. 
Lewis,  94  Me.  501 ;  §  632. 

Contra,  Planters'  Bank  v.  Whittle, 
78  Va.  737;  Foster  v.  Mullanphy 
Planing  Mill  Co.,  16  Mo.  App.  150; 
Garrett  v.  Burlington  Plow  Co.,  70 
Iowa,  697;  Rollins  v.  Shaver  Wagon 
Co.,  80  Iowa,  380;  Warfield  r.  Mar- 
shall County  Canning  Co..  72  Iowa, 
666;  Foster  ».  Mullanphy  Planing 
Mill  Co.,  92  Mo.  79;  Rockford  Gro- 
cery Co.  v.  Standard  Grocery  Co.,  175 
111.  89;  South  Bend  Steel  Plow  Co. 
y.  George  C.  Cribb  Co.,  97  Wis.  230; 
757 


§  7(30.]        THE    LAW    OF    PRIVATE   CORPORATIONS.   [CHAP.  XIV. 

be  allowed  to  plead  their  own  ignorance  of  the  corporate  in- 
solvency.1 Moreover,  when  a  corporation  has  been  adjudged 
bankrupt  or  has  become  insolvent,  if  its  officers  buy  up  claims 
against  it  at  a  discount,  in  a  settlement  of  their  own  statutory 
liability  (as  shareholders),  they  will  not  be  allowed  more  than 
they  actually  paid  for  such  claims.3 

§  760.  In  Drury  v.  Cross,3  a  sale  was  made  of  the  entire 
property  of  a  railroad  company,  at  a  price  far  below  its  value, 
under  a  scheme  between  the  directors  and  the  purchasers,  by 
which  the  former  escaped  liability  on  certain  endorsements 
made  by  them  for  the  corporation.  At  the  suit  of  other  cred- 
itors the  sale  was  set  aside,  and  the  purchasers  were  held  as 
trustees  for  the  complaining  creditors  for  the  full  value  of  the 
property  purchased,  less  a  sum  which  the  purchasers  had  actu- 
ally paid  for  a  lien  claim,  which  they  had  bought  at  a  large 
discount.  Interest  on  the  balance  from  the  time  of  the  pur- 
chase to  the  date  of  the  final  decree  was  also  added.     So,  in 


Corey  v.  Wadswortli,  118  Ala.  488; 
Anderson  v.  Bullock  County  Bank, 
122  Ala.  275.  It  is  held  that  the  mere 
fact  that  a  debt  of  the  corporation 
is  guaranteed  by  certain  directors, 
does  not  invalidate  a  pi'eference  given 
as  to  that  debt.  Blair  v.  Illinois 
Steel  Co.,  159  111.  350;  Henderson 
v.  Indiana  T.  Co.,  143  Ind.  561; 
Levering  v.  Bimel,  146  Ind.  545; 
Symonds  v.  Lewis,  94  Me.  401;  com- 
pare Allen  v.  Hotel  Co.,  95  Tenn. 
480,  contra,  Tillson  v.  Downing,  45 
Neb.  549.  Directors  may  include 
themselves  among  preferred  credit- 
ors, but  the  burden  is  on  them  to 
show  that  the  transaction  is  fair. 
Schufeldt  v.  Smith,  131  Mo.  280; 
Butler  v.  Land  Co.,  139  Mo.  467; 
State  ex  rel.  Grimm  v.  Rubber  Mfg. 
Co.,  149  Mo.  181;  Mueller  v.  Fire  Clay 
Co.,  183  Pa.  St.  450;  Cowan  v.  Plate 
Glass  Co.,  184  Pa.  St.  1;  Creighton  & 
Birch  v.  Stanton  M'f'g  Co.,  191  Pa. 
St.  231.  A  majority  of  the  directors 
cannot  prefer  a  creditor  corporation 
in  which  they  are  stockholders  by 


conveying  all  the  assets  of  the  insol- 
vent corporation  to  it.  German  Nat. 
Bank  v.  First  Nat.  Bank,  55  Neb.  86. 

1  Corbett  v.  Woodward,  5  Sawyer, 
403;  Clay  v.  Towle,  78  Me.  86;  Bou- 
ney  v.  Tilley,  109  Cal.  346;  Lowry 
Banking  Co.  v.  Empire,  etc.,  Co.,  91 
Ga.  624;  Clark  v.  Colton,  91  Md.  195. 
But  see  Hayes  v.  Beardsley,  136  N. 
Y.  299;  Finch  M'f'g  Co.  v.  Sterling, 
187  Pa.  St.  596. 

In  Tool  Co.  v.  Howe,  157  U.  S. 
313,  a  mortgage  was  held  valid, 
which  was  sanctioned  by  the  share- 
holders, and  was  given  to  directors 
to  induce  a  continuance  of  credit, 
the  corporation  being  a  going  con- 
cern, though  not  possessed  of  assets 
equal  to  its  indebtedness;  there  be- 
ing no  intention  to  defraud  other 
creditors. 

2  Bulkley  v.  Whitcomb,  121  N.  Y. 
107;  Holland  v.  Heyman,  00  Ga.  174; 
Lingle  v.  National  Ins.  Co.,  45  Mo. 
109.  But  see  Craig's  Appeal,  92  Pa. 
St.  396. 

8  7  Wall.  299. 


CHAP.  XIV.] 


OFFICERS  AND  CREDITORS. 


[§  762. 


Jackson  v.  Ludeling,1  where  the  directors  and  local  managers 
of  an  embarrassed  railroad  company  holding  a  small  portion  of 
its  bonds  obtained  a  hasty  order  of  sale,  and  sold  out  the  road, 
grossly  disregarding  the  interests  of  the  other  bondholders,  the 
sale  was  set  aside.2 

Directors  and  other  officers,  however,  who  are  also  cred- 
itors, are  of  course  not  excluded,  because  officers,  from  sharing 
ratably  with  the  other  creditors  of  their  corporation.3 

§761.  Throughout  the  states  of  the  Union  many  statutes 
have  been  passed  regulating  the  relations  between 
directors  and  creditors  of  corporations.     The  major-  liability 
ity  of  them  seem  to  proceed  on  the  theory  that  cor-  tocredftora. 
porate  funds  are  trust  funds  to  be  managed  with  due  F,onv 

i  °  classes. 

regard  for  the  security  of  creditors  as  well  as  the 
profit  of  shareholders  ;  and  that  in  the  management  of  these 
funds  directors  are  charged  with  duties  to  creditors.  These 
statutes  may  be  divided  into  four  classes :  the  first  providing 
for  certain  liability  of  the  directors  in  contract ;  the  second  for 
certain  liability  of  the  directors  in  tort,  beyond  their  common 
law  or  equitable  liability  ;  the  third  for  certain  acts  to  be  per- 
formed by  the  directors  ;  and  the  fourth  forbidding  certain  acts 
absolutely  or  under  certain  circumstances.  By  violating  stat- 
utes of  the  third  and  fourth  classes,  directors  either  (1)  incur 
specific  pecuniary  penalties,  (2)  render  themselves  individually 
responsible  for  certain  corporate  liabilities,  or  (3)  commit  a  mis- 
demeanor or  felony. 

§  762.  The  first  class  of  statutes4  seem  to  apply  rather  to 
those  relations  between  directors  and  persons  deal- 
ing with  them  which  arise  directly  from  the  trans- 


1 21  Wall.  616. 

2  See,  also,  James  v.  Railroad  Co., 
6  Wall.  752. 

8  Bristol  Milling,  etc.,  Co.  v.  Pro- 
basco,  64  Ind.  406.  See  Christian's 
Appeal,  102  Pa.  St.  184;  Hoover 
Mercantile  Co.  v.  Evans  Mining  Co., 
193  Pa.  St.  28. 

4  Illustrations:  "  The  officers  and 
stockholders  of  every  corporation  or 
association  for  banking  purposes, 
issuing  bank  notes  or  paper  credits 


to  circulate  as  money,  shall  be  indi- 
vidually liable  for  all  debts  con- 
tracted during  the  term  of  their 
being  officers  or  shareholders  of  such 
corporation  or  association,  equally 
and  ratably  to  the  extent  of  their 
respective  shares  of  stock  in  such 
corporation  or  association."  Cons, 
of  Mich.,  art.  xv.  §  3. 

"The  trustees  of  a  corporation 
created  for  a  purpose  other  than 
profit,  shall  be  personally  liable  for 

759 


§  764.]        THE   LAW    OF    PRIVATE   CORPORATIONS.  [CHAP.  XIV. 


action  occasioning  the  claims  of  such  person  against  the  corpo- 
ration, than  to  the  relations  with  such  persons  after  the  latter 
have  become  creditors  of  the  corporation.  Statutes  of  this 
class  create  a  liability  arising  through  no  fault  of  the  directors, 
but  sounding  in  contract ;  and  to  repeal  one  of  them  so  as  to 
affect  the  relations  between  creditors  whose  debts  have  already 
arisen,  and  directors  holding  office  at  the  time  of  the  repeal 
would  conflict  with  the  Federal  constitution.1  Many  of  them 
create  a  liability  of  directors  as  shareholders,  and  indeed  seem 
hardly  applicable  to  directors  as  such. 

§  763.  A  single  instance  of  statutes  of  the  second  class  will 
Second  suffice :  "  The  directors  or  trustees  of  corporations 
c]ass-  ....  shall  be   jointly  and   severally  liable  to  the 

creditors  and  shareholders  for  all  moneys  embezzled  or  mis- 
appropriated by  the  officers  of  such  corporations  ....  during 
the  term  of  office  of  such  directors  or  trustees." 2  This  provi- 
sion, which  creates  a  liability  on  the  part  of  directors  for  wrong- 
ful acts  of  other  corporate  agents  far  in  excess  of  any  common 
law  or  equitable  liability,  apparently  proceeds  on  the  idea  that 
it  is  a  duty,  for  the  non-fulfillment  of  which  a  director  would 
be  liable  to  all  persons  interested,  to  see  that  the  corporate 
funds  are  not  misapplied.  In  fact,  it  makes  him  an  insurer 
against  their  misapplication.  And  a  director  held  to  the 
liability  imposed  by  a  statute  of  this  nature,  himself  innocent 
of  all  misfeasance,  would  seem  entitled  to  contribution  from 
his  co-directors.3 

§  764.  The  statutes  of  the  third  and  fourth  classes,  wmether 


all  debts  of  the  corporation  by  them 
contracted.'1  Rev.  Stat,  of  Ohio, 
§  3261. 

1  See  Hawthorne  v.  Calef,  2  Wall. 
10;  Corning  v.  McCullough,  1  N.  Y. 
47. 

2  Cons,  of  California,  1870,  art. 
xii.  §  3.  See  Winchester  v.  Mabury, 
122  Cal.  522,  which  holds  that  under 
this  provision  the  only  proper  rem- 
edy is  a  bill  in  equity  on  behalf  of 
all  the  creditors,  and  not  an  action 
at  law  on  behalf  of  an  individual 
creditor. 

760 


3  See  Ash  hurst  v.  Mason,  L.  R.  20 
Eq.  225.  Where  by  statute  direct- 
ors are  liable  "to  the  creditors  and 
stockholders  of  said  corporations  for 
any  loss  which  may  he  sustained  in 
consequence  of  any  incompetency, 
unfaithfulness,  or  remissness  in  the 
discharge  of  their  official  duties  .  .  . 
and  any  number  of  such  directors 
may  be  sued  in  the  same  action  by 
any  claimant  under  these  provi- 
sions;" the  action  must  be  brought 
in  a  court  of  equity.  Crown  v. 
Brainerd,  57  Vt.  625. 


CHAP.  XIV.J  OFFICERS  AND  CREDITORS. 


[§  764. 


positive  (commanding)  or  negative  (forbidding),  have  Thild  and 
been  usually  adjudged  penal ;  and  this,  too,  whether  fourth 
the  penalty  consists  in  (1)  a  specific  sum  of  money, 
(2)  creation  of  general  liability  on  the  part  of  directors  for 
corporate  debts,  or  (3)  in  making  certain  acts  or  omissions 
felonies  or  misdemeanors.1  From  the  view  that  statutes  of 
these  two  classes  are  penal,  important  consequences  follow. 
First,  a  number  of  courts  have  refused  to  enforce  them  outside 
of  the  state  enacting  them.2  Secondly,  when  the  liability  of  a 
director  under  one  of  these  acts  is  enforced  against  him,  it 
seems  that  he  will  have  no  action  for  contribution  against  his 
co-directors;3  and  thus  the  "joint  and  several"  liability  of 
directors  under  these  statutes  may  mean  little  more  than  they 
may  be  joined  as  defendants.  Thirdly,  these  statutes  are  to  be 
construed  strictly.4  Fourthly,  a  repeal  of  them  even  so  as  to 
effect  existing  debts  is  constitutional;5  for  there  can  be  no 
vested  right  to  recover  a  penalty.6     And,  finally,  the  liability 


1  Wiles  v.  Suydam,  64  N.  Y.  173; 
First  Nat.  Bank  v.  Price,  33  Md.  487: 
Sturges  v.  Burton,  8  Ohio  St.  215; 
Breitung  v.  Lindauer,  37  Mich.  217; 
Kritzer  v.  Woodson,  19  Mo.  327; 
Gregory  v.  German  Bank,  3  Col.  332; 
Union  Iron  Co.  v.  Pierce,  4  Biss.  327; 
Irvine  v.  McKeon,  23  Cal.  472; 
Nassau  Bank  v.  Brown,  30  N.  J.  Eq. 
478,  484;  Stebbins  v.  Edmands,  12 
Gray,  203;  Billings  v.  Trask,  30  Hun 
(N.  Y.),  314;  Gadsden  v.  Woodward, 
103  N.  Y.  242.     See  §771. 

2  First  Nat.  Bank  v.  Price,  33  Md. 
487;  Derrickson  v.  Smith,  27  N.  J. 
L.  166;  Halsey  v.  McLean,  12  Allen, 
438;  Bird  v.  Hayden,  2  Abb.  Pr.  N. 
S.  (N.  Y.)61;  S.  C,  1  Robt.  (N.  Y.) 
383;  Veeder  v.  Baker,  83  N.  Y.  156. 
Contra,  Huntington  v.  Attrill,  146 
U.  S.  657.  See  Story,  Confl.  of  Laws, 
§§  620,  621 ;  Whart.  Conn,  of  Laws, 
§§  853  et  seq.:  and  compare  §§  393 
and  714,  note,  ante. 

8  Andrews  v.  Murray,  33  Barb.  354. 


Contra.    Nickerson  v.   Wheeler,  118 
Mass.  295.     See  §§  767,  805. 

*  Bonnellu.  Griswold,  80  N.  Y.  128; 
Manhattan  R'y  Co.  v.  Kaldenbersr 
165  N.  Y.  1;  Steam  Engine  Co.  v. 
Hubbard,  101  U.  S.  188;  Gray  v. 
Coffin.  9  Cush.  192;  Chase  v.  Curtis, 
113  U.  S.  452.  See  Pier  v.  Hanmore, 
86  N.  Y.  95.  Compare  Western 
Union  Tel.  Co.  v.  Hamilton,  50  Ind. 
181;  Wing  &  Evans  v.  Slater,  19  R. 
I.  597.  Judgment  against  the  cor- 
poration is  not  even  prima  facie 
evidence  in  an  action  against  the  di- 
rectors to  charge  them  with  the 
debts  of  the  corporation  for  their 
failure  to  file  a  report.  Miller  v. 
White,  50  N.  Y.  137. 

5  Breitung  v.  Lindauer,  37  Mich. 
217;  Union  Iron  Co.  v.  Pierce,  4  Biss. 
327;  Gregory  v.  German  Bank,  3 
Col.  332. 

6  Yeaton  v.  United  States,  5 
Cranch,  281;  Norris  v.  Crocker,  13 
How.  429. 

761 


§  766.]       THE    LAW    OF    PRIVATE    CORPORATIONS.    [CHAP.  XIV. 

which  they  impose  will  not  survive  the  death  of  the  delinquent 
director,  unless  reduced  to  judgment  before  that  event.1 

§  765.  On  the  other  hand  there  seems  to  be  an  increasing  cur- 
rent of  judicial  opinion  opposed  to  the  view  that  statutes  under 
which  directors  may  become  liable  for  the  debts  of  the  corpora- 
tion are  penal  in  an  "  international  sense,"  so  that  courts  should 
decline  to  enforce  them  beyond  the  state  enacting  them.  The 
leading  case  is  Huntington  v.  Attrill,2  in  which  the  Federal 
Supreme  Court  held  that  a  New  York  statute,  by  which  direct- 
ors who  sign  a  false  certificate  or  report  are  made  liable  for  the 
debts  of  the  corporation,  was  not  penal  in  the  sense  that  it  could 
not  be  enforced  without  the  state.  "  As  the  statute  imposes  a 
burdensome  liability  on  the  officers  for  their  wrongful  act,  it 
may  well  be  considered  penal,  in  the  sense  that  it  should  be 
strictly  construed.  But  as  it  gives  a  civil  remedy,  at  the  pri- 
vate suit  of  the  creditor  only,  and  measured  b}r  the  amount  of 
his  debt,  it  is  as  to  him  clearly  remedial."3 

Likewise  in  Neal  v.  Moultrie,4  it  was  held  that  the  liability, 
being  created  in  favor  of  individuals,  could  not  constitute  a  pen- 
alty. In  Hargroves  v.  Chambers,5  it  was  said  that  the  liability 
of  the  directors  would  not  be  affected  by  the  extinguishment 
of  the  debt  as  to  the  corporation  ;  which  last  is  opposed  to  the 
Xew  York  case  of  Jones  v.  Barlow.6  Some  of  these  statutes 
certainly  come  near  creating  a  liability  sounding  in  contract. 
For  instance,  it  would  be  hard  to  construe  the  following  as 
creating  a  mere  penalty  :  "  If  a  bank  shall  become  indebted  be- 
yond the  amount  allowed  ....  the  directors  ....  shall  be 
liable  for  the  excess  in  their  private  capacities,  and  an  action  in 
contract  may,  in  such  cases,  be  brought  against  them,  or  any  of 
them ;  their  or  any  of  their  heirs,  executors,  or  administrators, 
by  any  creditor  of  the  bank  ;  or  such  creditor  may  have  a  rem- 
edy by  a  suit  in  equity." 7 

§  766.  There  are  finally  a  few  statutes,  falling  properly  under 


1  Mitchell  v.  Hotchkiss,  48  Conn. 
See  §771. 

2  146  U.  S.  657. 

3  146  U.  S.  676. 
*  12  Ga.  104. 

6  30  Ga.  580. 
6  62  N.  Y.  202. 

762 


7  General  Stat,  of  Mass.  203,  §  27. 

Statutes  making  directors  liable 
for  indebtedness  in  excess  of  the 
amount  of  capital  stock  are  ceasing 
to  be  held  penal.  See  Woolverton  v. 
Taylor,  132  111.  197;  Farr  v.  Briggs' 
Estate,  72  Vt.  225.     Compare  Lewis 


CHAP.  XIV.]  OFFICERS  AND  CREDITORS. 


[§  767. 


none  of  the  preceding  classes,  whose  object  it  is,  by  creating 
presumptions,  to  put  on  the  directors  the  disproof  of  certain 
matters  which  it  might  be  hard  for  other  persons  to  prove.  For 
instance:  "Every  insolvency  of  a  chartered  bank  .  .  .  .  shall  be 
deemed  fraudulent." *  "  It  is  presumed  that  directors  present 
at  a  meeting  assent  to  the  measures  there  passed;  and  that 
within  a  certain  time,  or  after  such  measures  are  entered  on  the 
books  of  the  corporation,  absent  directors  have  knowledge  of 
them."2 

Although  it  would  be  beyond  the  limits  of  this  treatise  to 
discuss  in  detail  the  effect  of  the  various  statutes  which  impose 
liability  on  directors  either  for  failure  to  do  certain  acts  which 
are  prescribed,  or  for  doing  certain  other  acts  which  are  for- 
bidden,3 still  a  few  illustrations  of  the  more  frequent  of  these 
statutes  and  their  effect  may  not  be  out  of  place. 

§  767.  Enabling  acts  very  commonly  require  corporations  to 
file  annual  reports  of  their  condition,  and  make  direct- 
ors liable  for  the  debts  of  the  corporation  on  a  failure   Liability 

1  .  ,  for  failure 

to  do  so.4     Such  a  requirement  was  contained  in  the   to  file 
New  York  Manufacturing  Companies  Act  of  1848.3  reports. 
Although  that  act  is  repealed,  some  of  the  New  York 


v.  Montgomery,  145  111.  30.  A  stat- 
ute provided  that  no  corporation 
should  create  any  debt  in  excess  of 
its  paid  up  capital  stock,  and  that 
the  directors  voting  for  or  consent- 
ing to  tthe  creation  of  such  debt 
should  be  personally  liable  therefor 
to  the  creditors  of  the  corporation. 
Held  that  the  statute  imposes  a  lia- 
bility upon  the  consenting  directors 
"to  the  extent  of  such  excess,  not 
for  the  benefit  of  any  particular 
creditor,  but  for  the  benefit  of  all, 
and  their  liability  is  in  equity  a 
fund  to  which  all  the  creditors  may 
resort  for  the  satisfaction  of  such 
debts  as  the  corporation  itself  fails 
to  pay,  to  be  shared  in  by  all  in  pro- 
portion to  the  debt  remaining  un- 
paid.  .  .  .  The    liability   is   second- 


ary, to  be  resorted  to  only  after  the 
usual  remedies  against  the  corpora- 
tion have  been  exhausted,"  although 
the  statute  contains  no  such  express 
provision.  Nat.  Bk.  v.  Dillingham, 
147  N.  Y.  603,  610.  Under  such  a  stat- 
ute a  part  of  the  creditors  cannot  sue 
on  their  own  behalf,  but  suit  should 
be  brought  in  behalf  of  all.  Moulton 
v.  Connell  Co.,  93  Tenn.  377;  Trades- 
man Pub.  Co.  v.  Wheel  Co.,  95  Tenn. 
634. 

1  Georgia  Code,  1873,  §  4428. 

2  California  Penal  Code,  §§  569,  570. 

3  J.  e.,  statutes  of  the  third  and 
fourth  classes. 

4  To  an  action  by  a  creditor  to 
charge  a  director  with  the  penalty 
for  a  failure  to  file  a  report,  the  di- 
rector cannot  plead  that  he  did  not 


8  For  note  5  see  page  764. 


763 


§  709.]      THE    LAW    OF    PRIVATE   CORPORATIONS.    [CHAP.  XIV. 


decisions  construing  it  may  still  be  of  interest  with  reference  to 
similar  statutory  provisions. 

§  768.  According  to  the  section  of  the  act  of  1848,  as  it 
has  been  judicially  expounded  :  "  Upon  default  of  a  company 
to  report,  all  the  trustees  then  in  office  are  jointly  and  severally 
liable  for  all  the  debts  of  the  company  then  existing,  whether 
contracted  by  them  or  their  predecessors,  and  for  all  that  may 
be  subsequently  contracted  during  their  continuance  in  office, 
till  such  report  be  made.  Trustees  who,  upon  such  default, 
retire  from  office,  are  liable  for  all  debts  of  the  company  then 
existing,  but  for  no  subsequent  ones.  Their  successors,  by 
promptly  obeying  the  requirements  of  the  statute,  may  escape 
all  liability ;  but  if  they  continue  the  default  until  the  next 
January,  they  are  liable  for  the  debts  contracted  during  their 
administration  up  to  that  time,  and  for  no  other,  unless  they 
then  and  there  make  default,  in  which  latter  case  they  become 
liable  for  all  debts  then  existing.  Thus  the  members  of  suc- 
cessive boards  may  become  liable  for  the  same  debts,  by  reason 
of  successive  defaults." ' 

§  769.  Under  this  statute,  trustees  are  elected  for  one  year, 
and,  unless  they  hold  over  and  act  for  the  corporation  after  the 
expiration  of  their  term  of  office,  they  are  not  liable  for  a  sub- 
sequent failure  to  file  a  report,  although  no  new  trustees  are 
elected.2  The  mere  fact,  moreover,  that  a  stockholder  is 
elected  a  trustee,  is  not  enough  to  charge  him  with  the 
penalties  for   a   failure  to   file  a  report.     There  must  be  evi- 


know  of  the  law  requiring  it,  and 
that  the  failure  was  not  intentional. 
Van  Etten  v.  Eaton,  19  Mich.  187. 
See  (Jennert  v.  Ives,  102  Mich.  547. 
Compare  Cooke  v.  Pearce,  23  S.  C. 
239. 

6  Laws  of  1848,  chap.  40,  §12;  re- 
placed by  laws  of  1892,  chap.  688, 
§30. 

For  decisions  construing  section  30, 
chapter  688  of  the  laws  of  1892,  see 
Chapman  v.  Lynch,  156  N.  Y.  551; 
Sinclair  v.  Fuller,  158  N.  Y.  607;  Mor- 
gan v.  Hedstrom,  165  N.  Y.  224;  Man- 
hattan Co.  v.  Kaldenberg,  165  N.  Y. 
1.     Section  30,  laws  of  1892,  is  in  its 

764 


turn  abolished  by  section  30,  laws  of 
1901,  which  substitutes  a  conditional 
and  limited  liability. 

1  Vincent  v.  Sands,  1  J.  &  S. 
(N.  Y.)  511,  517.  Opinion  of  the 
court  per  Freedman,  J.;  S.  C,  aff'd 
58  N.  Y.  673.  See  Koike  v.  Thomas, 
56  N.  Y.  559;  Chambers  v.  Lewis, 
28  N.  Y.  454;  Boughton  v.  Otis,  21 
N.  Y.  261;  Gaus  v.  Switzer,  9  Mon- 
tana, 408.  This  liability  is  not  con- 
tingent on  the  failure  of  the  creditor 
to  collect  against  the  corporation. 
Larson  v.  James,  1  Col.  App.  313. 

2  Van  Amburgh  i\  Baker,  81  N.  Y. 
46.     In  this  case  before  the  expira- 


CHAP.  XIV.] 


OFFICERS  AND  CREDITORS. 


[§  770. 


dence  of  his  acceptance  of  the  office.1  And  this  liability  does 
not  arise  if  a  report  be  filed,  although  the  same  is  in  some 
respects  untrue.2 

§  770.  To  relieve  trustees  from  their  duty  to  file  annual  re- 
ports a  technical  dissolution  of  the  corporation  is  not  requisite. 
This  duty  is  at  an  end  when  the  corporation  is  practically  aban- 
doned and  has  ceased  to  carry  on  business  ;  or  when  its  affairs 
have  passed  into  the  hands  of  a  receiver  or  an  assignee  in  bank- 
ruptcy.3 The  action  against  the  trustee  must  be  brought  on 
the  original  claim  of  the  creditor  ;  and  not  on  a  judgment  ob- 
tained against  the  corporation,  as  the  latter  is  not  even  prima 
facie  evidence  to  charge  the  trustees  with  a  debt.4  The  decla- 
rations, however,  of  an  officer,  relating  to  matters  in  which  he 
was  competently  acting  for  the  corporation,  are  admissible  as 
evidence  against  a  trustee  in  an  action  brought  to  charge  the 
latter  with  a  debt  of  the  corporation,  there  having  been  a  fail- 
ure to  file  the  annual  report.5  And  in  such  an  action  the  trus- 
tees cannot  avail  themselves  of  a  defence  not  personal  to 
themselves,  but  going  to  the  foundation  of  the  claim  against 
the  corporation  ;  unless  the  corporation  itself  could  have  suc- 
cessfully relied  on  the  same  defence.6  The  statute  of  limita- 
tions begins  to  run  in  favor  of  the  trustees  from  the  time  when 
the  cause  of  action  accrued  against  them,  L  e.,  from  the  time 


tion  of  their  term  the  trustees  passed 
a  resolution  discontinuing  business. 
If,  however,  a  trustee  holds  over, 
and  there  is  a  debt  contracted  while 
he  is  a  trustee  de  facto,  he  is  liable 
for  a  default.  Doming  v.  Puleston, 
55  N.  Y.  655. 

1  Cameron  v.  Seaman,  69  N.  Y. 
396;  Osborn  &  Cheese  man  Co.  v. 
Croome,  14  Hun,  164;  S.  C,  aff'd  77 
N.  Y.  629. 

2  Bonnell  v.  Griswold,  80  N.  Y. 
128.  Liability  for  signing  false  re- 
ports is  provided  for  in  New  York 
by  §  31,  ch.  688,  laws  of  1892.  See 
§774. 

8Kirklandr.  Kille,  99  N.  Y.  390; 
Losee  v.  Bollard,  79  N.  Y.  404; 
Huguenot   Nat.    Bank  v.   Stud  well, 


74  N.  Y.  621;  Bonnell  v.  Griswold,  80 
N.  Y.  128;  Bruce  v.  Piatt,  ib.  379. 
But  compare  Sanborn  w.  Lefferts,  58 
N.  Y.  179;  Gans  v.  Switzer,  9  Mon. 
408. 

*  Miller  v.  White,  50  N.  Y.  137; 
Esmond  ».  Bullard,  16  Hun,  65; 
Chase  v.  Curtis,  113  U.  S.  452.  Com- 
pare Bassett  v.  St.  Alban's  Hotel 
Co.,  47  Vt.  313.  Contra,  Thayer  v. 
New  England  Lithographic  Co.,  108 
Mass.  523. 

6  Hoag  v.  Lamont,  60  N.  Y.  96. 

6  Whitney  Arms  Co.  v.  Barlow,  63 
N.  Y.  62.  For  a  case  where  the  de- 
fendant trustee  was  allowed  to  deny 
that  a  corporation  had  ever  been  or- 
ganized, see  DeWitt  v.  Hastings,  69 
N.  Y.  518. 

765 


§  773.]       THE   LAW   OF   PRIVATE   CORPORATIONS.    [CHAP.  XIV. 


of  their  first  failure  to  file  a  report,1  and  successive  failures  do 
not  prevent  the  statute  from  running.2 

§  771.  A  liability  of  this  character  being  penal  does  not 
survive  the  death  of  the  delinquent  trustee,  as  against  his 
representatives,  nor3 the  death  of  the  plaintiff  occurring  in  the 
course  of  the  action.4  However,  the  right  to  enforce  this  lia- 
bility passes  with  an  assignment  of  the  debt.5 

§  772.  Although  the  language  of  the  New  York  statute  is 
broad  enough  to  include  a  debt  of  the  corporation 
included  in  to  one  of  the  trustees  who  are  in  default,  yet  such  a 
biiity*"  result  is  held  not  to  be  within  its  spirit ;  and  neither 
a  delinquent  trustee  nor  a  firm  of  which  he  is  a 
member  can  take  advantage  of  a  default  for  which  he  is  in 
part  responsible,  to  recover  against  his  co-trustees.6  An  as- 
signee for  value,  however,  who  takes  an  absolute  assignment 
of  a  debt  of  the  corporation  can  maintain  an  action  against  the 
trustees,  although  his  assignor  remains  a  trustee  up  to  the  time 
of  the  default.7 

§  773.  Where  on  account  of  a  failure  to  file  a  report,  direct- 
ors or  trustees  are  made  liable  for  the  "  debts  "  of  the  corpora- 
tion, corporate  liabilities  "  which  may  give  causes  of  action 
against  it  and  result  in  judgments  are  not  within  the  statute 
unless  they  constitute  present  debts ; "  for  a  debt  is  "  something 
which  may  be  subject  to  a  suit  as  a  debt,  and  not  something 
to  which  the  party  may  be  entitled  as  damages  in  consequence 
of  a  failure  to  perform  a  duty  or  keep  an  engagement." 8 


1  Duckworth  v.  Roach,  81  N.  Y.  49. 
Compare  Larsen  v.  James,  1  Col. 
App.  313. 

2Losee  ».  Bullard,  79  N.  Y.  404; 
see  Chapman  v.  Lynch,  156  N.  Y. 
551 ;  Morgan  v.  Hedstrom,  165  N.  Y. 
224. 

3  Stokes  v.  Stickney,  96  N.  Y.  323; 
Mitchell  v.  Hotchkiss,  48  Conn.  9. 

4  Brackett  v.  Griswold,  103  N.  Y. 
425.  The  cause  of  action  here  was 
not  a  failure  to  file  the  report,  but 
the  filing  a  false  report. 

6  Pier  v.  George,  20  Hun,  210; 
S.  C,  aff'd  86  N.  Y.  613. 

6  Knox  v.  Baldwin,  80  N.  Y.  610; 
766 


Briggs  v.  Easterly,  62  Barb.  51.  See 
Adams  v.  Mills,  GO  N.  Y.  533.  Com- 
pare Thacher  v.  King,  156  Mass. 
490.  But  a  creditor  who  is  also  a 
stockholder,  may  recover  on  this  lia- 
bility of  the  trustees.  Sanborn  v. 
Lefferts,  58  N.  Y.  179. 

i  Cornell  v.  Roach,  101  N.  Y.  373. 
But  compare  Brackett  v.  Griswold, 
103  X.  Y.  425. 

6  Lockhart  v.  Van  Alstyne,  31 
Mich.  76,  78,  per  Cooley,  J.;  ace. 
Cady  v.  Sauford,  53  Vt.  632.  See 
Whitney  Arms  Co.  v.  Barlow,  68 
N.  Y.  34;  Victory  Webb  Printing 
Co.    v.   Bucher,    26  Hun,    48;  Allen 


CHAP.  XIV.]  OFFICERS  AND  CREDITORS. 


[§  775. 


§  774.  A  provision  of  the  following  character  is  not  infre- 
quent in  enabling  acts.     "  If  any  certificate  or  report 
made,  or  public  notice  given  by  the  officers  of  any   fofsignmg 
such  company,  in  pursuance  of  the  provisions  of  this   ports.™" 
act,  shall  be  false  in  any  material  representation,1  all 
the  officers  who  shall  have  signed  the  same,  knowing  it  to  be 
false,  shall  be  jointly  and  severally  liable  for  all  the  debts  of  the 
company  contracted  while  they  are  stockholders   or   officers 
thereof."  2     Under  a  provision  of  this  kind,  in  order  to  charge 
the  officers  signing  the  false  report,  some  fact  must  be  proved 
showing  bad  faith,  or  wilful  and  fraudulent  intent  to  deceive 
on  the  part  of  the  officers.3 

§  775.  In  regard  to  the  form  in  which  actions  to  enforce  the 
statutory  liability  of  directors  should  be   brought, 
little  of  general  value  can  be  said ;  since  this  is  a   actions. 
matter  so  largely  dependent  on  the  terms  of   the   partieT0' 
statute  itself,  as  well  as  on  the  rules  of  procedure  in 
force  in  the  different  states.     It  may  be  said,  however,  that  if 
the  apparent  intention  of  the  statute  creating  the  liability  is  to 
provide  a  fund  for  the  security  of  all  the  creditors,  then,  on 
principles  heretofore  discussed  in  relation  to  the  statutory  lia- 


v.  Clark,  108  N.  Y.  269;  Felker  v. 
Standard  Yarn  Co.,  148  Mass.  226. 
A  claim  in  tort  is  not  a  "debt" 
within  the  meaning  of  such  a  stat- 
ute. Chase  v.  Curtis,  113  U.  S.  452; 
Leighton  v.  Campbell,  17  R.  I.  51; 
nor  is  the  liability  for  damages 
which  arises  from  the  infringement 
of  a  patent.  Child  u.  Boston,  etc., 
Iron  Works,  137  Mass.  516.  Com- 
pare Trinity  Church  v.  Vanderbilt, 
98  N.  Y.  170.     See  §  734. 

i  See  Butler  v.  Smalley,  101  N.  Y. 
71;  which  held  that  knowingly  omit- 
ting certain  liabilities  of  the  com- 
pany did  not  make  the  report  "  false 
in  any  material  representation." 
Compare  Whitaker  v.  Masterton,  106 
N.  Y.  277. 

2  Chap.  40,  N.  Y.  Laws  of  1848, 
sec.  15;  see  §  31,  chap.  688,  laws  of 
1892. 


8  Pier  v.  Hanmore,  86  N.  Y.  95; 
Bonnell  v.  Griswold,  89  N.  Y.  122; 
Stebbins  v.  Edmands,  12  Gray,  203. 
See  Arthur  v.  Griswold,  55  N.  Y.  401; 
Waters  v.  Quimby,  27  N.  J.  L.  296. 
But  see  Huntington  v.  Attrill,  118 
N.  Y.  365;  Hatch  v.  Attrill,  ib.  383; 
American  Credit  Indemnity  Co.  v. 
Eld,  156  Ind.  212. 

Where  directors  are  made  liable 
for  all  debts  of  the  company  con- 
tracted by  them  in  excess  of  a  cer- 
tain amount,  a  director  who  protests 
verbally  against  contracting  the  debt 
is  not  liable.  Schofield  v.  Hender- 
son, 67  Ind.  258;  Aimen  v.  Hardin, 
60  Ind.  119;  see  Raber  v.  Jones,  40 
Ind.  436.  Compare  in  regard  to  pro- 
visions of  this  kind,  White  v.  How, 
3  McLean,  111;  Cornwall  ».  East- 
ham,  2  Bush  (Ky.),  561;   Irvine  v. 

767 


§  775.]        THE    LAW   OF   PRIVATE   CORPORATIONS.  [CHAP.  XIV. 

bility  of  shareholders,1  the  action  should  be  brought  in  a  court 
having  equitable  powers,  and  on  behalf  of  all  creditors  who  are 
willing  to  share  in  the  expense. 

Thus,  a  statute  provided  that  "  if  the  indebtedness  of  the 
company  shall  at  any  time  exceed  the  amount  of  its  capital 
stock,  the  trustees  assenting  thereto  shall  be  personally  and 
individually  liable  for  such  excess  to  the  creditors  of  the 
company."  The  Federal  Supreme  Court  held  that  an  action 
at  law  could  not  be  maintained  by  one  creditor  among  many  to 
enforce  for  his  own  benefit  the  liability  thus  created ;  but  that 
the  remedy  was  in  equity,  since  the  excess,  for  which  the 
directors  were  liable,  constituted  a  fund  for  the  benefit  of  all 
the  creditors.2  Justice  Miller  said,  giving  the  opinion  of  the 
court :  "  The  remedy  for  this  violation  of  duty  as  trustees  is  in 
its  nature  appropriate  to  a  court  of  chancery.  The  powers 
and  instrumentalities  of  that  court  enable  it  to  ascertain  the 
excess  of  indebtedness  over  the  capital  stock,  the  amount  of 
this  which  each  trustee  assented  to,  and  the  extent  to  which 
the  funds  of  the  corporation  may  be  resorted  to  for  the  pay- 
ment of  the  debts ;  also,  the  number  and  names  of  the  creditors, 
the  amount  of  their  several  debts  ;  to  determine  the  sum  to  be 
recovered  of  the  trustees  and  apportioned  among  the  creditors, 
in  the  manner  which  trial  by  jury  and  the  rigid  rules  of  com- 
mon law  proceeding  render  impossible."3 


McKeon,  23  Cal.  472;  National  Bank 
v.  Paige's  Executor,  53  Vt.  452. 

1  See  §  726. 

2  Horner  v.  Heming,  93  U.  S.  228. 

3  Horner  v.  Heming,  93  U.  S.  228, 
232.  Accord,  Merchants'  Bank  v. 
Stevenson,  10  Gray,  332;  Low  r. 
Buchanan,  94  111.  76;  Buchanan b. 
Bartow  Iron  Co.,  3  111.  App.  191; 
Anderson  v.  Speers,  21  Hun,  5(58. 
See  Peele  v.  Phillips,  8  Allen,  86; 
Bond  v.  Morse,  9  Allen,  471.  But 
see  Cornwall  v.  Eastham,  2  Bush 
(Ky.),  561;  Buell  v.  Warner,  33  Vt. 
570;  Bassett  v.  St.  Alhan's  Hotel 
Co.,  47  Vt.  313.  As  to  the  form  of 
an  action  at  law,  see  Union  Iron  Co. 
0.  Pierce,  4  Bliss.  327. 

768 


It  has  been  held  that  it  is  not  nec- 
essary for  the  creditor  to  recover  a 
judgment  against  the  corporation 
before  proceeding  against  the  direct- 
ors to  enforce  a  liability  of  this  na- 
ture. Merchants'  Bank  v.  Stevenson, 
5  Allen,  398.  But  see  Kinsley  v.  Rice, 
10  Cray,  325;  Johnson  v.  Church- 
well,  1  Head  (Tenn.),  146. 

When  on  account  of  paying  a  divi- 
dend out  of  capital,  directors  are 
rendered  liable  for  the  debts  of  the 
corporation,  it  has  been  held  that 
the  corporation  need  not  be  joined 
as  defendant.  The  guilty  directors 
have  no  right  of  subrogation,  and 
no  recourse  against  the  corporation. 
Hill  v.  Frazier,  22  Pa.  St.  320. 


CHAP.  XV.]  LEGAL  RELATIONS  AMONG  SHAREHOLDERS.  [§  777. 


CHAPTER  XV. 

LEGAL  RELATIONS  AMONG   THE  SHAREHOLDERS  OF  A 
CORPORATION. 


Relations  discussed,  §  776. 

Two  classes  of  legal  relations  be- 
tween shareholders,  §§  777,  778. 

Right  of  shareholders  that  each  shall 
bear  his  proportion  of  the  corpo- 
rate burdens,  §  779. 

Releases.     Transfers,  §  780. 

Subscriptions  induced  by  fraud,  § 
781. 

Changes  in  the  corporate  constitu- 
tion, §  782. 

Contribution  among  shareholders, 
§  783. 

Where  shareholders  are  also  cred- 
itors, §  784. 

Classes  of  shareholders,  §  785. 

Rights  of  preferred  shareholders,  § 
786. 


Shares  more  fully  paid  up,  §  787. 

Equal  rights  of  shareholders,  §  788. 

Relations  between  transferrer  and 
transferee,  §  789. 

Specific  performance,  §  790. 

Indemnification  of  transferrer,  §  791. 

Fraud,  §  792. 

Warranty  by  transferrer,  §  793. 

Pledge  of  shares,  §  794. 

Validity  of  assignment  of  stock  cer- 
tificates, §  795. 

As  against  assignor's  creditors,  §  796. 

Stock  certificates  "  in  trust,"  §  797. 

Right  to  dividends  as  between  trans- 
ferrer and  transferee,  §  798. 

As  between  life-tenant  and  remain- 
der-man, §§  799-801. 


§  776.  The  legal  relations  between  individual  shareholders 
and  the  majority  acting  as  the  body  corporate,  were 
discussed  in  Chapter  IX.     It  remains  in  this  chap-    ^cu^sed 
ter  to  consider  the  relations  among  individual  share- 
holders acting  for  themselves  and  representing  only  their  own 
rights  and  interests  in  the  corporate  enterprise. 

§  777.  The  legal  relations  between  shareholders  are  of  two 
classes,  and  may  appropriately  be  treated  under  two 
general  divisions.  First,  those  which  subsist  be- 
tween shareholders,  as  it  were  indirectly,  by  reason 
of  the  relationship  sustained  by  them  towards  the 
body  corporate ;  of  which  relationship  the  general 
result  that  works  itself  out  into  relations  between  the  share- 
holders individually,  is  that  each  is  entitled  as  against  all 
others  to  share  in  the  profits  of  the  corporate  enterprise  in  the 
proportion  borne  bv  his  shares  to  the  total  number,  and  has 
49  769 


Two  classes 
of  legal 
relations 
between 
share- 
holders. 


§  779.]  THE   LAW    OF   PRIVATE   CORPORATIONS.    [CHAP.  XV. 

the  further  right,  that  each  shall  bear  a  proportionate  share  of 
whatever  liability  may  arise  out  of  the  corporate  enterprise. 
Secondly,  those  legal  relations  which  subsist  directly  between 
the  successive  holders  of  the  same  shares  of  stock,  or  between 
persons  possessing  rights  in  the  same  shares,  legal  relations 
which  have  no  reference  to  the  rest  of  the  shareholders,  and 
do  not  depend  primarily  on  a  relationship  sustained  towards 
the  corporation. 

§  778.  The  rights  and  liabilities  constituting  the  legal  re- 
lations of  the  first  class  are  as  a  usual  thing  enforceable  by 
individual  shareholders  against  each  other  only  after  some  de- 
fault or  failure  to  act  on  the  part  of  the  corporate  manage- 
ment, or  else  they  come  into  play  only  on  the  insolvency  of  the 
corporation.  But  with  legal  relations  of  the  second  class,  the 
corporate  management  has  little  or  nothing  to  do.  An  instance 
of  the  first  class  is  the  right  which  each  shareholder  has  that 
no  other  shareholder  shall  be  released  from  his  liabilities  as 
such  in  a  manner  unauthorized  by  the  corporation  constitution. 
Instances  of  the  second  class  appear  in  the  right  of  the  vendor 
or  vendee  of  shares  to  have  the  other  take  the  necessan'  steps 
to  complete  the  transfer;  or  in  the  rights  which  subsist  be- 
tween a  person  having  the  life  interest  in  certain  shares  and 
the  remainder-man. 

§  779.  It  is  the  right  of  shareholders  that  every  one  of 
Rights  of  their  number  shall  pay  over  to  the  corporate  man- 
holders  agement  a  value  in  cash  or  property  equal  to  the 
^lrbe^r  Par  va^ue  °f  the  shares  subscribed  for  by  him.1 
his  propor-  Consequently,  eveiy  agreement  between  a  subscriber 
corporate  and  the  corporate  agents  by  which  the  former  is  not 
to  pay  the  face  of  his  subscription,  is  fraudulent  and 
void  as  to  shareholders  not  consenting.^  Thus,  a  separate 
agreement  made  on  subscribing  for  shares,  whereby  the  sub- 
scriber on  surrendering  his  certificate  of  stock  is  to  receive 


i  See  §§  522a-522c. 

2  White  Mountains,  etc.,  R.  R.  Co. 
v.  Eastman,  34  N.  H.  124;  Graff  v. 
Pittsburgh,  etc.,  R.  R.  Co.,  31  Pa.  St. 
489;  Robinson  v.  Pittsburgh,  etc.,  R. 
R.  Co.,  32  Pa.  St.  334;  Miller  v. 
Hanover  Junction,  etc.,  R.  C.  Co., 
87    Pa.    St.    95;    Connecticut,   etc., 

770 


Rivers  R.  R.  Co.  v.  Bailey,  24  Vt. 
465,  476;  Jewett  v.  Valley  R'y  Co., 
34  Ohio  St.,  601,  609.  See  Bailey  v. 
Pittsburgh,  etc.,  Gas-Coal  Co.,  69  Pa. 
St.  3134;  Wood  v.  Pearce,  2  Disney 
(Ohio),  411.  Compare  Buford  v. 
Keokuk  Northern  Line  Packet  Co., 
69  Mo.  611. 


CHAP.  XV.]  LEGAL  RELATIONS  AMONG  SHAREHOLDERS.  [§  780. 


back  the  part  of  his  subscription  already  paid,  and  to  be  re- 
leased from  further  payments,  is  a  fraud  on  other  shareholders : 
and  when  on  the  insolvency  of  the  corporation,  the  receiver  is 
enforcing  subscriptions  for  the  benefit  of  creditors,  and  is  not 
including  as  shareholders  the  fraudulent  subscribers,  any  share- 
holder may  bring  a  bill  for  himself  and  others  who  may  join, 
to  compel  such  subscribers  to  assume  their  liabilities  as  share- 
holders.1 

§  780.  Likewise  is  it  as  essentially  a  right  of  shareholders 
as  of  creditors  that  no  shareholder  shall  withdraw 
or  be  released  from  any  liability  arising  out  of  the    Transfers 
corporate  enterprise,  except  in  accordance  with  the 
constitution  of  the  corporation  ; 2  and,  except  in  accordance 
with  that  constitution,  it  is  beyond  the  powers  of  the  body 
corporate  to  release  any  of  their  number.3     But  it  would  seem 
that  a  shareholder  whom  the  body  corporate  had  voted  to 
release,  might,  under  some  circumstances,  have  the  right  to  be 


1  Melvin  v.  Lamar  Ins.  Co.,  80  111. 
446.  But  an  agreement  among 
subscribers  that  one  of  their  num- 
ber who  subscribed  as  "trustee," 
shall  not  be  held  liable  on  his  sub- 
scription, is  valid  as  to  such  sub- 
scribers. Winston  v.  Dorsett  Pipe 
Co.,  129  111.  64. 

2  Spackman  ».  Evans,  L.  R.  3  H.  L. 
171;  Dixon's  Case,  L.  R.  5  Ch.  79; 
Gill  v.  Balia,  72  Mo.  424;  Bedford  R. 
R.  Co.  v.  Bowser,  48  Pa.  St.  29.  See 
Houldsworth  v.  Evans,  L.  R.  3  H.  L. 
263;  Miller  v.  Hanover  Junction  R.  R. 
Co.,  87  Pa.  St.  95.  But  see  Shoe- 
maker v.  Washburn  Lumber  Co.,  97 
Wis.  585. 

A  decree  is  objectionable  which 
confers  on  the  receiver  discretionary 
powers  to  compromise  witli  share- 
holders; for  each  shareholder  has  a 
vested  right  in  the  subscription  con- 
tract of  every  other  shareholder; 
and  it  is  beyond  the  power  of  a  court 
of  equity  to  invest  any  one  with  a 
discretionary  right  to  release  it.  At 
least  this  cannot  be  done  by  a  de- 


cree to  which  all  the  shareholders 
are  not  parties.  Chandler  v.  Brown, 
77  111.  333. 

3  An  arrangement  allowing  mem- 
bers of  a  company  to  retire  under 
certain  conditions  agreed  to  by  a 
public  meeting  of  the  shareholders, 
convened  after  due  notice  to  all  the 
shareholders,  is  not  in  itself  valid 
unless  made  in  accordance  with  the 
provisions  of  the  deed  of  settlement; 
and  if  not  assented  to  directly  or  in- 
directly, after  due  notice,  by  all  the 
shareholders,  it  may  be  impeached 
by  any  one  of  them.  But  if  the 
means  of  notice  to  all  appear  suffi- 
cient, so  as  to  raise  a  clear  presump- 
tion of  knowledge  and  acquiescence, 
and  the  arrangement  is  left  unim- 
peached  for  a  great  number  of  years, 
the  shareholder  who  has  been  al- 
lowed to  retire,  and  whose  name  has 
been  removed  from  the  lists  of  the 
company,  will  be  held  to  be  relieved 
from  his  liability  as  a  shareholder. 
Evans  ».  Smallcomb,  L.  R.  3  H.  L. 
249.     See  §§  549,  550. 

771 


§  782. J         THE   LAW   OF   PRIVATE   CORPORATIONS.    [CHAP.  XV. 


Subscrip- 
tions in- 
duced by 
fraud. 


indemnified  by  those  who  voted  to  release  him  from  any  lia- 
bility in  respect  of  the  corporate  enterprise.1  A  transfer  of 
shares  made  to  an  irresponsible  person  when  the  corporation  is 
insolvent,  for  the  purpose  of  escaping  liability,  is  a  fraud  on 
the  other  shareholders,  who  will  have  to  contribute  more  if  the 
transfer  is  held  valid,2  just  as  much  as  such  a  transfer  would 
be  a  fraud  on  creditors.3 
§  781.  If  a  person  is  induced  by  a  fraud  of  the  corporate 
agents,  for  which  the  corporation  is  responsible,  to 
subscribe  for  shares,  he  may  rescind  his  contract  by 
acting  promptly.  But  it  would  be  unjust  to  allow 
him  to  withdraw  to  the  injury  of  others  who  have 
subsequently  subscribed  for  shares  or  contracted  with  the  cor- 
poration on  the  faith  of  his  subscription.  "  It  would  be  ex- 
tremely difficult  to  maintain,  upon  general  principles  of  law, 
that  a  private  fraud  between  the  original  subscribers  and  com- 
missioners, could  be  permitted  to  be  set  up,  to  the  injury  of 
subsequent  purchasers,  who  become  honafide  holders,  without 
any  participation  or  notice  of  the  fraud."  4 

§  782.  Just  as  it  is  beyond  the  powers  of  the  body  corporate 
to  release  any  shareholder  from  liability  attaching 
to  him  under  the  constitution  of  the  corporation,  so 
it  is  also  beyond  the  powers  of  the  majority  to 
increase  the  liabilitv  of  shareholders  to  creditors.5 


Changes 
in  the 
corporate 
constitu- 
tion. 


1  In  pursuance  of  a  resolution 
passed  at  an  extraordinary  meeting 
of  an  unincorporated  company,  a 
shareholder  sold  his  shares  to  the 
directors,  upon  the  terms  that  ho 
should  withdraw  from  the  company 
and  be  no  longer  liable  for  any  of  its 
debts.  No  power  to  enter  into  such 
an  arrangement  was  contained  in  the 
deed  of  settlement.  It  was  held  that 
the  shareholder  was  still  liable  for 
the  debts  of  the  company,  and  was 
properly  included  in  the  list  of  con- 
tributories.  Lord  Chancellor  Cot- 
tenham,  however,  intimated  that 
there  might  be  equities  between  such 
shareholder  and  any  shareholder 
who  could  be  shown  to  have  assented 
to  the  release.     Ex  parte  Morgan,  1 

772 


Ha.  &  Tw.  320.     See  Zulueta's  Claim, 
L.  R.  5  Ch.  444. 

2  See  Nathan  v.  Whitlock,  9  Paige 
(N.  Y.),  152;  Everhart  v.  West- 
chester, etc.,  R.  R.  Co.,  28  Pa.  St. 
339;  Chouteau  Spring  Co.  v.  Harris, 
20  Mo.  382,  390;  Johnson  v.  Laflin, 
6  Cent.  L.  J.  131;  S.  C,  5  Dill.  76; 
Augell  and  Ames  on  Corp.,  §  535. 

3  See  §  749. 

Minor  v.  Mechanics'  Bank,  1  Pet. 
46,  66,  opinion  of  the  court  per 
Story,  J.  See  §§  523-525.  The 
English  cases,  however,  are  not  in 
accord  with  this  view.  See  Smith's 
Case,  L.  R.  2  Ch.  604. 

5  Trustees  v.  Flint,  13 Mete.  (Mass.) 
539.     See  §  583. 


CHAP.  XV.]  LEGAL  RELATIONS  AMONG  SHAREHOLDERS.   [§  783. 

And  it  would  seem  that  a  change  in  the  corporate  constitu- 
tion, procured  by  a  majority  from  the  legislature,  would  release 
a  dissenting  shareholder  from  his  obligation  to  pay  calls,  at 
least  so  far  as  regards  the  rights  of  the  members  comprising 
the  majority  which  procured  the  change.1 

§  783.  When  the  condition  of  the  corporate  affairs  is  such 
that  liability  to  creditors  for  unpaid  subscriptions   Contribu. 
arises,  or  where   shareholders  are   affected    with  a   tion 

.    .  among 

statutory  liability,  either  several  or  joint  and  sev-  share- 
eral,  and  one  shareholder  is  compelled  to  pay  a  debt 
of  the  corporation,  he  is  in  all  cases  entitled  to  contribution 
from  the  other  shareholders,  to  an  extent  that  will  equalize 
among  them  all  in  proportion  to  the  amount  of  stock  held  by 
them  respectively,  the  corporate  burdens.2  "  The  right  of 
contribution  grows  out  of  the  organic  relation  among  the 
stockholders.  As  between  them  and  the  creditors,  each  stock- 
holder is  severally  liable  [if  the  statute  so  declare  him]  to  all 
the  creditors ;  as  between  themselves,  each  stockholder  is  bound 
to  pay  in  proportion  to  his  stock." 3 

It  has  been  held,  however,  that  one  shareholder  who  has  paid 
a  debt  of  the  corporation,  is  not  entitled  to  contribution  from 
the  other  shareholders,  until  he  has  exhausted  the  property  of 
the  corporation  that  is  bound  to  reimburse  him.4  And  if  the 
liability  on  which  the  shareholder  has  been  held  to  a  cred- 


1  See  Hartford  and  N.  H.  R.  R. 
Co.  v.  Croswell,  5  Hill,  383;  §§530 
et  seq. 

2  Aspinwall  v.  Torrance,  1  Lans. 
(N.  Y.)  381;  Briuham  v.  Wellers- 
burg  Coal  Co.,  47  Pa.  St.  43;  Weber 
v.  Fickey,  47  Md.  196.  See  Mat- 
thews v.  Albert,  24  Md.  527;  Masters 
v.  Rossie  Lead  M'g  Co.,  2  Sandf. 
Ch.  (N.  Y.)  301;  Hadley  v.  Russell, 
40  N.  H.  109;  Erickson  v.  Nesmith, 
46  N.  H.  371;  Wincock  v.  Turpin, 
96  111.  135;  Van  Pelt  v.  Gardner,  54 
Neb.  702;  Bennison  v.  McConnell,  56 
Neb.  46. 

Where  a  corporation  is  not  fully 
organized,  so  that,  under  the  Mis- 
souri law  (see  Hart  v.  Salisbury,  55 


Mo.  310;  §  739),  the  shareholders  re- 
main personally  liable  for  the  cor- 
porate debts,  and  certain  sharehold- 
ers pay  those  debts,  they  are  entitled 
to  contribution,  even  from  those  who 
have  paid  up  their  stock.  Richard- 
son v.  Pitts,  71  Mo.  128.  It  is  not 
necessarily  essential  that  the  pay- 
ment should  have  been  made  under 
compulsion  of  suit.  Redington  v. 
Cornwell,  90  Cal.  49. 

3  Umstead  v.  Buskirk,  17  Ohio 
St.  113,  118,  per  White,  J. 

4  Gray  v.  Coffin,  9  Cush.  192.  But 
in  this  case  the  plaintiff  held  for 
his  security  a  mortgage  on  the  cor- 
porate property,  which  he  had  not 
enforced. 

773 


§  786.]         THE   LAW    OF    PRIVATE    CORPORATIONS.    [CHAP.  XV. 

itor  is  statutory  and  the  statute  provides  a  remedy  whereby 
shareholders  shall  obtain  contribution  from  each  other,  the 
statutory  remedy  must  be  followed.1  There  is  no  implied 
promise  on  the  part  of  shareholders  to  idemnify  others,  who, 
at  the  request  of  the  former,  became  sureties  for  the  corpora- 
tion.2 

§  784.  The  relations  among  shareholders  may  be  compli- 
Where  ^a.ted  by  a  shareholder  being  also  a  creditor  of  the 
share-  corporation.     In  such  case  those  rights  and  liabili- 

holders  are  - 

also  cred-  ties  of  the  person  holding  such  double  status  which 
appertain  to  him  as  shareholder  must  be  regarded  as 
distinct  from  the  rights  which  belong  to  him  as  creditor. 
Ordinarily  such  a  person  can  bring  no  action  to  enforce  his 
rights  as  creditor  in  a  form  that  will  render  it  impracticable 
to  discriminate  between  the  two  positions  held  by  him  ;  nor 
can  an  action  by  such  a  person  suing  as  creditor  be  maintained 
in  a  court  which  has  not  the  capacity  to  adjust  his  rights  and 
liabilities.3 

§  785.  In  an  honestly  conducted  corporation  the  interests 
of  all  shareholders  will  for  the  most  part  coincide, 

Classes  of  , 

share-  unless  there  are  different  classes  or    shareholders. 

A  separation  of  shareholders  into  classes  with  some- 
what divergent  interests  may  be  occasioned  by  the  issue  of 
preferred  shares,  or  might  possibly  arise  from  the  fact  that 
part  of  the  shareholders  own  fully  paid-up  shares,  while  the 
shares  of  others  are  not  fully  paid  up. 

§  786.  Preferred  shares  are  usually  issued  to  obtain  further 
capital  for  the  prosecution  of  the  corporate  enterprise ;  and 

the  rights  of  the  holders  as  against  the  holders  of 
preferred  common  shares  depend  on  the  terms  of  the  issue  of 
holders.        tne  preferred  shares.5     The  usual  provision  included 

in  those  terms,  the  one,  in  fact,  which  constitutes 
shares  preferred  shares,  is  that  the  holders  shall  receive  from 

&  Cres.   419.     Compare  Schaeffer  v. 
Phoenix   Brewery  Co.,  4  Mo.    App. 
115.     See  §  733. 
4  See  §§  559a,  5596. 


i  O'Reilly  v.  Bard,  105  Pa.  St.  569; 
Brinham  v.  Wellersburg  Coal  Co., 
47  Pa.  St.  43. 

2  Larson  v.  Dayton,  52  Iowa,  597. 

8  See  Thayer  v.  Union  Tool  Co.,  4 

Gray,  75;  Bailey  v.   Bancker,  3  Hill 

(N.  Y.),  188;  Smith  v.  Huckabee,  53 

Ala.  191;  Milburn  v.  Codd,  7  Barn. 

774 


5  For  the  power  of  a  corporation 
to  issue  preferred  shares,  see  §§  571, 
572. 


CHAP.  XV.]  LEGAL  RELATIONS  AMONG  SHAREHOLDERS.  [§  787. 


the  profits  of  the  corporate  business  a  certain  amount  of  divi- 
dends before  the  holders  of  common  stock  shall  receive  any- 
thing.1 On  the  other  hand,  preferred  shareholders  are  not 
creditors  of  the  corporation,  and,  in  the  absence  of  express 
provision,  are  entitled  on  the  winding  up  of  the  business  to 
receive  the  principal  of  their  shares  only  in  the  same  proportion 
with  the  holders  of  common  stock.2 

It  is  apparent  how  the  interests  of  preferred  shareholders 
may  differ  from  those  of  the  holders  of  common  shares.  For 
instance,  one  course  of  policy  may  insure  for  the  corporation 
sufficient  profits  to  pay  the  dividends  on  the  preferred  stock ; 
while  another  course,  proper  but  more  hazardous,  will  probably 
result  in  profit  sufficient  to  pay  dividends  on  all  the  stock, 
common  as  well  as  preferred.  Evidently  it  will  be  for  the 
interests  of  the  preferred  shareholders  to  have  the  corporation 
pursue  the  former  course. 

§  787.  Again,  a  divergence  of  interest  might  arise  from  the 
fact   that   some   shares  in  the  corporate   stock   are    _. 

itt,  .       Shares 

fully  paid  up,  while  others  are  not.  W  hen  there  is  more  fully 
no  special  provision  regulating  the  matter,  it  would  *  p' 
seem  in  such  case  that  any  dividends  earned  should  be  dis- 
tributed among  the  shareholders,  not  in  proportion  to  the 
nominal  amount  of  stock  held  by  them,  but  according  to  the 
amounts  of  capital  they  have  actually  paid  in.3  But,  however 
this  may  be,  undoubtedly  on  the  winding  up  of  the  company 
and  the  distribution  of  its  assets,  each  shareholder  is  entitled 


1  Unless  there  is  some  agree- 
ment or  enactment  to  the  contrary, 
preference  shareholders  are  entitled 
to  be  paid  out  of  the  profits  of 
the  company  their  dividends  to  the 
amount  guaranteed,  before  the  other 
shareholders  receive  anything;  so 
that  if  the  profits  divisible  at  any 
given  time  are  not  sufficient  to  pay 
the  guaranteed  dividends  in  full,  the 
deficiency  must  be  made  good  out 
of  the  next  divisible  profits;  the  ordi- 
nary shareholders  taking  no  profits 
until  all  arrears  of  guaranteed  divi- 
dends have  been  paid  to  the  prefer- 
ence  shareholders."     2    Lindley  on 


Part.,  796;  ace.  Boardman  v.  Lake 
Shore,  etc.,  Ry.  Co.,  84  N.  Y.  157. 
See  §  564. 

2  In  re  London  Indian  Rubber  Co., 
L.  R.  5  Eq.  519;  McGregor  v.  Home 
Ins.  Co.,  33  N.  J.  Eq.  181.  The  stat- 
ute may  provide  that  preferred  stock 
shall  be  a  lien  on  the  corporate  prop- 
erty. Heller  v.  Marine  Bank,  89  Md. 
002. 

3  Still  this  is  by  no  means  clear. 
"Where  there  are  several  classes  of 
shares  on  which  unequal  sums  have 
been  paid  up,  the  profits  of  the  com- 
pany ought  prima  facie  to  be  divided 
amongst  the  shareholders  in  propor- 

775 


§  788.]         THE   LAW    OF    PRIVATE   CORPORATIONS.   [CHAP.  XV. 


Equal 
rights  of 
share- 
holders. 


to  receive  in  proportion  to  the  amount  which  he  has  actually 
contributed  for  corporate  purposes.1 

§  78S.  Aside  from  considerations  arising  from  the  circum- 
stance that  part  of  the  shares  are  preferred,  or  that 
a  part  are  more  fully  paid  up  than  others,  every 
shareholder  is  entitled,  both  in  the  distribution  of 
profits  and  on  the  winding  up  of  the  corporation,  to 
participate  in  proportion  to  the  number  of  shares  held  by  him. 
"  Prima  facie  all  stockholders  at  any  particular  period  are 
equally  interested  in  the  property  and  business  of  a  corpora- 
tion. They  assume  the  same  liabilities,  are  entitled  to  the 
same  rights,  and  are  equal  owners  of  the  property.  When, 
therefore,  the  directors  undertake  to  distribute  among  the 
stockholders  any  portion  of  the  funds  or  property  of  a  corpora- 
tion, whether  it  be  called  profits  or  not,  all  stockholders  are 
entitled  to  an  equal  share  in  the  fund,  proportionate  to  their 
stock ;  whether  they  have  been  stockholders  for  a  longer  or 
shorter  period.  Unless  the  charter  give  to  the  directors  power 
to  discriminate  between  stockholders  at  different  periods  in 
the  distribution  of  profits,  they  are  all  entitled  to  share 
therein."  2  Accordingly,  at  the  suit  of  a  minority,  a  court 
will  restrain  the  majority  from  appropriating  to  themselves  the 
assets  of  the  corporation,  or  from  obtaining  advantages  not 
shared  in  by  the  minority.3  Agreements,  however,  entered 
into  by  a  group  of  shareholders  who  hold  a  majority  of  stock, 
whereby  they  agree  to  act  together  in  influencing  the  corporate 


tion  to  the  sums  paid  up  on  their 
respective  shares,  and  not  in  propor- 
tion to  the  nominal  values  of  such 
shares."  2  Lindley  on  Part.,  797. 
See  Somes  v.  Currie,  1  K.  &  J.  605; 
Inre  Hodges  Distillery  Co.,  Ex  parte 
Maude,  L.  R.  6  Ch.  51. 

1  Hartman  v.  Insurance  Co.,  32 
Gratt.  (Va. )  242.  In  proportion  to 
his  "in-put,"  as  it  is  expressed  in 
this  case. 

2  Jones  v.  Terre  Haute,  etc.,  R.  R. 
Co.,  29  Barb.  353,  357,  per  Ingraham, 
J.;  S.  C,  affd  57  N.  Y.  196.  Ace. 
Jackson's  Admr's  v.  Newark  Plank 
Road  Co.,  31  N.  J.  L.  277. 

776 


3  Menier  v.  Hooper's  Teleg'h 
Works,  L.  R.  9  Ch.  350.  See  §§  558, 
559.  Compare  Bailey  v.  Citizens' 
Gas  Light  Co.,  27  N.  J.  Eq.  196. 

Certain  parties,  fraudulently  repre- 
senting that  the  entire  assets  of  a 
corporation  belonged  to  them,  pro- 
cured a  decree  of  a  court  dissolving 
the  corporation,  and  acquired  pos- 
session of  its  assets.  They  were  held 
as  trustees  ex  maleficio  for  bona  fide 
shareholders.  Bailey's  Appeals,  96 
Pa.  St.  253.  When  a  corporation  is  be- 
ing wound  up  on  the  expiration  of  its 
charter,  and  its  real  estate  is  sold  by 
decree   of  the   court,   one   party  of 


CHAP  XV.]  LEGAL  RELATIONS  AMONG  SHAREHOLDERS.  [§  789. 


management,  may  be  upheld  so  long  as  the  interests  of  the 
other  shareholders  are  not  fraudulently  or  unfairly  sacrificed  ; 
and  even  then  will  not  be  set  aside  at  the  instance  of  the 
parties  to  them,  but  only  on  complaint  of  some  innocent 
shareholder  whose  interests  are  injured.1 

§  789.   Coming  now  to  the  second  class  of  legal  relations 
between  shareholders,  it  may  be  remarked  that  many   Relations 
of  the  rules  regulating  the  sale  of  personal  property   between 

transferrer 

apply  to  the  relations  between  the  transferrer  and  and  trans- 
transferee  of  shares.2  The  transferee  of  a  certificate 
of  stock  occupies  the  position  of  the  assignee  of  a  chose  in 
action  which  for  most  purposes  is  negotiable.3  A  reciprocal 
agreement  to  transfer  and  accept  a  transfer  of  shares  is  not  a 
nudum  pactum /  but  the  mutual  promises  constitute  good  con- 
siderations for  each  other  :  and  this,  although  nothing  has  been 
paid  on  the  shares.4 


shareholders  may  purchase  the  same 
to  benefit  adjoining  property  held 
by  them.  This  is  no  fraud  on  the 
other  shareholders.  Pewabic  Min- 
ing Co.  v.  Mason,  145  U.  S.  349. 

i  Faulds  v.  Yates,  57  111.  416.  See 
Smith  v.  San  Fran.,  etc.,  Ry.  Co.,  115 
Cal.  584;  Mobile  &  O.  R.  R.  Co.  v. 
Nicholas,  98  Ala.  92.  Compare  Foil's 
Appeal,  91  Pa.  St.  434;  Riggs  v. 
Railway  Co.,  191  Pa.  St.  298;  Bright- 
man  v.  Bates,  175  Mass.  105;  post, 
§  790.  Compare  Moses  v.  Scott,  84 
Ala.  608 ;  Chapman  v.  Bates,  60  N.  J. 
Eq.  9;  Clowes  v.  Miller,  60  N.  J.  Eq. 
179.  But  see  Woodruff  v.  Went- 
worth,  133  Mass.  309;  Guernsay  v. 
Cook,  120  Mass.  501 ;  Harris  v.  Scott, 
67  N.  H.  437;  §  577  note,  and  §§  559a, 
5596.  The  agreement  was  held  in- 
valid in  Harvey  v.  Imp.  Co.,  118  N.  C. 
693.  Equity  will  not  specifically  en- 
force such  agreements.  Gage  v. 
Fisher,  5  North  Dakota,  297. 

2  A  person  may  sue  another  for  the 
conversion  of  shares  of  stock.  Kuhn 
r.  McAllister,  1  Utah,  273;  Nabring 
v.  Bank  of  Mobile,  58  Ala.  204.  Com- 
pare Reid  v.  Commer'l  Ins.  Co.,  32 


La.  Ann.  546.  In  England  a  contract 
for  the  sale  of  shares  is  held  not  to 
be  a  contract  for  the  sale  of  soods, 
wares,  or  merchandise,  within  the 
statute  of  frauds.  Duncuft  v.  Al- 
brecht,  12  Simons,  189.  But  in  Amer- 
ica the  reverse  is  the  law.  Tisdale 
v.  Harris,  20  Pick.  (Mass.)  9;  Baltzen 
v.  Nicolay,  53  N.  Y.  467;  North  v. 
Forest,  15  Conn.  400;  Pray  v.  Mit- 
chell, 60  Me.  430;  Colvin  v.  Williams, 
3H.  &  J.  (Md.)  38. 

3  Stock  may,  however,  be  held  by 
a  valid  title  without  a  certificate, 
which  is  but  uidicia  of  title,  and  the 
right  to  the  stock  is  in  the  nature  of 
a  non-negotiable  chose  in  action. 
Accordingly,  stock  certificates  issued 
by  order  of  a  Confederate  court, 
after  confiscation  of  the  shares  of 
"  alien  enemies,"  are  void,  and  no 
better  in  the  hands  of  a  transferee 
than  in  those  of  the  original  holder, 
as  against  the  rightful  owner  of  the 
stock.  Dewing  v.  Perdicaries,  96 
U.  S.  193. 

*  Cheale  v.  Kenward,  3  De  G.  &  J. 
27.  A  memorandum  of  a  contract 
to  purchase  shares   signed    by   the 

777 


§  790.]         THE   LAW   OF   PRIVATE   CORPORATIONS.  [CHAP.  XV. 


§  790.  Further,  a  contract  for  the  sale  of  shares  will  be 
Specific  specifically  enforced  in  equity,  if  it  is  not  uncon- 
perform-  scionable '  or  against  public  policy,  when  from  the 
scarcity  of  the  shares  or  other  reasons  the  purchaser 
cannot  go  into  the  market  and  purchase  similar  ones.2  But  if 
shares  similar  to  those  which  are  the  subject  of  the  sale,  are 
readily  purchasable  in  the  market,  equity  will  not,  as  a  general 
rule,  specifically  enforce  the  contract ;  but  will  leave  the  parties 
to  their  remedies  at  law.3  And  equity  will  pursue  a  similar 
course  when  for  any  reason  the  contract  for  the  sale  of  the 
shares  is  against  public  policy.  Thus  it  has  been  decided  in 
Pennsylvania  that,  for  reasons  of  public  policy,  equity  will  not 
decree  the  specific  performance  of  a  contract  to  sell  shares  in 
the  stock  of  a  national  bank,  the  object  of  the  purchase  being 
to  obtain  the  control  of  the  bank.4  "  "While  the  legal  right  of 
the  complainant  to  buy  up  sufficient  of  the  stock  of  this  bank 
to  control  it  in  the  interest  of  himself  and  his  friends  may  be 
conceded,  it  is  by  no  means  clear  that  a  court  of  equity  will 
lend  its  aid  to  help  him.  A  national  bank  is  a  quasi  public 
institution.  .  .  .  Were  we  to  affirm  this  decree,  I  see  no  rea- 
son why  we  may  not  be  called  upon  to  use  the  extraordinary 
powers  of  a  court  of  equity  to  assist  in  miscellaneous  stock 
jobbing  operations." 5 


purchaser,  is  an  admission  of  the 
existence  of  the  corporation.  Mann 
v.  Williams,  143  Mass.  394. 

1  See  Mississippi  and  M.  R.  R.  Co. 
v.  Cromwell,  91  U.  S.  643. 

2  Johnson  v.  Brooks,  93  N.  Y.  337; 
White  v.  Schuyler,  1  Abb.  Pr.  N.  S. 
(N.  Y.)  300;  S.  C,  31  How.  Pr. 
(N.  Y.)  38;  Todd  v.  Taft,  7  Allen,- 
371;  Cheale  v.  Kenward,  3  De  G. 
&  J.  27;  Duncuft  v.  Albrecht,  12 
Simons,  189;  Moses  v.  Scott,  84  Ala. 
608;  compare  C hater  v.  San  Fran- 
cisco Sugar  Refining  Co.,  19  Cal.  219; 
Cushman  v.  Thayer  M'f'g  Co.,  76 
N.  Y.  308.  Especially  will  equity 
specifically  enforce  a  transfer  in  the 
course  of  enforcing  a  trust.  Coles 
v.  Whitman,  10  Conn.  121;  Draper  v. 
Stone,  71  Me.  175.     Compare  Wonson 

778 


v.  Fenno,  129  Mass.  405;  Colquhoun 
v.  Courtenay,  43  L.  J.  Eq.  338;  John- 
son v.  Brooks,  supra. 

8  Ross  v.  Union  Pac.  Ry.  Co.,  1 
Woolw.  26.  But  see  Ashe  o.  John- 
son, 2  Jones  Eq.  (N.  C.)  149.  Like- 
wise the  specific  transfer  or  delivery 
of  particular  shares,  rather  than 
others,  will  not  be  enforced;  all 
being  alike.  Hardenbergh  v.  Bacon, 
33  Cal.  356;  Hubbell  v.  Urexel  (U.  S. 
Cir.  Ct.  Eastern  Dist.  of  Pa. ),  21  Am. 
Law  Reg.  (N.  S.)  452.     See  §  794. 

4  Foil's  Appeal,  91  Pa.  St.  434. 
Compare  Faulds  v.  Yates,  57  111.  416; 
§788. 

5  Foil's  Appeal,  91  Pa.  St.  434, 
437.  Opinion  of  the  court  per  Pax- 
son,  J.  See  Gage  v.  Fisher,  5  North 
Dakota,  297. 


CHAP.  XV.]  LEGAL  RELATIONS  AMONG  SHAREHOLDERS.  [§  792. 


If  the  transfer  of  shares  forms  part  of  a  contract  that  equity 
will  specifically  enforce,  as,  for  instance,  a  contract  for  the 
sale  of  land,  equity  will  specifically  enforce  the  transfer  in  the 
course  of  enforcing  the  main  contract.1  On  the  other  hand,  if 
the  contract  to  transfer  shares  is  part  of  a  contract  which  equity 
cannot  or  will  not  specifically  enforce,  the  transfer  of  shares 
will  not  be  enforced  specifically.2 

§  791.  The  purchaser  is  not  the  only  party  to  the  contract 
who  is  entitled  to  its  specific  performance.  When 
any  liability  is  connected  with  the  shares,  either  for  cation  of  " 
unpaid  subscriptions  or  on  account  of  some  statute  trausferrer- 
creating  individual  liability  on  the  part  of  shareholders,  the 
vendor  has  the  right  to  have  the  vendee  specifically  perform 
the  contract,  and  register  himself  as  owner  of  the  shares,  in 
order  that  the  vendor  may  be  freed  from  liability.3  And  at  all 
events  after  a  valid  sale  has  been  made,  the  vendee  is  bound  to 
indemnify  the  vendor  from  all  liability  as  to  future  calls,4  as 
well  as  from  liability  created  by  statute.5 

§  792.  If  the  transferrer  is  guilty  of  such  misrepresenta- 
tions or  concealments  as  would  entitle  the  purchaser    „ 

j-  i  i  i    "  .  Fraud. 

of  personal  property  to  have  the  sale  set  aside,  the 
transferee  will  be  discharged  from  his  agreement  to  purchase,6 
or  he  may  hold  to  his   bargain  and  sue  the  transferrer  for 
damages.7 


1  Leach  v.  Fobes,  11  Gray,  506; 
Bissell  v.  Farmers',  etc.,  Bank,  5 
McLean,  495. 

2  Ross  v.  Union  Pac.  R'y  Co.,  1 
Woolw.  26;  Danforth  v.  Philadelphia 
and  C.  M.  R'y  Co.,  30  N.  J.  Eq.  12; 
Fallon  v.  Railroad  Co.,  1  Dill.  121. 

3  Paine  v.  Hutchinson,  L.  R.  3  Eq. 
257;  S.  C,  aff'd  L.  R.  3  Ch.  388; 
Shepherd  v.  Gillespie,  L.  R.  5  Eq. 
293;  Walker  v.  Bartlett,  2  Jur.  N.  S. 
643;  S.  C,  18  C.  B.  845. 

*  Hutzler  v.  Lord,  64  Md.  534; 
Shepherd  v.  Gillespie,  supra;  Walker 
v.  Bartlett,  supra ;  Wynne  v.  Price, 
3DeG.  &  Sm.  310;  Cruse  v.  Paine, 
37  L.  J.  Eq.  711;  Evans  v.  Wood,  ib. 
159;  Hodgkinson  v.  Kelly,  ib.  837; 
Hawkins  v.  Maltby,  L.   R.  4  Ch.  200; 


Castellan  o.  Hobson,  L.  R.  10  Eq.  47. 
Contra  and  semble  overruled  by  above 
cases.  Humble  v.  Langston,  7  M.  & 
W.  517. 

5  Wheeler  v.  Faurot,  37  Ohio  St. 
26;  Brown*.  Hitchcock,  30  Ohio  St. 
667.  These  were  instances  of  liabil- 
ity created  by  statute  which  was 
held  to  attach  to  shareholders  who 
were  such  at  the  time  when  the  debt 
was  contracted  by  the  corporation. 
See  §§  718  et  seq. 

6  See  Fosdick  v.  Sturges,  1  Biss. 
255.  If,  however,  the  transferee's 
name  is  registered  as  a  shareholder, 
the  rights  of  creditors  or  other  share- 
holders might  intervene. 

7  Riggs  v.  Tayloe,  2  Cranch  Cir. 
Ct.  687;  McClure  v.    Central   Trust 

779 


§  794.]         THE    LAW    OF    PRIVATE   CORPORATIONS.    [CHAP.  XV. 


§  793.  A  party  selling  as  his  own  personal  property  of 
which  he  is  in  possession,  impliedly  warrants  his 
by  trans-  title  to  the  thing  sold.1  This  doctrine  applies  to  the 
sale  of  such  choses  in  action  as  shares  of  stock.  The 
certificate  is  the  evidence  of  ownership,  and  if  the  certificate 
is  forged,  or  the  holder  is  not  a  bona  fide  holder,  and  from  the 
circumstances  transfers  no  valid  claim  as  against  the  corpora- 
tion, he  will  be  liable  to  his  vendee  on  this  implied  warranty 
of  title.  For  his  possession  of  the  certificate  is  as  to  the 
vendee  possession  of  the  stock.  But  when  the  holder  is  such 
in  good  faith,  and  the  certificate  is  in  the  usual  form,  regular 
on  its  face,  sealed  with  the  genuine  corporate  seal,  and  issued 
by  the  duly  constituted  officers  of  the  corporation,  the  vendor's 
warranty  does  not  cover  the  case,  but  the  vendee,  if  there  is 
anything  wrong  with  the  stock,  has  a  remedy  for  damages 
against  the  corporation.2 

§  794.  It  has  been  held  that,  in  cases  of  pledge,  the  pledgee 
must  be  put  into  possession  of  the  thing  pledged,  or 
shares6  of  if  that  be  a  claim,  the  evidence  of  the  obligation 
must  be  delivered,  and,  accordingly,  that  shares  can- 
not be  pledged  unless  they  are  evidenced  by  certificates,  which 
must  be  delivered  to  the  pledgee.3  In  the  absence  of  specific 
agreement  to  the  contrary,  the  pledgee  of  shares  is  entitled  to 
have  them  transferred  to  his  own  name  on  the  books  of  the 
company,  and  when  such  transfer  is  made,  he  is  not  bound  to 


Co.,  165  N.  Y.  108.  A  person  who 
agrees  to  purchase  shares  of  a  share- 
holder at  a  future  date  certain  can- 
not plead,  that  before  that  date  the 
company  mortgaged  it?  road  or  con- 
solidated with  another,  in  pursuance 
of  powers  contained  in  its  charter. 
Noyes  v.  Spaulding,  27  Vt.  420.  A 
transfer  of  shares  fraudulently  pro- 
cured from  the  owner  when  drunk 
may  be  set  aside.  Thackrab  v. 
Haas,  119  U.  S.  499. 

1  A  person  selling  shares  does  not 
impliedly  warrant  that  the  corpora- 
tion is  a  corporation  de  jure,  but 
only  de  facto.  Harter  v.  Eltzroth, 
111  Ind.  159. 
780 


2  People's  Bank  v.  Kurtz,  99  Pa. 
St.  344.  See  §§  592  et  seq.  The 
transferrer  of  shares  does  not  im- 
pliedly warrant  the  corporation's 
title  to  its  property,  nor  is  there 
any  implied  warranty  to  that  effect 
when  the  corporation  is  itself  the 
nominal  transferrer,  if  it  is  only 
the  medium  through  which  its  then 
shareholders  transfer  their  shares  to 
the  transferee.  State  of  Louisiaua 
v.  North  Louisiana  &  T.  R.  R.  Co., 
34  La.  Ann.  947. 

3  Lallande  v.  Ingram,  19  La.  Ann. 
364.  Compare  Cherry  v.  Frost,  7  Lea 
(Tenn.),  1. 


CHAP.  XV.]  LEGAL  RELATIONS  AMONG  SHAREHOLDERS.  [§  795. 

retain  the  identical  shares  pledged,  provided  he  keep  on  hand 
a  number  of  similar  shares  sufficient  to  answer  the  pledgor's 
demand  on  repayment  of  the  loan.1  It  is  held,  moreover,  that 
a  pledgor  of  shares  is  not  entitled  to  an  injunction  restraining 
the  pledgee,  to  whose  name  the  shares  have  been  transferred 
on  the  books,  from  voting  on  them,  at  least  not  if  the  complaint 
contain  only  allegations  to  the  effect  that  the  pledgee  is  voting 
the  shares  so  as  to  subserve  the  interests  of  another  corporation, 
and  that  it  is  greatly  against  the  pledgor's  interest  to  allow  the 
pledgee  to  vote  them.2 

§  795.  Certificates  of  stock,  even  those  bearing  on  their  face 
such  a  phrase  as  "  transferable  only  on  the  books  of   „  ,.,. 

r  J  Validity 

the   company,"  are  for   most   purposes   negotiable,    of  assign- 
By  an  assignment  of  the  certificate  the  legal  title   stock  cer- 
to  the  stock  passes ; 3  and  the  possession  of  the  cer-   tlJlcate- 
tificate  properly  indorsed  is  prima  facie  evidence  of  ownership. 
Consequently,  the  assignee  for  value  without  notice  of  prior 


1  Hubbell  v.  Drexel,  (Cir.  Ct.  East- 
ern Dis.  of  Pa.)  21  Am.  Law  Reg.  N. 
S.  452;  Nourse  v.  Prime,  4  Johns.  Cli. 
(N.  Y.)  490;  Allen  v.  Dykers,  3  Hill 
(N.  Y.),  593;  Gilpin  v.  Howell,  5  Pa. 
St.  41 ;  Neiler  v.  Kelley,  69  Pa.  St. 
409;  Boylan  v.  Huguet,  8  Nev.  345; 
see  Otis  v.  Gardner,  105  111.  436.  See 
Hay  ward  v.  Rogers,  62  Cal.  348; 
Barclay  v.  Culver,  30  Hun  (X.  Y.),  1. 
Compare  Laugton  v.  Waite,  L.  R.  6 
Eq.  165;  Cherry  v.  Frost,  7  Lea 
(Tenn.),  1.  On  payment  of  the  debt 
a  court  may  specifically  enforce  the 
return  of  the  shares  when  the  stock  is 
of  uncertain  market  value  and  the 
pledgor  cannot  buy  others.  Krouse 
v.  Woodward,  110  Cal.  638.  A 
pledgee  of  shares  that  have  been 
transferred  on  the  books  of  the  cor- 
poration cannot  sell  them  without 
notice  to  the  pledgor  and  demand  of 
payment;  nor  at  private  sale,  for  less 
than  market  value.  Nabi  ing  v.  Bank 
of  Mobile,  58  Ala.  204.  And  an 
agreement  that  pledgee  may  sell 
without  notice  does  not  permit  him 


to  sell  without  demand  of  payment. 
Wilson  o.  Little,  2  N.  Y.  443. 

An  execution  cannot  be  levied  on 
shares  of  stock  pledged  by  the  exe- 
cution debtor  and  transferred  on  the 
books  of  the  corporation  to  the 
pledgee.  A  purchaser  at  such  exe- 
cution sale  gets  no  title.  Nabring  v. 
Bk.  of  Mobile,  58  Ala.  204. 

2  Mc Henry  v.  Jewett,  90  New  York, 
58.  The  court  did  not  decide  who 
was  entitled  to  vote  the  shares,  but 
merely  that  the  complaint  was  bare 
of  facts  justifying  an  injunction. 
The  pledgee  in  whose  name  as 
"  trustee  "  stock  stood,  was  held  en- 
titled to  vote  in  Commonwealth  v. 
Dalzell,  152  Pa.  St.  217.     See  §  578. 

3Leitch  u.Wells,  48  N.  Y.  585; 
Thurber  v.  Crump,  86  Ky.  408.  But 
see  Noble  v.  Turner,  69  Md.  519; 
Kerr  v.  Urie,  86  M'd  72. 

The  tender  of  a  certificate  prop- 
erly indorsed  is  a  good  tender  of 
shares  "  transferable  on  the  books 
of  the  company.1'  Noyes  v.  Spauld- 
ing,  27  Vt.  420. 

781 


§  796.]         THE   LAW   OF   PRIVATE   CORPORATIONS.  [CHAP.  XV. 


796. 


As  against 

assignor's 

creditors. 


equities,  obtains  a  title  superior  to  them  ;  and  if  the  rightful 
owner  has  invested  another  with  the  usual  evidence  of  title  or 
with  apparent  authority  to  dispose  of  the  shares,  he  will  be 
estopped  from  disputing  the  rights  of  an  innocent  purchaser.1 
And  the  doctrine  of  the  implied  notice  of  lis  pendens  has  no 
application  to  certificates  of  stock  which  pass  from  hand  to 
hand  like  negotiable  instruments.2  But  a  bona  fide  purchaser 
of  a  stolen  certificate  acquires  no  title  as  against  the  true 
owner.3 

Likewise,  although  it  be  provided  that  all  transfers 
of  shares  shall  be  recorded  on  the  books  of  the  cor- 
poration, and  the  certificates  state  that  shares  are 
transferable  only  in  that  manner,  a  bona  fide  sale  of 
the  shares,  or  an  assignment  of  them  as  collateral  security, 
accompanied  by  a  delivery  of  the  certificates  with  a  power  of 
attorney,  is  valid  as  against  the  attaching  creditors  of  the 
vendor  or  assignor,4  and  also  as  against  his  assignee  in  insol- 

v.  Ives,  31  Conn.  25;  Beckwith  v.  Bur- 
rough,  13  R.  I.  294;  Merchants'  Nat. 
Bk.  v'.  Richards,  6  Mo.  App.  454;  S.  C, 
aff'd,  74  Mo.  77;  Newberry  v.  Detroit, 
etc.,  Iron  Mfg.  Co.,  17  Mich.  141; 
Sargent  v.  Essex  Marine  Ry.  Co.,  9 
Pick.  202;  Lund  v.  Mill.  Co.,  50  Minn. 
36;  Weber  v.  Bullock,  19  Col.  214; 
Kern  v.  Day,  45  La.  Ann.  71.  See 
Sargent  v.  Franklin  Ins.  Co.,  8  Pick. 
90;  Clark  v.  German  Security  Bk.,  61 
Miss.  611;  Seeligson  v.  Brown,  61 
Tex.  114.  But  compare  State  Ins. 
Co.  o.  Sax,  2  Tenn.  Ch.  507;  Cates  r. 
Baxter,  97  Tenn.  443.  Contra,  But- 
trick  v.  Nashua,  etc.,  R.  R.  Co.,  62 
N.  H.  413.  But  such  an  assignment 
of  the  certificates  would  not  hold  as 
against  a  bona  fide  purchaser  who  is 
not  an  execution  creditor  of  the 
assignor,  at  sheriff's  sale  under  an 
execution.  Farmers'  Nat.  Bk.  v. 
Wilson,  58  Cal.  600.  Compare  New- 
berry v.  Detroit,  etc.,  Iron  Mfg.  Co., 
17  Mich.  141 ;  Weston  v.  Bear  Eiver 
M'g  Co.,  6  Cal.  425.  See  §589.  But 
transfers  of  shares  made  with  intent 
to  hinder  and  defraud  creditors  are 


1  Walker  v.  Detroit  R'y  Co.,  47 
Mich.  338;  McNeil  v.  Tenth  Nat. 
B'k,  46  N.  Y.  325;  Cherry  v.  Frost, 
7  Lea  (Tenn.),  1;  Dovey's  Appeal, 
97  Pa.  St.  153;  Gass  v.  Hampton,  16 
Nev.  185;  Stinson  v.  Thornton,  56 
Ga.  377;  Otis  v.  Gardner,  105  111. 
436.  See  Winter  v.  Belmont  M'g 
Co.,  53  Cal.  428;  Caulkius  v.  Gas- 
light Co.,  85  Tenn.  683;  Gilbert  v. 
Erie  B'ld'g  Ass'n,  184  Pa.  St.  554; 
National  Trust  Co.  v.  Gray,  12  D.  C. 
App.  Cas.  276.  Unless  circumstances 
exist  to  put  the  purchaser  on  inquiry. 
Ryman  v.  Gerlach,  153  Pa.  St.  197. 

2Leitch  v.  Wells,  48  N.  Y.  585; 
Holbrook  v.  New  Jersey  Zinc  Co., 
57  N.  Y.  616. 

8  Barstow  v.  Savage  M'g  Co.,  64 
Cal.  388;  East  Birmingham  Land 
Co.  v.  Dennis,  85  Ala.  565;  Swim  v. 
Wilson,  90  Cal.  126. 

4  Scott  v.  Pequonnock  Nat.  Bank, 
15  Fed.  Rep.  494;  Smith  v.  Crescent 
City  Live  Stock,  etc.,  Co.,  30  La. 
Ann.  Part  II.  1378;  Cornick  v. 
Richards,  3  Lea  (Tenn.),  1;  Broadway 
Bk.  v.  McElrath,  13 N.  J.  Eq.  24;  Colt 

782 


CHAP.  XV.]  LEGAL  RELATIONS  AMONG  SHAREHOLDERS.  [§  797. 

vency.1  But  it  has  been  held,  where  a  statute  provides  that  no 
assignment  of  stock  shall  be  valid  except  as  between  the  parties 
until  it  is  entered  on  the  books  of  the  corporation,  that  an 
attachment  by  the  assignor's  creditors,  levied  before  such  en- 
try, is  valid  as  against  the  assignee  of  the  certificate.2  And,  in 
general,  shares  of  stock  are  subject  to  attachment,  and  an  at- 
taching creditor  acquires  a  lien  superior  to  the  claim  of  a  sub- 
sequent bona  fide  purchaser  for  value  with  no  actual  notice  of 
the  attachment.3 

§  797.  The  preceding  rules  protecting  the  assignee  of  cer- 
tificates of  stock,  are  not  applicable  when  the  cer- 
tificate bears  on  its  face  a  notice  that  its  holder  is  fi£Cc^ecser" 
not  the  absolute  owner.  Thus,  a  person  lending  "m  trust." 
money  on  a  certificate  containing  the  words  "in  trust,"  is 
affected  with  notice  of  the  trust,  and  the  hypothecation  will  be 
invalid  as  against  the  cestui}    And  a  similar  rule  would  apply 


void.    Beckwith  v.  Burrough,  14  R.  I. 
366. 

1  Sibley  v.  Quinsigamond  Nat. 
Bank,  133  Mass.  515;  Blouin  v.  Li- 
quidators of  Hart,  30  La.  Ann.  Part  I. 
714.  The  equitable  interest  of  a 
shareholder  in  his  shares  will  pass 
by  a  general  assignment  in  a  trust 
deed  for  the  benefit  of  creditors,  as 
against  an  attaching  creditor  with 
notice  of  the  assignment,  although 
the  cbarter  of  the  corporation  pro- 
vides tbat  transfers  to  be  valid  must 
be  entered  on  the  books.  Black  v. 
Zacharie,  3  How.  483. 

2  Application  of  Murphy,  51  Wis. 
519;  Fort  Madison  Lumber  Co.  v. 
Batavian  B'k,  71  Iowa,  270;  Moore 
v.  Opera  House  Co.,  81  Iowa,  45. 
See,  also,  Newell  v.  Williston,  13S 
Mass.  240;  Central  National  Bank  v. 
Williston,  138  Mass.  244;  Fisher  v. 
Essex  Bank,  5  Gray,  373;  Boyd  v. 
Rockport  Steam  Cotton  Mills,  7  Gray, 
406;  Blancbard  v.  Dedham  Gaslight 
Co.,  12  Gray,  213;  Weston  v.  Bear 
River,  etc.,  Water  and  M'g  Co.,  5 
Cal.  186;  Naglee  v.  Pacific  Wharf  Co., 


20  Cal.  529;  Conway  v.  John,  14  Col. 
30.  But  compare  Weston  v.  Bear 
River  M'g  Co.,  6  Cal.  425;  Thurber 
V.  Crump,  86  Ky.  408;  Lippitt  v. 
Paper  Co.,  15  R.  I.  141. 

3  Chesapeake  and  Ohio  R.  R.  Co. 
v.  Paine,  29  Gratt.  ( Va. )  502 ;  Shen- 
andoah Valley  R.  R.  Co.  v.  Griffith, 
76  Va.  913.  But  see  Armour  Bros. 
v.  Nat.  B'k,  113  Mo.  12.  So  the  in- 
terest of  a  shareholder  in  the  prop- 
erty of  a  corporation,  represented  by 
shares  of  stock,  may  be  reached  by 
garnishee  process  served  on  the  cor- 
poration. The  corporation  may  be 
the  attaching  creditor  and  garnishee 
itself.  Norton  v.  Norton,  43  O.  St. 
509  (a  case  construing  statutes).  The 
state  in  which  a  corporation  is  char- 
tered is  the  situs  of  shares  of  stock 
for  the  purpose  of  determining  con- 
flicting claims  to  ownership.  Jelle- 
nik  v.  Huron  Copper  Mining  Co.,  177 
U.  S.  1. 

4  Shaw  v.  Spencer,  100  Mass.  382; 
Loring  v.  Brodie,  134  Mass.  453; 
Budd  v.  Monroe,  18  Hun,  316;  Gas- 
ton v.  American  Exchange  Nat.  B'k, 

783 


§  798.]         THE   LAW    OF    PRIVATE    CORrO RATIONS.    [CHAP.  XV. 


if  the  assignee  of  the  certificate  has  or  is  affected  with  notice 
of  the  rights  of  persons  other  than  the  holder.  Thus,  it  has 
been  held,  that  a  person  purchasing  shares  from  an  administra- 
tor at  an  illegal  private  sale,  will  be  liable  to  the  distributees 
of  the  estate  for  dividends  received  by  him.1 

§  798.  Individual  shareholders  have  no  right  to  profits  made 
by  the  corporation  until  a  dividend  is  declared.  Ac- 
cordingly, a  dividend  belongs  to  the  owner  of  the 
shares  at  the  time  when  it  is  declared,  whether  it 
was  earned  before  he  acquired  the  shares  or  subse- 
quently.2 And  a  sale  of  shares  after  a  dividend 
has  been  declared,  does  not  carry  the  dividend,  although  it  is 
not  payable  until  after  the  sale.3  Similarly  it  is  held,  where 
the  directors  "  vote  to  pa\f  a  dividend  of  four  per  cent,  this  da}', 
and  another  of  like  amount  from  earnings  of  last  year,"  that 
the  person  who  owns  the  shares  when  the  dividends  are  thus 
voted  is  entitled  to  both  dividends  although  he  sell  the  shares 


Right  to 
dividends, 
as  between 
transferrer 
and  trans- 
feree. 


29  N.  J.  Eq.  98.  But  see  semble  con- 
tra, Brewster  v.  Sirae,  42  Cal.  139; 
Winter  v.  Belmont  M'f  Co.,  53  Cal. 
428.  Compare  Winter  v.  Montgom- 
ery Gas  L.  Co.,  89  Ala.  544. 

1  Nutting  v.  Thomasson,  57  Ga. 
418. 

2  Jermain  v.  L.  Shore,  etc.,  Ry. 
Co.,  91  N.  Y.  483;  Board  man  v.  L. 
Shore,  etc.,  Ry.  Co.,  84  N.  Y.  157; 
Brundage  v.  Brundage,  65  Barb.  397; 
Timberlake  v.  Compress  Co.,  72  Miss. 
323.  See  Hyatt  v.  Allen,  56  New 
York,  553;  March  v.  Eastern  Rail- 
road Co.,  43  N.  H.  515.  A  bequest 
of  shares  does  not  carry  a  scrip 
dividend  received  by  the  testator 
during  his  life;  but  such  a  dividend 
declared  after  testator's  death,  be- 
longs to  the  legatee.  Brundage  v. 
Brundage,  supra. 

When  preferred  or  guaranteed 
dividends  .should  have  been  paid  at 
a  certain  time,  but  were  not  declared, 
and  the  shareholder  entitled  to  them 
did  not  enforce  their  declaration, 
they  remain  payable  to  the  holder  of 

784 


the  stock,  and  pass  with  a  transfer 
of  it.  Jermain  v.  Lake  Shore,  etc., 
Ry.  Co.,  91  N.  Y.  483;  Manning  v. 
Quicksilver  M'g  Co.,  24  Hun,  361. 

Pledgee  of  shares  in  whose  name 
the  stock  stands  is  entitled  to  divi- 
dends. Boyd  v.  Worsted  Mills,  149 
Pa.  St.  363;  Central  Neb.  Nat.  Bank 
b.  Wilder,  32  Neb.  454;  Guarantee 
Co.  v.  East  Rome  Co.,  96  Ga.  511. 

3  Bright  v.  Lord,  51  Iud.  272; 
Spear  v.  Hart,  3  Rob.  (N.  Y.)  420; 
compare  Phinizy  v.  Murray,  83  Ga. 
747.  Contra  semble,  Burroughs  v. 
North  Carolina  R.  R.  Co.,  67  N.  C. 
376. 

A  shareholder  is  not  liable  for  divi- 
dends received  by  him,  in  the  first 
instance,  to  a  person  claiming  to  be 
the  owner  of  the  stock,  but  whose 
claim  the  company  ignores.  Such  a 
person  must  first  establish  his  claim 
against  the  company.  Peckham  v. 
Van  Wagenen,  83  N.  Y.  40.  This 
proposition  might  be  affected,  how- 
ever, by  relations  between  the  plain- 
tiff and  defendant. 


CHAP.  XV.]  LEGAL  RELATIONS  AMONG  SHAREHOLDERS.  [§  799. 

before  the  day  for  the  payment  of  the  second  dividend  has  been 
fixed.1 

§  799.  Difficult  and  still  unsettled  questions  respecting  the 
ownership  of  dividends,  arise  when  the  shares  are  As  between 
left  in  trust  by  will,  the  income  of  the  trust  to  go   life-tenant 

•f  '  o        and  re- 

to  a  life-tenant,  and  the  principal,  at  his  death,  to  mainder- 
a  remainder-man.  There  is  little  doubt  that  a  rea- 
sonable amount  of  profit,  earned  before  the  testator's  death, 
but  declared  in  the  shape  of  an  ordinary  cash  dividend  after 
that  event,  is  income  and  belongs  to  the  life-tenant.2  But  an 
ordinary  cash  dividend  earned  before,  but  declared  after  the 
testator's  death,  is  to  be  distinguished  from  a  distribution  in 
the  shape  of  a  cash  dividend — consequent,  perhaps,  on  a  change 
of  policy  in  the  body  corporate — of  long  accumulated  profits. 
"  Where  the  profits  of  a  corporation  have  been  accumulating 
for  many  years,  till  the  market  value  of  the  stock  is  double  its 
original  price,  and  the  owner  dies,  directing  the  '  income '  of  his 
estate  to  be  applied  to  particular  objects  for  limited  periods, 
these  extraordinary  accumulations  are  as  much  a  part  of  his 
capital  as  any  other  portion  of  his  estate,  and  must  therefore 
be  regarded  as  forming  part  of  the  principal  from  which  the 
future  income  is  to  arise."" 3 

Likewise,  when  after  the  testator's  death,  the  corporation 
sells  a  portion  of  its  property  or  franchises,  and  distributes  the 


1  Hill  v.  Newichawanick  Co.,  8  Hun, 
459,  aff'd  71  N.  Y.  593. 

2  Bates  v.  Mackinley,  31  Beav.  280; 
Milieu  v.  Guerrard,  67  Ga.  284. 

sEarp's  Appeal,  28  Pa.  St.  368, 
375,  opinion  of  the  court  per  Lewis, 
C.  J.  But  all  profit  arising  after 
the  death  of  the  testator  is  "  in- 
come." Wiltbank's  Appeal,  64  Pa. 
St.  256;  Biddle's  Appeal,  99  Pa.  St. 
278,  282;  Earp's  Appeal,  28  Pa.  St. 
368;  Van  Doren  v.  Olden,  19  N.  J. 
Eq.  176.  See  Moss's  Appeal,  83  Pa. 
St.  264.  "  It  is  well  settled  in  this 
state  that  when  the  stock  of  a  cor- 
poration is  by  the  will  of  a  decedent 
given  in  trust,  the  income  thereof 
for  the  use  of  a  beneficiary  for   life, 

50 


with  remainder  over,  the  surplus 
profits,  which  have  accumulated  in 
the  lifetime  of  the  testator  but 
which  are  not  divided  until  after 
his  death,  belong  to  the  corpus  of 
his  estate;  whilst  the  dividends  of 
earnings  made  after  his  death  are 
income,  and  are  payable  to  the  life- 
tenant,  no  matter  whether  the  divi- 
dend be  in  cash,  or  scrip,  or  stock." 
Smith's  Estate,  140  Pa.  St.  344,  352, 
opinion  of  court  per  Clark,  J.  Con- 
nolly's Estate,  198  Pa.  St.  137.  This 
distinction  is  discarded  in  Richard- 
son v.  Richardson,  75  Me.  570,  where 
the  rule  is  stated  to  be,  that  all  cash 
dividends,  declared  from  profits,  go 
to  the  person   holding   the   stock   at 

785 


§  800.]  THE   LAW   OF   PRIVATE  CORPORATIONS.  [CHAP.  XV. 

proceeds  in  the  shape  of  a  cash  dividend,  that  too  is  a  part  of 
the  principal,  and  is  not  income  to  be  paid  over  to  the  life- 
tenant.1  Of  a  similar  status  is  money  paid  to  a  corporation 
for  property  taken  by  a  city,  and  distributed  as  a  cash  divi- 
dend.2 But  moneys  arising  from  the  sale  of  corporate  property 
and  distributed  as  a  cash  dividend,  are  income  if  they  arise 
from  a  sale  of  property  made  by  the  corporation  in  the  ordinary 
course  of  its  business,  when  it  sells  only  such  property  as  its 
regular  business  is  to  sell.3  In  Lang  v.  Lang's  Executor4  the 
following  proposition  was  held  to  be  the  rule  as  stated  by  Col- 
lins, J.,  giving  the  opinion  of  the  New  Jersey  Court  of  Errors 
and  Appeals :  "  The  underlying  principle  applicable  in  this 
case  is  that  no  corporate  dividend  declared  after  the  right  to 
the  income  has  become  severed  from  the  ultimate  ownership 
of  the  stock  upon  which  such  dividend  is  declared,  belongs  in 
equit}'-  to  the  person  entitled  to  income  except  so  far  as  it  is 
derived  from  the  earnings  of  the  stock  after  such  severance. 
The  general  trend  of  judicial  opinion  in  this  country  is  toward 
the  adoption  of  that  principle,  and  we  adopt  it  without  qualifi- 
cation." 

§  800.  In  regard  to  the  status  of  dividends  not  payable  in 
cash,  the  authorities  are  more  conflicting.  The  rule  has 
indeed  been  stated  in  Massachusetts,  that  cash  dividends  are 
income  and  stock  dividends  are  principal.5  But,  even  accord- 
ing to  the  Massachusetts  decisions,  that  which  may  be  dis- 


the  time  (i.  e.,  the  life- tenant),  with- 
out regard  to  the  time  when  the 
profits  were  earned  or  their  source, 
and  regardless  of  the  size  of  the 
dividend;  provided  it  is  not  a  dis- 
tribution of  the  company's  assets,  as 
on  winding-up. 

i  Vinton's  Appeal,  99  Pa.  St.  434; 
Eisner's  Appeal,  175  Pa.  St.  143; 
Wheeler  v.  Perry,  18  N.  H.  307;  Gif- 
ford  v.  Thompson,  115  Mass.  478. 
See  Clarkson  v.  Clarkson,  18  Barb. 
646.  But  see  Balch  v.  Hallet,  10 
Gray,  402. 

2  Heard  v.  Eldredge,  109  Mass. 
258. 

8  Reed  v.  Head,  6  Allen,  174. 

786 


4  57  N.  J.  Eq.  325. 

5  Minot  v.  Paine,  99  Mass.  101. 
See  Leland  v.  Hayden,  102  Mass. 
542;  Daland  v.  Williams,  101  Mass. 
571;  Davis  v.  Jackson,  152  Mass. 
58;  In  re  Hopkins's  Trusts,  L.  R. 
18  Eq.  696.  And  see  Richardson  v. 
Richardson,  75  Me.  570,  574.  In 
D'Ooge  v.  Leeds,  176  Mass.  558,  it 
was  held  that  certain  bonds  repre- 
senting the  surplus  of  the  company, 
distributed  among  the  stockholders 
by  vote  of  the  managers,  amounted 
to  an  issue  of  preferred  stock,  and 
as  between  tenant  for  life  and  re- 
mainder-men were  capital  and  not 
income. 


CHAP.  XV.]  LEGAL  RELATIONS  AMONG  SHAREHOLDERS.  [§  801. 

tributed  in  the  form  of  a  cash  dividend  is  sometimes  principal ; * 
and  in  New  York,  stock  dividends  declared  out  of  earnings  are 
held  to  be  income.2  It  has  also  been  held  where  a  testator 
directed  the  income  of  shares  to  be  paid  to  one  person  for  life, 
remainder  to  other  parties,  that  dividends  declared  in  the  form 
of  certificates  of  indebtedness  go  to  the  life-tenant,  although 
they  may  consist  in  part  of  profits  accumulated  before  the 
testator's  death.3  But  where  it  is  resolved  to  increase  the 
corporate  stock,  and  the  right  of  shareholders  to  subscribe  is 
valuable,  and  is  sold,  the  proceeds  are  principal  of  which  the 
interest  only  goes  to  the  life-tenant.4 

§  801.  In  regard  to  this  somewhat  confusing  matter  of  the 
rights  of  life  tenant  and  remainder-man  in  stock  dividends, 
the  following  suggestions  are  hazarded.  Usually  to  speak 
of  a  "stock  dividend"  involves  in  reality  a  contradiction  in 
terms.  A  dividend  is  a  distribution  of  profits.  But  when  a 
corporation  has  accumulated  profits,  and  declares  a  "stock 
dividend,"  just  what  the  corporation  does  not  do  is  to  declare 
a  dividend.  A  "stock  dividend"  is  no  dividend,  no  real  dis- 
tribution, either  of  profits  or  capital ;  but  merely  an  increase 


1  Heard  v.  Eldredge,  supra. 

2  McLouth  v.  Hunt,  154  N.  Y.  179; 
Lowry  v.  Farmers*  L.  &  T.  Co.,  56 
App.  Div.  408;  Chester  v.  Buffalo 
M'f'g  Co.,  70  App.  Div.  443.  Ace. 
Hite  v.  Hite,  93  Ky.  257;  Thomas  v. 
Gregg,  78  Md.  545;  Pritchitt  v.  Trust 
Co.,  96  Tenn.  472. 

3  Milieu  v.  Guerrard,  67  Ga.  284. 
The  English  rule  is  as  follows  : 
"When  a  testator  or  settler  directs 
or  permits  the  subject  of  his  dispo- 
sition to  remain  as  shares  or  stocks 
in  a  company  which  has  the  power 
either  of  distributing  its  profits  as 
dividend,  or  of  converting  them  into 
capital,  and  the  company  validly  ex- 
ercises this  power,  such  exercise  of 
its  power  is  binding  on  all  persons 
interested  under  the  testator  or  set- 
tler in  the  shares,  and  consequently 
what  is  paid  by  the  company  as  div- 
idend goes   to   the   tenant  for   life, 


and  what  is  paid  by  the  company  to 
the  shareholder  as  capital,  or  appro- 
priated as  an  increase  of  the  capital 
stock  in  the  concern,  enures  to  the 
benefit  of  all  who  are  interested  in 
the  capital."  Bouch  v.  Sproule,  12 
App.  Cas.  385,  397;  language  of  Jus- 
tice Fry  quoted  above  and  elsewhere. 
See,  also,  Sugden  v.  Alsbury,  45  Ch. 
D.  237;  Ellis  v.  Barfield,  60  L.  J.  Ch. 
488;  Hooper  v.  Rossiter,  1  McClel. 
527  ;  Barclay  v.  Wainwright,  14 
Vesey,  66 ;  Price  v.  Anderson,  15 
Simons,  473;  Preston  v.  Melville,  16 
Simons,  163;  Johnson  v.  Johnson,  15 
Jur.  714. 

4  Atkins  v.  Albee,  12  Allen,  359  ; 
BiddhVs  Appeal,  99  Pa.  St.  278;  Brin- 
ley  v.  Grou,  50  Conn.  66;  Green  v. 
Smith,  17  R.  I.  28;  Hite  v.  Hite,  93 
Ky.  257;  Eisner's  Appeal,  175  Pa.  St. 
143. 

787 


§  801.]  THE    LAW    OF    PltlVATE   CORPORATIONS.  [CHAP.  XV. 

in  the  number  of  shares  into  which  the  capital  is  divided.1 
For  instance,  some  years  ago,  when  the  stock  of  the  Rock 
Island  Railroad  was  selling  at  more  than  double  its  par  value, 
the  corporation  issued  to  every  shareholder  an  additional  share 
for  each  share  of  stock  already  held  by  him.  The  object  ac- 
complished was  the  halving  of  the  market- value  of  the  shares. 
But  by  this  action  no  part  of  the  capital  or  accumulated  profits 
of  the  corporation  was  distributed  among  the  shareholders. 
Take,  for  another  instance,  the  present  condition  of  the 
Chemical  Bank  of  New  York  City.  The  par  value  of  its  shares, 
in  number  three  thousand,  is  one  hundred  dollars ;  but  their 
market  value,  at  the  present  time,  is  about  four  thousand  dol- 
lars. Should  the  Chemical  Bank  issue  another  share  of  stock 
to  each  shareholder  for  every  share  already  held  by  him,  it 
would  not  distribute  one  cent.  Where,  before  such  issue  or 
"stock  dividend,"  if  one  so  choose  to  call  it,  the  holder  of  one 
share  owns  one  three-thousandth  of  the  entire  property,  after 
such  issue  he  will  own  two  six-thousandths.2 


1  "After  a  stock  dividend  a  cor- 
poration has  just  as  much  property 
as  it  had  before.  It  is  just  as  sol- 
vent and  just  as  capable  of  meeting 
all  demands  upon  it.  After  such  a 
dividend  the  aggregate  of  the  stock- 
holders own  no  more  interest  in  the 
corporation  than  before.  The  whole 
number  of  shares  before  the  stock 
dividend  represented  the  whole  prop- 
erty of  the  corporation,  and  after 
the  dividend  they  represent  that  and 
no  more.  A  stock  dividend  does  not 
distribute  property,  but  simply 
dilutes  the  shares  as  they  existed 
before."  Williams  ».  West.  Un.  Tel. 
Co.,  93  N.  Y.  162,  189;  Mills  v.  Brit- 
ton,  64  Conn.  4.  And  compare  Com- 
monwealth v.  Pittsburgh,  etc.,  Ry. 
Co.,  74  Pa.  St.  83;  Gilkey  v.  Paine, 
80  Maine,  319;  Allegheny?;.  Railway 
Co.,  179  Pa.  St.  424. 

2  See  Terry  v.  Eagle  Lock  Co.,  47 
Conn.  141,  Ki4;  §568,  and  Williams 
v.  Western  Union  Telegraph  Com- 
pany. 93  X.  Y.  162,  189,  supra;  also 

788 


Osborne  v.  Osborne,  24  Gratt.  (Va. ) 
392.  New  shares  representing  the 
surplus  property  of  a  corporation 
are  principal  and  not  income.  Peti- 
tion of  Brown,  Administrator,  14  R. 
I.  371. 

By  noticing  the  rights  of  creditors, 
it  will  become  still  more  apparent 
that  a  stock  dividend  is  no  dividend 
at  all.  As  against  creditors  a  corpo- 
ration, which  has  no  surplus  earn- 
ings, has  no  right  to  declare  a  cash 
dividend,  and  in  that  way  distribute 
its  capital  among  the  shareholders. 
But  it  might  declare  "  stock  divi- 
dends" ad  infinitum,  and  no  creditor 
be  any  the  worse,  or  any  share- 
holder have  a  cent  more  in  his 
pocket.  To  be  sure,  "stock  divi- 
dends" may  become  very  material 
in  view  of  outside  considerations; 
as  where  a  corporation  is  restricted 
from  paying  more  than  a  certain 
percentage  of  dividends.  By  issu- 
ing further  stock  it  might  (if  the 
issue  were  not  declared  void)  keep 


CHAP.  XV.]  LEGAL  RELATIONS  AMONG  SHAREHOLDERS.  [§  801. 

Consequently,  since  a  "stock  dividend"  is  no  real  dividend 
or  distribution  of  profits,  it  would  seem  that  even  if  such 
"  dividend  "  were  "  declared  out  of  profits,"  the  stock  so  issued 
could  not  be  regarded  as  income  ; *  for  it  must  be  conceded 
that  the  life-tenant  has  no  right  to  claim  corporate  earnings  as 
income  of  the  trust  created  in  his  favor  until  the  corporate 
management  has  voted  to  distribute  them  as  a  dividend  ;  and 
if  the  corporate  management  decides  on  declaring  a  stock 
dividend,  what  it  really  decides  on,  is  not  to  declare  a  dividend 
at  all.2 


down  the  percentage  of  dividends, 
while  it  increased  their  amount. 
But,  none  the  less,  the  issue  of  the 
stock  would  itself  be  no  dividend. 

1  The  rule  that  "stock dividends  " 
are  principal  seems  to  be  gaining 
ground.  So  held  in  Gibbons  v. 
Mahon,  136  U.  S.  549;  Spooner  v. 
Phillips,  62  Conn.  62.  Regarded  as 
settled  in  Mills  v.  Britton,  64  Conn. 


4;  and  see  the  Massachusetts  cases 
in  §  800,  note. 

2  This  rule  might  seem  to  work 
hardship  on  the  life-tenant.  But, 
if  so,  the  real  cause  of  his  hardship 
is  the  action  of  the  corporate  man- 
agement in  not  declaring  a  dividend; 
and  possibly,  in  an  extreme  case,  the 
life-tenant  might  compel  the  declara- 
tion of  a  dividend. 

789 


§  803. J        THE   LAW    OF    PRIVATE   CORPORATIONS.   [CHAP.  XVI. 


CHAPTER  XVI. 

LEGAL  RELATIONS  AMONG  THE  OFFICERS  OF  A 
CORPORATION. 


Directors,  §  802. 

Contribution  among  directors;  re- 
specting liability  to  tbe  corpora- 
tion, §§  803,  804. 

Respecting  liability  to  creditors, 
§805. 

Between  directors  bound  on  the 
same  instrument,  §  800. 


§  802. 


Between  directors  and  other  officers, 

§807. 
Right  of    directors  to    inspect  the 

corporate  books,  §  808. 
Be  facto  directors,  §  809. 


Directors. 


Directors  meet  together,  consult,  and  together  trans- 
act the  business  of  the  corporation.  But  their  mutual 
legal  relations  as  directors  are  few,  perhaps  their 
most  important  right  as  against  each  other  being  that  no  one 
of  their  number  shall  commit  any  wrongful  act  through  which 
the  corporate  interests  are  injured  in  a  way  that  Avill  implicate 
other  directors  in  liabilitv  to  make  good  the  damages. 

§  803.  The  common  rule  of  law  that  there  is  no  contribu- 
tion among  tort-feasors1  must  be  strictly  construed 
in  relation  to  directors  and  other  officers  and  agents 
of  corporations,  for  they  may  be  held  liable  for  the 
wrongful  acts  of  each  other  in  cases  which  are  not 
within  the  contemplation  of  the  rule.  In  two 
classes  of  cases  the  rule  seems  inapplicable.  First,  when 
directors  are  held  liable  for  the  acts  of  their  appointees  or 
associates ; 2  and  secondly,  when  by  some  statute  directors  are 
rendered  liable,  although  guilty  of  no  default,  for  the  wrong- 
ful acts  of  each  other  or  of  other  corporate  agents.3  Accord- 
ingly, if  directors   are,  for  any  reason,  held   liable  for  the 


Contribu- 
tion among 
directors ; 
respecting 
liability  to 
the  corpora- 
tion. 


1  There  seem  to  have  been  excep- 
tions to  this  rule  at  common  law, 
e.  g.,  where  one  of  two  persons  was 
held  liable  for  the  tort  of  their  com- 
mon servant,  contribution  from  the 
other  was  allowed.  Wooley  v.  Batte, 
790 


2  Car.  &  P.  417.  But  see  Oakes  t\ 
Spalding,  40  Vt.  347;  and  Spalding 
v.  Oakes,  42  Vt.  343. 

2  See  §  624. 

8  See,  e.  g.,  Const,  of  Cal.,  1879, 
art.  xii.  §  3. 


CHAP.  XVI.]    LEGAL  RELATIONS  AMONG  OFFICERS.  [§  804. 

damages  resulting  from  the  wrong-fill  acts  or  omissions  of  their 

DO  O 

appointees,  or  of  other  directors,  when  they  themselves  have 
neither  participated  in  the  wrongful  acts  nor  connived  at 
them,  they  would  certainly  seem  to  be  entitled  to  indemnifica- 
tion from  their  appointees  in  the  one  case,  and  from  the  other 
directors  in  the  other. 

This  notion  of  different  degrees  of  liability  for  wrongful 
acts  or  omissions  is  by  no  means  a  new  doctrine,  nor  altogether 
the  result  of  statute.  Lord  Hardwicke  said  in  Charitable 
Corporation  v.  Sutton : l  "In  the  present  case  one  thing  is 
clear,  that  [those]  who  were  the  five  engaged  in  that  confed- 
eracy are  certainly  liable  to  make  good  the  losses  which  the 
corporation  have  sustained  in  the  first  place,  and  the  committee- 
men [directors]  who  were  not  partners  in  the  affair,  in  the 
second  place  only."  Lord  Hardwicke  had  in  his  mind  rather 
their  degrees  of  liability  as  enforced  in  a  suit  brought  by  the 
corporation  ;  still,  carried  out  logically,  any  such  idea  must 
end  in  allowing  contribution  or  indemnification  among  direct- 
ors and  other  officers  of  a  corporation. 

§  804.  And  decisions  sustain  this  conclusion.2  Thus,  in 
an  English  case,  it  was  held  an  irregularity  for  directors  to 
take  the  promissory  notes  of  one  of  their  number,  instead  of 
cash,  in  payment  for  shares ;  and  an  irregularity  that  would 
render  them  liable  to  make  good  to  the  company  any  loss 
occurring  on  a  promissory  note  so  taken.  But  the  court  also 
held  that  the  transaction  was  not  so  fraudulent  or  illegal  as  to 
entitle  the  representatives  of  a  debtor  to  repudiate  his  debt 
as  to  the  company  ;  and  that  the  directors,  who  had  voluntarily 
made  good  the  full  price  of  the  shares,  were  entitled  to  be 
indemnified  out  of  the  assets  of  the  debtor.3  The  court  further 
held  in  another  case,  arising  apparently  from  the  same  facts, 
that  the  directors  who  took  part  in  the  meetings  at  which  the 


1 2  Atkyns,  400,  404,  §  619. 

2  When  a  director,  by  agreement 
with  his  co-directors,  for  whom  lie 
is  to  act  as  well  as  for  himself  in 
the  matter,  has  taken  bonds  of  the 
corporation  below  par,  and  sold  them 
at  a  profit,  and  has  been  obliged  to 
account  to  the  corporation  for  the 


whole  amount  of  profit  realized,  he 
is  entitled  to  contribution  from  such 
of  his  co-directors  as  were  associated 
with  him  in  the  transaction.  Wid- 
rig  v.  Newport  Street R'y  Co.,  82  Ky. 
511. 
8  Power  v.  Hoey,  19  W.  R.  916. 

791 


§806.]        THK    LAW    OF    miYATK   CORPORATIONS.  [CHAP.  XVI. 

transactions  were  authorized,  were  entitled  to  contribution 
from  each  other ;  and  that  they  need  not  wait  until  sued  by 
the  company,  or  until  a  loss  had  certainly  befallen  it ;  but 
being  themselves  bound  to  make  good  the  matter  at  once,  they 
were  at  once  entitled  to  contribution.  The  court  said,  more- 
over, that  it  would  draw  a  line  between  those  who  participated, 
and  those  who  were  merely  negligent  in  allowing  the  improper 
transactions.1 

A  rule  for  such  cases  might  perhaps  be  stated  thus  :  If 
directors  A.,  B.,  C,  and  D.  are  held  liable  for  the  wrongful 
act  of  director  E.,  with  which  they  were  in  no  way  concerned, 
either  actively  or  by  connivance,  they  will  have  the  right  as 
against  E.  to  complete  indemnification ;  and  if  one  of  their 
number,  as  for  instance  A.,  has  been  forced  to  pay  all  or  more 
than  his  proportion  of  the  loss  arising  from  the  wrongful  act, 
he  will  be,  as  against  B.,  C,  and  D.,  entitled  to  contribution.2 

§  805.  Still,  when  the  liability  is  the  result  of  an  act  or  an 
omission  which  may  be  imputed  to  each  one  of  the 

Kespecting         ,  .  1     u       i  • 

nubility  to  directors,  it  has  been  held  that  no  contribution 
anions:  them  would  obtain.  As  in  the  case  of 
Andrews  v.  Murray,3  where  it  was  held  that  no  contribution 
could  be  had  in  respect  of  liability  arising  from  a  failure  to  file 
an  annual  report  required  by  statute  ;  Judge  Ingraham  saying : 
"  Either  of  the  trustees  might  have  avoided  this  liability  by 
attending  to  the  duty  imposed  upon  him  by  the  statute.  He 
cannot  charge  any  other  trustees  with  the  consequence  of  his 
own  negligence.  The  statute  imposes  the  duty  on  each,  the 
liability  attaches  to  each,  and  the  policy  of  the  law  is  to  leave 
each  one  to  the  consequences  of  his  own  negligence,  so  as  to 
insure  stricter  attention  to  the  provisions  of  the  statute  on  the 
part  of  each  of  the  trustees,  which  might  not  be  the  case  if 
such  negligence  could  be  divided  between  the  whole."4 

§  806.  If  the  officers  of  a  corporation  bind  themselves  for  its 


1  Power  v.  O'Connor,  19  W.  R. 
923. 

2  Compare  Ashhurst  v.  Mason,  L. 
R.  20  Eq.  225;  Wilson  v.  Goodman, 
4  Hare,  54;  Lewin  on  Trusts,  744, 
ed.  6. 

792 


»  33  Barb.  354. 

4  33  Barb.  354,  356.  Nickerson  v. 
Wheeler,  118  Mass.  295,  is  directly 
contrary  to  this  decision.  See  §§764, 
767. 


CHAP.  XVI.]    LEGAL  RELATIONS  AMONG  OFFICERS.  [§  809. 


benefit  on  the  same  obligation,  thev  will  be  entitled    _  x 

°  .  ...  Between 

to  contribution  from  each  other  in  regard  to  liability   directors 
thereon  ;  as  where,  for  instance,  directors  become  the  the  same 
makers  and  endorsers  of  a  note  to  raise  money  for  mstrument- 
the  corporation.1 

§  807.  There  would  seem  to  be  no  reason  to  doubt  that  if 
directors  through  neglect  of  their  duties  are  held  to 
the  corporation  for  damages  resulting  from  a  breach   directors 
of  trust  committed  by  a  subordinate  officer  or  agent,   J^-J.  °,Jer 
they  would  be  entitled  to  indemnification  from  him. 
On  the  other  hand,  supposing  that  an  executive  or  ministerial 
officer  incurs  liability  from  carrying  out  the  orders  of  the  board 
of  directors,  has  he  any  rights  over  against  them  ?     It  would 
seem  so,  if  he  acted  innocently  in  the  matter ;  but  if  he  knew 
of  the  breach  of  trust  intended  by  the  board,  then  unquestion- 
ably he  would  have  been  an  active  cognizant  party  to  it,  and 
would  have  no  right  to  contribution  or  indemnification  from 
his  fellow  wrong-doers. 

§  808.  A  director  has  a  right  at  all  times  to  inspect  the 
books  of  the  corporation ;  and  if  the  board  of  direct- 
ors, by  resolution  or  by-law,  attempt  to  exclude  one 
of  their  number  from  examining  the  books,  he  may 
obtain  a  mandamus,  directing  the  proper  officer  to 
allow  him  to  examine  them ;  and  this  holds  true  even  when 
the  other  directors  believe  the  one  so  excluded  to  be  hostile  to 
the  corporation.2 

§  809.  It  has  been  held  that  trespass  may  be  brought  in  the 
name   of  the   corporation,    by  a  board   of   de  facto 
directors,    who   are   in   possession,    against   another   j(^^s- 
board  claiming  to  be  the  legal  directors  of  the  same 
corporation.     And  in  such  a  suit,  the  defendants  cannot  defend 
by  impeaching  the  title  of  the  de  facto  directors ;  as  this  can 
only  be  done  in  some  action  in  the  nature  of  a  quo  warranto.3 


Right  of 
directors  to 
inspect  cor- 
porate 
hooks. 


1Slaymaker  v.  Gundacker,  10  S. 
&  R.  (Pa.)  75;  Niddleton  v.  McCar- 
tee,  2  Mackey  (Dist.  of  Col.),  420. 

2  People  v.  Throop,  12  Wend. 
183;  People    v.    Mott,   1    How.    Pr. 


(N.   Y. )    247;  but    compare    Rosen- 
feld  v.  Einstein,  46  N.  J.  L.  479. 

3  Atlantic,    Tennessee,     etc.,  R.  R. 
Co.  v.  Johnston,  70  N.  C.  348. 

793 


§  811.]      THE   LAW    OF   PRIVATE  CORPORATIONS.  [CHAP.  XX11. 


CHAPTER  XVII. 

LEGAL  RELATIONS  AMONG  THE 
CORPORATION. 


CREDITORS  OF   A 


Creditors  who  are  also  shareholders 

or  officers,  §§  810,  811. 
Other  creditors,  §  812. 
When  the  corporation  is   insolvent, 

§813. 
Capacities    of    receiver.      Mortgage 

trustee,  §  814. 
Creditors  having  claims  founded  on 

the  same  instrument,  §  815. 
Provisions    in    railroad    mortgages, 

§816. 
Reorganizations,  §  816a. 


§810. 


Mortgages  covering  property  to  be 
acquired.  Contractors'  liens,  §§ 
817,  818. 

Mortgages  of  separate  portions  of 
the  railroad.     Rolling  stock,  §819. 

Earnings,  §  820. 

Appointment  of  receiver  in  fore- 
closure suit.  Payment  of  current 
expenses,  §§  821,  822. 

Receivers'  orders,   §§  823,  824,  824«. 

Statutory  liability  of  shareholders. 
Priorities  of  creditors,  §§  825,  826. 


Creditors 
who  are 
also  share- 
holders or 
officers. 


The  relationship  of  creditor  may  be  occupied  either 
by  a  person  holding  no  other  relationship  towards 
the  corporation,  or  by  a  shareholder,  or  by  a  director 
or  other  officer.  If  a  person  occupies  towards  the 
corporation  a  dual  relationship,  for  the  correct  deter- 
mination of  his  rights  and  liabilities  in  respect  to  the  corporate 
enterprise,  his  two  relationships  must  be  kept  distinct.  Indeed, 
the  two  relationships  between  a  corporation  and  a  person  who 
is  at  once  shareholder  and  creditor,  or  director  and  creditor, 
are  so  distinguishable  that  a  person  holding  such  double  rela- 
tionship is,  for  many  purposes,  to  be  treated  as  two  persons, 
and  will  not  always  be  entitled  to  take  advantage  of  being  one 
person.1 

§  811.  Thus,  when  a  corporation  is  insolvent,  a  person  oc- 
cupying the  two  relationships  of  shareholder  and  creditor, 
avIio  is  indebted  as  shareholder  for  calls,  may  not  offset  against 


1  Nor  can  a  person  who  is  merely 
an  ordinary  debtor  to  a  corporation, 
buy  up  claims  against  it  at  a  discount 
after  it  has  passed  into  the  hands  of 
a  receiver,  or  become  evidently  in- 
solvent, and  set  them  off   at  their 

794 


face  against  his  liability  to  the  cor- 
poration. Diven  v.  Phelps,  34  Barb. 
•224;  Balch  o.  Wilson,  25  Minn.  299; 
Smith  o.  Mosby,  9  Heisk.  (Tenn.)501; 
Lanier  v.  Gayoso  Savings  Institution, 
ib.  506. 


CHAP.  XVII.]  LEGAL  RELATIONS  AMONG  CREDITORS.  [§  812. 

his  indebtedness  to  the  corporation  the  indebtedness  of  the 
latter  to  himself.  He  must  pay  in  his  calls,  and  then  he  will 
rank  as  a  creditor,  receiving  his  due  proportion  of  the  corporate 
assets.1  Again,  a  person  occupying  the  dual  relationship  of 
director  and  creditor,  may  not,  at  least  if  the  corporation  is 
insolvent,  use  the  advantages  of  his  position  as  director  to 
procure  the  payment  of  his  claims  as  creditor  in  preference  to 
the  claims  of  other  creditors.  As  a  director,  he  must,  in  good 
faith,  discharge  his  full  duty  towards  all  the  persons  interested 
in  the  corporate  enterprise ;  and  this  forbids  the  favoring  of 
any  interest,  as,  for  instance,  his  own.2 

It  is  held,  however,  that  a  shareholder  may  make  use  of 
whatever  advantages  his  position  as  shareholder  may  give  him, 
to  secure  the  payment  of  debts  due  him  from  the  corporation, 
even  to  the  exclusion  of  other  creditors  who  are  not  share- 
holders.3 And  at  all  events,  the  fact  that  a  person  occupies 
the  status  of  shareholder  or  officer  in  a  corporation,  will  not 
ordinarily  prejudice  his  rights  as  a  creditor,  if  he  happens  to 
be  one.  Thus,  directors  are  not  excluded  from  sharing  as 
creditors,  when  they  are  such,  pro  rata  with  other  creditors  of 
the  corporation.4 

§  812.   The  legal  relations  between  creditors  occupying  no 
other  relationship  towards  the  corporation  are  sim- 
pler.    One  creditor  may  ordinarily  sue  the  corpora-   itors!r  ° 
tion  at  his  will  without  regard  to  the  etfect  which 
his  suit  may  have  on  the  payment  of  debts  due  other  creditors.5 
And  creditors  of  a  railroad  company  may,  in  order  to  protect 
themselves,  combine  into  an  association  and  buy  in  the  road ; 
provided  there  is  no    arrangement   to    prevent    competition. 


i  See  §  729. 

2  See  §  759. 

3  Whitwell  v.  Warner,  20  Vt.  444. 
See  §§  710,  711.  But,  according  to 
the  better  opinion,  a  corporation  can- 
not make  a  valid  insolvent  assign- 
ment with  preferences.  See  §  GC8. 
For  the  doctrine  that  corporate 
funds  are  trust  funds  for  the  pay- 
ment of  debts  of  the  corporation, 
see  §§  654-659  and  §  702,  etc. 

4  Bristol  Milling  and  M'f'g  Co.  v. 
Probasco,  64  Ind.  406. 


5  In  Robinson  v.  Bank  of  Darien, 
18  Ga.  65,  108,  it  is  said  in  substance, 
that  where  a  judicial  preference  has 
been  established  by  the  superior 
legal  diligence  of  any  creditor,  that 
preference  will  be  observed  as  to 
legal  assets,  and  execution  creditors 
are  entitled  to  preference;  though 
perhaps,  as  to  equitable  assets  where 
the  judgment  creditor  must  go  into 
equity,  the  rule  may  be  different, 
and  creditors  are  equal  and  must 
share  proportionately. 

795 


§  813.]      THE    LAW    OF    PRIVATE   CORPORATIONS.   [CHAP.  XVII. 


Moreover,  that  the  trustees  making  the  sale,  and  two  of  the 
directors  of  the  corporation  were  members  of  this  association, 
was  held  not  to  render  the  sale  void,  but  merely  to  give  the 
corporation  a  right  to  redeem  within  a  reasonable  time,  and 
before  new  equities  had  intervened.1 

§  813.  When,    however,  a  corporation    becomes    insolvent, 

its  assets  constitute  a  fund  for  ratable  distribution 
corporation  amongst  its  creditors ;  and  it  has  been  held  that  no 
is  insolvent,  creditor  can  by  suit  or  execution  gain  priority  of 

payment  over  the  rest.2  This,  at  least,  holds  true 
after  the  corporate  assets  have  passed  into  the  hands  of  an 
assignee,  or  a  receiver  has  been  appointed.3  Under  such  cir- 
cumstances it  is  competent  for  a  creditor  to  restrain  the  pay- 
ment to  another  of  a  greater  proportion  of  his  claim  than  the 
rest  receive  : 4  except,  of  course,  when  the  claim  of  the  other  is 
based  on  a  lien  acquired  before  the  insolvency  of  the  corpora- 
tion. Subsequent  lien-creditors,  however,  have  a  standing  in 
court  to  contest  the  enforcement  of  prior  incumbrances  on  the 
corporate  property,5  unless  the  security  of  the  subsequent  lien- 
creditors  is  in  terms  made  subject  to  the  prior  incumbrance.'' 


1  Kitchen  v.  St.  Louis,  etc.,  R'y 
Co.,  69  Mo.  224. 

2  Marr  v.  Bank  of  West  Tennes- 
see, 4  Coldw.  (Tenn.)  471.  Contra, 
Breene  v.  Merchants,  etc.,  B'k,  11 
Col.  97. 

3  Clinkscales  v.  Pendleton  M'f'g 
Co.,  9  S.  C.  318;  Hadley  v.  Freed- 
mau's  Savings  Co.,  2  Tenn.  Ch.  122; 
Roseboom  ».  Whittakev,    132    111.  81. 

^  See  Bank  u.  Lumber  Co.,  91  Tenn. 
12;  Dobson  v.  Simonton,.  86  N.  C. 
492;  Balch  v.  Wilson,  25  Minn.  299; 
Smith   v.   Mosby,    9   Heisk.   (Tenn.) 

v  501;  Lanier  v.  Gayoso  Savings  In- 
stitution, ib.  506;  Cowan  v.  Plate 
Glass  Co.,  184  Pa.  St.  1. 

The  plaintiff  took  a  fire  policy  in 
an  insurance  company  on  an  agree- 
ment that  the  policy  might  be  ter- 
minated at  any  time  on  notice  by 
the  insurers  and  return  of  the  proper 
proportion  of  the  premium,  for  the 
unexpired  term.     The   company  be- 

796 


came  insolvent  and  was  dissolved. 
Its  receiver  notified  all  policy  hold- 
ers that  their  policies  were  termi- 
nated. To  this  notice  the  plaintiff 
paid  no  heed,  and  subsequently  suf- 
fered a  loss.  His  claim  was  to  par- 
ticipate in  the  assets  of  the  company 
in  respect  of  his  loss;  but  the  court 
held  he  could  participate  only  on 
account  of  his  unearned  premium; 
and  based  their  decision  on  the 
ground  that  after  the  dissolution  of 
a  corporation  and  the  appointment 
of  a  receiver,  a  creditor  could  ac- 
quire no  new  rights  against  the  cor- 
poration. Dean  &  Son's  Appeal,  98 
Pa.  St.  101. 

*  Pfohl  0.  Simpson,  74  N.  Y.  137. 
See  People  v.  Security  Life  Ins.  Co., 
71  N.  Y.  222. 

5  Commonwealth  v.  Smith,  10 
Allen,  448;  see  Fox  v.  Seal,  22  Wall. 
424.     Compare  §  185. 

6  Bronson  v.  La  Crosse,  etc.,  R.  R. 


CHAP.  XVII.]  LEGAL  RELATIONS  AMONG  CREDITORS.  [§  814. 


Bat  a  judgment  creditor  will  never  be  entitled  to  dispute  the 
validity  of  a  prior  mortgage  merely  on  the  ground  that  its  ex- 
ecution was  irregular,  when  the  corporation  lias  had  the  bene- 
fit ot  the  mortgage  and  would  itself  be  in  no  position  to  con- 
test its  validity.1 

§  814.  When  there  is  a  receiver  of  the  corporate  assets,  the 
various  rights  of  creditors  are  enforceable  by  him ; 
and  he  may  contest  the  payment  of  debts  arising 
from  ultra  vires  or  illegal  transactions,  and  maintain 
actions  to  recover  moneys  paid  on  illegal  or  fraudu- 
lent claims  to  persons  assuming  to  be  creditors  of  the  corpora- 
tion.2   If,  however,  the  receiver  is  delinquent  in  the  discharge 


Capacities 
of  receiver. 
Mortgage 
trustee. 


Co.,  2  Wall.  283;  Bundy  v.  Iron  Co., 
38  Ohio  St.  300;  Pittsburg  Carbon 
Co.  v.  McMillin,  119  N.  Y.  4(5.  See 
Hasselman  v.  United  States  Mort- 
gage Co.,  97  Ind.  365.  A  decree  of 
sale  of  a  railroad,  had  in  the  fore- 
closure of  a  first  mortgage  thereon, 
recited  that  the  sale  "  shall  be  sub- 
ject to  the  liens  established,  or  which 
may  be  established,  by  said  court  in 
this  cause  on  references  heretofore 
had  and  now  pending,  as  prior  and 
superior  to  the  lien  of  the  holder  of 
bonds  issued  under  the  first  mort- 
gage, decreed  to  be  foreclosed  by 
former  decree  in  said  cause."  These 
references  were  to  a  master  to  deter- 
mine the  priority  of  the  lien  of 
receiver's  certificates  and  the  like, 
and  in  the  orders  of  reference,  per- 
mission was  given  to  the  bondhold- 
ers to  oppose  any  claims  before  the 
master.  The  purchaser  at  the  sale 
was  held  to  have  no  standing  in 
court,  even  on  the  ground  that  these 
liens  had  been  established  by  fraud 
practised  on  the  master  and  the 
court,  to  re-litigate  the  liens  ex- 
pressly subject  to  which  he  bought 
and  took  title,  the  same  recitals 
being  in  substance  expressed  in  his 
deed;  said  purchaser   having   made 


no  offer  to  surrender  the  property 
to  be  re-sold  for  the  benefit  of  those 
concerned.  Swann  v.  Wright's  Ex'r, 
110  U.  S.  590. 

1  Thomas  v.  Citizens'  Horse  R'y 
Co.,  104  111.  462;  Taylor  v.  Agricul- 
tural, etc.,  Ass'n,  68  Ala.  229;  Bundy 
v.  Iron  Co.,  38  Ohio  St.  300. 

2  See  Whittlesey  v.  Delaney,  73 
N.  Y.  571;  also  §§  273,  542.  The 
receiver  of  a  corporation  may  avoid 
a  chattel  mortgage  on  its  property, 
on  the  ground  that  it  was  not  filed 
according  to  law.  Farmers'  L.  and 
T.  Co.  v.  Minneapolis,  etc.,  Works, 
35  Minn.  543.  Compare,  as  to  re- 
ceiver's powers,  Vanderbilt  v.  Cen- 
tral R.  R.,  43  N.  J.  Eq.  669;  Harring- 
ton v.  Connor,  51  Neb.  214;  Bosworth 
v.  Terminal  Road  Ass'n,  174  U.  S.  182. 
A  receiver  of  a  railroad  property  is 
not  bound  to  adopt  the  contracts 
(accept  the  leases)  of  the  railroad 
company;  he  is  entitled  to  a  reason- 
able time  to  elect  whether  to  adopt 
or  repudiate.  If  he  elect  to  adopt 
a  lease,  he  becomes  vested  with  title 
to  the  leasehold  interest,  and  is  lia- 
ble upon  the  covenant  to  pay  rent. 
United  States  Trust  Co.  v.  Wabash 
R'y,  150  U.  S.  287. 

797 


§  815.]      THE   LAW    OF   PRIVATE   CORPORATIONS.  [CHAP.  XVII. 


of  his  trust,  an  injured  creditor  will  have  a  standing  in  court 
to  enforce  the  proper  distribution  of  the  corporate  assets.1 

Mortgages  or  trust  deeds  covering  the  property  of  corpora- 
tions are  usually  made  to  a  trustee  for  bondholders,  who  there- 
by becomes,  in  accordance  with  the  terms  of  the  mortgage  or 
trust  deed,  the  representative  of  the  bondholders  for  the  pur- 
poses of  the  trust.2  "  The  trustee  of  a  railroad  mortgage,"  said 
Chief  Justice  Waite,  giving  the  opinion  of  the  Federal  Supreme 
Court  in  Shaw  v.  Railroad  Co.,  "represents  the  bondholders  in 
all  legal  proceedings  carried  on  by  him  affecting  his  trust,  to 
which  they  are  not  actual  parties,  and  whatever  binds  him,  if 
he  acts  in  good  faith,  binds  them." 3  Bondholders  ordinarily 
are  not  necessary  parties  to  a  foreclosure  suit  brought  by  their 
trustee  ; 4  and  notice  to  the  trustee  in  matters  relating  to  his 
trust  is  notice  to  the  bondholders.5 

§815.  When  a  number  of  creditors,  as,  for  instance,  bond- 
holders, have  claims  against  a  corporation  arising 
from  the  same  transaction  or  series  of  transactions, 
and  secured  by  the  same  security,  their  mutual  rela- 
tions, as  well  as  their  relations  towards  the  corpora- 
tion, will  largely  depend  on  the  terms  of  their 
security.  In  such  case,  however,  even  in  the  absence  of  any 
special    provision   or   agreement    forbidding    it,   one   creditor 


Creditors 
having 
claims 
founded  on 
the  same 
instrument. 


1  See  Pfohl  v.  Simpson,  74  N.  Y. 
137. 

2  Bondholders  are  ailected  with 
notice  of  the  terms  of  the  mortgage 
or  trust  deed  securing  their  bonds. 
See  §  674. 

;i  Shaw  v.  Railroad  Co.,  100  U.  S. 
605,  611;  ace.  Beals  v.  Illinois,  etc., 
R.  R.  Co.,  133  U.  S.  290;  El  well  v. 
Fosdick,  134  U.  S.  500;  Rumsey  v. 
People's  R'y  Co.,  154  Mo.  215. 

4  Shaw  v.  Norfolk  County  R.  R. 
Co.,  5  Gray  (Mass.),  162;  Williamson 
o.  New  Jersey  Southern  R.  R.  Co.,  25 
N.  J.  Eq.  13. 

5  Actual  notice  to  a  mortgage 
trustee  of  an  agreement  to  which 
property  received  by  a  railroad  com- 
pany is  subject,  is  notice  to  bond- 
holders.    Pierce  ».  Emery,  32  N.  H. 

798 


484.  So  is  actual  notice  to  trustee 
of  a  prior  equitable  mortgage.  Mil- 
ler v.  Rutland,  etc.,  R.  R.  Co.,  36  Vt. 
452.  But  see  Commissioners,  etc., 
v.  Thayer,  94  U.  S.  631. 

A  mortgage  trustee  in  possession 
cannot  bind  the  bondholders  per- 
sonally for  the  payment  of  the  ex- 
penses of  the  road.  See  Chaffee  v. 
Rutland  R.  R.  Co.,  53  Vt.  345.  Com- 
pare  Sturgis  u.  Knapp,  31  Vt.  1. 

When  a  mortgage  trustee  is  him- 
self a  judgment  creditor,  bondhold- 
ers cannot  object  to  his  levying  exe- 
cution on  property  of  the  railroad 
company  not  covered  by  the  mort- 
gage.    Elbridge  v.  Smith,  34  Vt.  384. 

As  to  officers  of  the  corporation 
acting  as  trustees  for  bondholders, 
see  §  629  note. 


CHAP.  XVII.]  LEGAL  RELATIONS  AMONG  CREDITORS.  [§  815. 


cannot  proceed  alone  and  enforce  his  rights  against  the  cor- 
poration to  the  detriment  of  other  creditors  similarly  situated. 
When  persons  have  a  common  interest  in  a  security,  equity 
will  not  allow  one  of  them  to  appropriate  it  exclusively  to 
himself,  or  impair  its  worth  to  the  others ;  for  community  of 
interest  involves  mutual  obligation.  Thus,  although  one 
bondholder  under  a  railroad  mortgage  may  often  use  it  to 
enforce  the  payment  of  his  claim,1  he  cannot  use  it  to  obtain 
an  advantage  for  himself  over  the  other  bondholders ;  he  can- 
not use  it  to  become  the  owner  of  the  mortgaged  premises  at 
the  lowest  possible  price,  leaving  unpaid  the  bonds  of  the 
other  bondholders.  His  duty,  if  he  uses  the  security,  is  to 
make  it  productive  of  the  most  obtainable  for  all  interested  in 
it;  and  if  he  seeks  to  make  a  profit  at  the  expense  of  those 
whose  rights  in  the  security  are  the  same  as  his  own,  he  is  un- 
faithful to  the  relation  which  he  has  assumed,  and  guilty  of 
fraud.2  "  If  a  single  bondholder  has  any  right  at  all  to  insti- 
tute proceedings,  he  is  bound  to  act  for  all  standing  in  a  simi- 


1  When  a  trustee  under  a  mort- 
gage, on  being  applied  to  in  pursu- 
ance of  its  terms,  refuses  to  sue,  the 
bondholders  may  themselves  sue, 
making  the  trustee,  the  corpora- 
tion, and  the  rest  of  the  bondhold- 
ers parties.  Hotel  Co.  v.  Wade,  97 
U.  S.  13;  Commonwealth  v.  Susque- 
hanna, etc.,  R.  R.  Co.,  122  Pa.  St. 
306.  See  Galveston  R.  R.  v.  Cow- 
drey,  11  Wall.  459;  Western  Penn. 
Hospital  v.  Mercantile  Library  Hall 
Co.,  189  Pa.  St.  269;  §682.  But  see 
Hackensack  Water  Co.  v.  DeKay,  36 
N.  J.  Eq.  548;  and  compare  New 
York  Guaranty,  etc.,  Co.  v.  Memphis 
Water  Co.,  107  U.  S.  205.  Unsecured 
creditors  are  not  proper  parties  to  a 
suit  to  foreclose  a  mortgage  on  the 
property  of  a  corporation.  Herring 
v.  N.  Y.,  etc.,  R.  R.  Co.,  105  N.  Y. 
340. 

In  a  recent  case  in  Maine,  damage 
was  occasioned  by  sparks  from  a 
locomotive,  while  the  railroad  was 
being  operated  by  trustees  under  a 


mortgage,  before  foreclosure.  An 
action  was  brought  under  a  statute 
providing  that,  "  when  a  building  or 
other  property  is  injured  by  fire  com- 
municated by  a  locomotive  engine, 
the  corporation  using  it  is  responsi- 
ble for  such  injury."  It  was  held 
that  a  corporation  subsequently 
formed  of  the  bondholders  was 
not  liable;  nor  were  the  bond- 
holders liable  themselves,  as  the 
trustees  were  operating  the  road 
on  their  own  responsibility  and  not 
as  agents  for  the  bondholders;  and 
a  statute  protected  the  trustees. 
Stratton  v.  European,  etc.,  R'y,  74 
Me.  422.  But  see  S.  C,  76  Me.  269. 
2  Jackson  v.  Ludeling,  21  Wall. 
616.  In  this  case,  the  managers  and 
local  officers  of  an  embarrassed  rail- 
road company,  holding  a  small  por- 
tion of  its  bonds,  had  obtained  a 
hasty  order  of  sale  and  sold  out  the 
road,  grossly  disregarding  the  rights 
of  the  rest  of  the  bondholders.  At 
the  suit  of  the  injured  bondholders 

799 


§  815.]      THE    LAW    OF    PRIVATE    CORPORATIONS.  [CHAP.  XVII. 


lar  position,  and  not  only  to  permit  other  bondholders  to 
intervene,  but  to  see  that  their  rights  are  protected  in  the 
final  decree.'" ' 

In  another  case,  where  a  railroad  mortgage  of  doubtful 
adequacy  had  been  executed  directly  to  all  the  bondholders  by 
name,  to  secure  specifically  the  sum  due  to  each,  it  was  held 
that  no  single  bondholder,  even  though  professing  to  act  on 
behalf  of  all  who  might  come  in  and  contribute  to  the  expenses 
of  the  suit,  could  proceed  alone  against  the  company,  and 
obtain  a  sale  of  the  property  mortgaged.  For,  the  sufficiency 
of  the  security  being  doubtful,  all  other  creditors  similarly 
situated  should  have  had  notice,  in  order  to  protect  their 
interests;  and  even  in  equity,  a  suit  on  a  written  instrument 
should  be  brought  in  the  name  of  all  who  are  formal  parties  to 
it,  and  retain  an  interest  therein.2  And  again,  where  a  col- 
lusive and  fraudulent  sale  of  corporate  property,  procured  by 
one  set  of  creditors,  had  been  set  aside  at  the  suit  of  other 
creditors,  the  creditors  procuring  the  collusive  sale  were  held 
not  entitled  to  recover  back  money  which  they  had  paid  to  the 
holders  of  a  prior  mortgage  at  a  time  when  the  suit  to  set  the 
sale  aside  was  pending ;  nor  were  they  entitled  to  be  sub- 
rogated to  the  security  of  such  mortgage.3 


the  sale  was  set  aside.  Compare 
Wabash,  etc.,  Canal  Co.  v.  Beers,  2 
Black,  448. 

A  bondholder  under  a  mortgage 
will  not  be  entitled  on  the  foreclosure 
of  the  same  to  enforce  a  side  agree- 
ment made  by  him  with  the  corpora- 
tion, by  which  he  would  obtain  an 
inequitable  advantage  over  the  other 
bondholders.  Vose  v.  Bronson,  (i 
Wall.  452. 

When  bonds  in  excess  of  the 
limit  under  a  mortgage  are  sold  to 
bona  fide  purchasers,  and  nothing 
appears  in  the  bonds  or  in  the  mort- 
gage by  which  the  purchasers  could 
have  ascertained  that  the  bonds 
which  they  purchased  were  unau- 
thorized, such  purchasers  will  be  en- 
titled to  share  pro  rota  with  the 
other  bondholders.     Stanton  v.  Ala- 

800 


bama,  etc.,  R.  R.  Co.,  2  Woods,  523. 
The  decision  of  the  court,  however, 
seems,  in  this  case,  actually  to  have 
rested  on  the  inability  of  the  court 
to  determine  which  were  the  bonds 
that  had  been  issued  in  excess,  the 
court  saying  that  it  did  not  follow 
that  the  highest  numbers  were  such, 
as  the  bonds  might  all  have  been  ne- 
gotiated together,  and  the  highest 
numbers  sold  first. 

1  New  Orleans  Pac.  R\y  v.  Parker, 
143  U.  S.  42,  58,  opinion  of  court  per 
Brown,  J. 

2  Railway  Co.  v.  Orr,  18  Wall. 
471.  See  Pennock  v.  Coe,  23  How. 
117. 

3  Railroad  Co.  v.  Soutter,  13  Wall. 
517.  Compare  Drury  v.  Cross,  7 
Wall.  290;  §  700.  But  trustees  un- 
der a  railroad  mortgage  containing 


CHAP.  XVII.]  LEGAL  RELATIONS  AMONG  CREDITORS.  [§  816. 

§  816.  The   provisions   contained   in   some   trust  deeds   and 
mortgages   for   the  benefit   of   bondholders   go  far 

Provisions 

towards  organizing  the  bondholders  into  a  body  in  railroad 
corporate  to  take  the  place  and  perform  the  func-  mortgases- 
tions  of  the  original  corporation  upon  the  insolvency  of  the 
latter.  Thus,  in  the  mortgage  of  a  railroad  it  was  cove- 
nanted and  agreed  by  all  the  parties  thereto,  "  that  in  case  of  an}' 
judicial  foreclosure  sale,  ....  and  the  holders  of  a  majority 
of  the  then  outstanding  bonds  secured  by  this  mortgage  shall 
in  writing  request  said  trustees  or  their  successors,  they  are 
authorized  to  purchase  premises  embraced  herein  for  the  use 
and  benefit  of  the  holders  of  the  then  outstanding  bonds 
secured  by  this  mortgage,  and  having  so  purchased  said 
premises,  the  right  and  title  thereto  shall  vest  in  said  trustees, 
and  no  bondholder  shall  have  any  claim  to  the  premises  or  the 
proceeds  thereof,  except  for  his  pro  rata  share  of  the  proceeds 
of  the  said  purchased  premises,  as  represented  in  a  new  com- 
pany or  corporation  to  be  formed  for  the  use  and  benefit  of  the 
holders  of  the  bonds  secured  hereby,  and  the  said  trustees  may 
take  such  lawful  measures  as  deemed  for  the  interest  of  said 
bondholders,  to  organize  a  new  company  or  corporation  for  the 
benefit  of  the  holders  of  the  bonds  secured  by  this  mortgage. 
Said  new  company  or  corporation  shall  be  organized  upon  such 
terms,  conditions,  and  limitations,  and  in  such  a  manner,  as 
the  holders  of  a  majority  of  the  said  outstanding  bonds  secured 
by  this  mortgage  shall  in  writing  request  or  direct,  and  said 
trustees  so  purchasing  shall  thereupon  re-convey  the  premises 
so  purchased  by  them  to  said  new  company  or  corporation."  A 
default  having  been  made,  and  a  foreclosure  brought,  the  court 
held  that  this  agreement  inured  equally  to  the  benefit  of  all 


covenants  of  warranty  may  buy  up 
a  prior  incumbrance  to  protect  tbe 
property  from  a  forced  sale,  and  will 
be  entitled  to  subrogation  to  tbe 
security  as  against  tbe  company,  and 
to  be  reimbursed  tbe  amount  paid 
by  tbem  witb  legal  interest.  Mem- 
phis and  L.  R.  R.  R.  Co.  v.  Dow, 
120  U.  S.  287. 

Where  a  majority  of  shareholders 
and   creditors   foreclose   a    railroad 

51 


collusively,  such  shareholders  are 
necessary  parties  to  a  bill  to  set  the 
sale  aside.  Ribon  v.  Railroad  Cos., 
16  Wall.  446.  But  bondholders  un- 
der a  mortgage  are  not  ordinarily 
necessary  parties  to  a  foreclosure 
suit  brought  by  tbe  trustees  under 
the  mortgage.  Williamson  v.  New 
Jersey  Southern  R.  R.  Co.,  25  N.  J. 
Eq.  13,  §  814. 

801 


§  816a.]   THE   LAW    OF    PRIVATE   CORPORATIONS.  [CHAP.  XVII. 

the  bondholders,  and  that  each  held  his  interest  subject  to  the 
controlling  power  therein  given  to  the  majority.1 

It  has  recently  been  held  by  the  United  States  Supreme 
Court,  that  when  the  franchises  of  a  corporation  are  mort- 
gaged under  statutes  conferring  upon  purchasers  at  foreclosure 
sale  the  authority  on  compliance  with  certain  forms  to  become 
a  corporation,  no  contract  arises  between  the  bondholders  and 
the  state  that  these  statutory  forms  shall  remain  the  same  or 
that  the  state  shall  impose  no  further  conditions.  The  right  of 
the  bondholders  is  to  reorganize  under  whatever  laws  are  in  force 
at  the  time  of  reorganization.2 

§  816a.  Ordinarily,   a   majority   of    mortgage   bondholders 

cannot  by  an  agreement  that  the  railroad  company 

Reorganize  mav  issue  a  mortgage  taking  preference  to  theirs, 

tions.  J  °   °  °    * 

affect  the  rights  of  a  minority.3  And  neither  can 
bondholders  or  shareholders  claim  the  benefits  of  a  reorganiza- 
tion when   they  fail  to  comply  with  its  terms.4     In  a  case 


1  Sage  v.  Central  R.  R.  Co.,  99 
U.  S.  334.  See,  also,  Shaw  v.  Rail- 
road Co.,  100  U.  S.  605. 

2  Schurz  v.  Cook,  148  U.  S.  397; 
Memphis  &  L.  R.  R.  R.  Co.  v.  Com- 
missioners, 112  U.  S.  609,  621. 

8  Poland  v.  Lamoille  Valley  R.  R. 
Co.,  52  Vt.  144  ;  Hollister  v.  Stew- 
art, 111  N.  Y.  644.  Nor  can  trus- 
tees of  the  mortgage  do  so,  nor  waive 
defaults  in  payments  of  principal  or 
interest.  lb.  But  provisions  ena- 
bling a  majority  of  bondholders  to 
modify  the  mortgage  rights  of  all 
may  be  inserted  in  the  mortgage. 
Follit  v.  Edistone  Granite  Quarries, 
(1892)  3  Ch.  75;  Sneath  v.  Valley 
Gold,  (1893)  1  Ch.  477.  As  to  pri- 
orities of  the  holders  of  detached 
coupons  over  bondholders,  see  Se- 
wall  v.  Brainerd,  38  Vt.  364;  Miller 
v.  Rutland,  etc.,  R.  R.  Co.,  40  Vt. 
399. 

A  person  who  advances  money  to 
the  corporation  to  take  up  coupons, 
under  an  undisclosed  agreement  that 
they  are  to  be  delivered  to  him  un- 

802 


cancelled,  but  the  coupon-holders 
having  no  reason  to  think  they  were 
not  paid,  but  rather  having  every 
reason  to  suppose  them  simply  paid 
and  cancelled,  cannot  claim  a  lien 
under  the  mortgage;  he  is  merely  a 
creditor  of  the  corporation.  Cam- 
eron v.  Tome,  64  Md.  507. 

4  Fidelity  Ins.  Co.'s  Appeal,  106 
Pa.  St.  144.  See  Weston  v.  New 
Guston  Co.,  64  L.  T.  Rep.  815. 
When  a  statute  provides  that  any 
shareholder  may  within  six  months 
come  in  and  assent  to  a  plan  of  re- 
organization (after  a  railroad  fore- 
closure) and  comply  with  its  terms 
and  thereby  become  entitled  to  share 
in  the  benefits,  he  gains  no  rights  by 
an  assent  after  the  six  months  have 
expired;  and  equity  cannot  relieve 
him  from  the  effect  of  his  failure  to 
perform  this  condition  precedent. 
Vatable  v.  New  York,  etc.,  R.  R.  Co., 
96  N.  Y.  49. 

In  setting  aside  a  foreclosure  sale 
and  directing  a  further  inquiry  into 
the  circumstances  of  the  case,  the 


CHAP.  XVII.]  LEGAL  RELATIONS  AMONG  CREDITORS.        [§  816«. 

which  not  long  ago  came  before  the  Supreme  Court  of  the 
United  States,  the  parliament  of  the  Dominion  of  Canada  had 
authorized  a  railroad  corporation,  existing  under  its  authority, 


Supreme  Court  has  uttered  the  fol- 
lowing dictum  upon  the  subject  of 
reorganization  agreements  :  "  We 
must,  therefore,  recognize  the  fact, 
for  it  is  a  fact  of  common  knowledge, 
that,  whatever  the  legal  rights  of 
the  parties  may  be,  ordinarily  fore- 
closures of  railroad  mortgages  mean 
not  the  destruction  of  all  inter- 
est of  the  mortgagor  and  a  trans- 
fer to  the  mortgagee  alone  of  the 
full  title,  but  that  such  proceed- 
ings are  carried  on  in  the  interests 
of  all  parties  who  have  any  rights  in 
the  mortgaged  property,  whether  as 
mortgagee,  creditor  or  mortgagor. 
We  do  not  stop  to  inquire,  because 
the  question  is  not  presented  by  this 
record,  whether  a  court  is  justified 
in  permitting  a  foreclosure  and  sale 
which  leaves  any  interest  in  the 
mortgagor,  to  wit,  the  railroad  com- 
pany and  its  stockholdeis,  and  ought 
not  always  to  require  an  extinction 
of  the  mortgagor's  interest  and 
a  full  transfer  to  the  mortgagee, 
representing  the  bondholders.  As- 
suming that  foreclosure  proceedings 
may  be  carried  on  to  some  extent  at 
least  in  the  interests  and  for  the 
benefit  of  both  mortgagee  and  mort- 
gagor (that  is,  bondholder  and  stock- 
holder), we  observe  that  no  such 
proceedings  can  be  rightfully  car- 
ried to  consummation  which  recog- 
nize and  preserve  any  interest  in 
the  stockholders  without  also  recog- 
nizing and  preserving  the  interests, 
not  merely  of  the  mortgagee,  but  of 
every  creditor  of  the  corporation. 
In  other  words,  if  the  bondholder 
wishes  to  foreclose  and  exclude  in- 
ferior lienholders  or  general  un- 
secured creditors  and  stockholders  he 


may  do  so,  but  a  foreclosure  which 
attempts  to  preserve  any  interest  or 
right  of  the  mortgagor  in  the  prop- 
erty after  the  sale  must  necessarily 
secure  and  preserve  the  prior  rights 
of  general  creditors  thereof.  This  is 
based  upon  the  familiar  rule  that  the 
stockholder's  interest  in  the  prop- 
erty is  subordinate  to  the  rights  of 
creditors;  first  of  secured  and  then 
of  unsecured  creditors.  And  any 
arrangement  of  the  parties  by  which 
the  subordinate  rights  and  interests 
of  the  stockholders  are  attempted  to 
be  secured  at  the  expense  of  the 
prior  rights  of  either  class  of  cred- 
itors comes  within  judicial  denun- 
ciation." Louisville  Trust  Co.  v. 
Louisville,  N.  A.  &.  C.  R'y  Co.,  174 
U.  S.  674;  but  see  comments  upon 
this  case  by  the  Circuit  Judge  upon 
again  confirming  the  sale,  sub  nom. 
Farmers'  L.  &  T.  Co.  o.  Louisville, 
N.  A.  &  C.  R'y  Co.;  In  re  Louisville 
Tr.  Co.,  103  Fed.  R.  110;  and  in 
Wenger  v.  Chicago  &  E.  R.  Co.,  114 
Fed.  R.  34.  See,  also,  Paton  v.  Nor. 
Pac.  R.  R.  Co.,  85  Fed.  R.  838;  and 
Ferguson  o.  Ann  Arbor  R.  R.  Co.,  17 
N.  Y.  App.  Div.  336. 

A  provision  in  the  constitution  of 
Arkansas,  that  "no  private  corpora- 
tion shall  issue  stock  or  bonds  ex- 
cept for  money  or  property  actually 
received,  or  labor  done;  aud  all  ficti- 
tious increase  of  stock  or  indebted- 
ness shall  be  void,"  does  not  prevent 
the  carrying  out  of  an  agreement 
between  mortgage  bondholders  of  an 
embarrassed  railroad,  whereby  trus- 
tees are  to  buy  the  mortgaged  prop- 
erty on  foreclosure,  and  convey  it  to 
a  new  company  to  be  organized  by 
the  bondholders,  which  should  issue 

803 


§  816a.]    THE   LAW    OF    PRIVATE   CORPORATIONS.   [CHAP.  XVII. 

to  enforce  a  settlement  upon  the  mortgage  creditors  of  the 
company,  by  which  they  were  to  receive  other  securities  of  the 
company  in  place  of  their  mortgage  bonds ;  and  the  settlement 
preserved  the  right  of  citizens  of  the  United  States,  being 
bondholders,  to  participate  in  the  reorganization  on  the  same 
terms  as  Canadians  and  other  British  subjects.  The  settle- 
ment, assented  to  by  more  than  three-fourths  of  the  bond- 
holders, having  gone  into  effect,  the  court  held  that  it  was 
binding  on  non-assenting  bondholders,  citizens  of  the  United 
States,  who  brought  suit  in  a  Federal  court  to  recover  on  their 
bonds.1  Giving  the  opinion  of  the  court,  Chief  Justice  Waite 
said:  "  Holders  of  bonds  and  other  obligations  issued  by  large 
corporations  for  sale  in  the  market,  and  secured  by  mortgages 
to  trustees  or  otherwise,  have  by  fair  implication  certain  con- 
tract relations  with  each  other.  .  .  .  They  are  not  corpora- 
tions, and  thus  necessarily,  in  the  absence  of  fraud  or  undue 
influence,  bound  by  the  will  of  the  majority  as  to  matters 
within  the  scope  of  the  corporate  powers,  but  they  are  inter- 
ested in  the  administration  of  a  trust  which  has  been  created 
for  their  common  benefit.  Ordinarily,  their  ultimate  security 
depends  in  a  large  degree  on  the  success  of  the  work  in  which 
the  corporation  is  engaged,  and  it  is  not  uncommon  for  differ- 
ences of  opinion  to  exist  as  to  what  ought  to  be  done  for  the 
promotion  of  their  mutual  interests.  In  the  absence  of  statu- 
torv  authority,  or  some  provision  in  the  instrument  which 
establishes  the  trust,  nothing  can  be  done  by  a  majority,  how- 
ever large,  which  will  bind  a  minority  without  their  consent.* 
Hence  it  seems  to  be  eminently  proper  that  where  the  legisla- 
tive power  exists  some  statutory  provision  should  be  made  for 
binding  the  minority  in  a  reasonable  way  by  the  will  of  the 
majority  ;  and  unless,  as  in  the  case  in  the  states  of  the  United 
States,  the  passage  of  laws  impairing  the  obligation  of  contracts 
is  forbidden,  we  see  no  reason  why  such  provisions  may  not  be 
made  in  respect  to  existing  as  well  as  prospective  obligations. 
The  nature  of  securities  of  this  class  is  such  that  the  right  of 


new  mortgage  bonds  in  lieu  of  the 
old  bonds,  and  full  paid  up  stock  to 
the  bondholders  without  any  pay- 
ment of  money.  Memphis  &  L.  R. 
R.  R.  Co.  v.  Dow,  120  U.  S.  287. 
804. 


1  Canada  Southern  R.  Co.  v.  Geb- 
hard,  109  U.  S.  527. 

2  Same  language  used  in  Gilfillan 
v.  Union  Canal  Co.,  109  U.  S.  401, 
403. 


CHAP.  XVII.]  LEGAL  RELATIONS  AMONG  CREDITORS.  [§  817. 


legislative  supervision  for  the  good  of  all,  unless  restrained  by 
some  constitutional  prohibition,  seems  almost  necessarily  to 
form  one  of  their  ingredients,  and  when  insolvency  is  threat- 
ened, and  the  interests  of  the  public,  as  well  as  creditors,  are 
imperilled  by  the  financial  embarrassments  of  the  corporation, 
a  reasonable  'scheme  of  arrangement'  may  in  our  opinion  as 
well  be  legalized  as  an  ordinary  '  composition  in  bankruptcy.' 
In  fact  such  i  arrangement  acts '  are  a  species  of  bankrupt  acts. 
Their  object  is  to  enable  corporations  created  for  the  good  of 
the  public  to  relieve  themselves  from  financial  embarrassments 
by  appropriating  their  property  to  the  settlement  and  adjust- 
ment of  their  affairs,  so  that  they  may  accomplish  the  purposes 
for  which  they  were  incorporated."  1 

§  817.  A  mortgage  by  a  corporation,  as  for  instance  a  rail- 
road company,  when  competently  made,  attaches  to  whatever 
of  the  property  of  the  corporation  it  purports  to  cover, 
whether  acquired  or  to  be  acquired ;  and  the  bond- 
holders under  such  mortgage  have  ordinarily  a 
lien  on  the  property  covered  by  the  mortgage  prior 
in  law  as  in  time  to  any  subsequently  accruing 
rights  of  other  creditors.2  But  if  at  the  time  of  ex- 
ecuting a  railroad  mortgage  there  exists  statutes  which  give 
contractors  a  first  lien  on  railroads  for  labor  performed  on  them, 
a  contractor  by  duly  filing  his  lien  in  accordance  with  the  stat- 
ute will  acquire  as  against  the  mortgagees  and  bondholders  a 
lien  prior  in  effect,  although  the  mortgage  may  have  been 
recorded  first.3 


Mortgages 
covering 
property  to 
be  ac- 
quired. 
Contract- 
ors' liens. 


1  Canada  Southern  R.  Co.  v.  Geb- 
hard,  109  U.  S.  527,  534,  etc. 

2  See,  e.  g.,  Loudenslager  v.  Ben- 
ton, 4  Phila.  382;  Covey  v.  Pitts- 
burgh, Ft.  W.,  etc.,  R.  R.  Co.,  3 
Phila.  173;  Hamlin  v.  Jerrard,  72 
Me.  62;  Hamlin  v.  European,  etc., 
R.  R.  Co.,  72  Me.  83.  As  to  what 
property  a  railroad  mortgage  covers, 
see  §  676. 

So  when  a  corporation  accepts 
bonds  of  a  state  or  county  issued  by 
virtue  of  a  law  which  declares  that 
they  shall  be  a  first  lien  on  its 
property,  such  lien  will  arise  on  the 


acceptance  of  them  by  the  corpora- 
tion, and  a  purchaser  of  the  road  or 
of  its  bonds  issued  under  a  subse- 
quent mortgage,  is  bound  to  take 
notice  of  the  act;  and  the  lien  of 
the  county  under  the  act  is  enforce- 
able against  the  funds  in  the  hands 
of  a  receiver,  appointed  in  a  fore- 
closure suit  of  the  subsequent  mort- 
gage, and  against  the  purchaser  of 
the  road.  Ketchum  i\  St.  Louis, 
101  U.  S.  306;  Wilson  v.  Boyce,  92 
U.  S.  320. 

3  Brooks  v.   R.    R.   Co.,   101   U.   S. 
443;  Meyer  v.  Hornby,  ib.  728.     See 

805 


§  818.]      THE    LAW    OF    PRIVATE   CORPORATIONS.  [CHAP.  XVII. 

§  818.  When  a  railroad  company  mortgages  its  road,  "built 
and  to  be  built,"  although  at  the  time  when  the  mortgage  is 
executed  but  a  portion  of  the  road  is  built,  the  mortgage 
attaches  to  the  unbuilt  portions  of  the  road  as  they  are  built, 
and  takes  precedence  of  the  claims  of  the  contractors1  (unless 
there  are  statutes  giving  contractors  a  prior  lien),  and  judg- 
ment creditors,  as  well  as  bondholders  under  a  subsequent 
mortgage  covering  the  portions  of  the  road  which  were  unbuilt 
when  the  first  mortgage  was  given.2  A  mortgage,  however, 
intended  to  cover  after-acquired  property  attaches  to  such 
property  in  the  condition  in  which  it  comes  into  the  possession 
of  the  company.3  Consequently,  if  property,  when  acquired 
by  the  company,  is  already  subject  to  mortgages  or  other  liens, 
the  general  mortgage,  though  prior  in  time,  does  not  displace 
them  ;  and  if  a  railroad  company  when  acquiring  property 
gives  back  a  purchase-money  mortgage,  the  giving  of  the  mort- 
gage and  the  purchase  of  the  property  constituting  one  trans- 
action, the  purchase-money  mortgage  will  take  precedence,  in 
respect  of  the  property  purchased,  over  every  lien,  or  mort- 
gage, or  judgment  covering  the  entire  property  of  the  com- 
pany.4 Thus,  a  railroad  company  mortgaged  its  present  and 
future  property,  and  then  entered  in  a  written  agreement  with 
a  car  company,  by  which  the  former  hired  certain  cars  at  a 
rent  payable  monthly,  reserving  the  right  to  purchase  them  at 
their  original  cost,  the  car  company  retaining  the  right  to 
rescind  the  agreement  if  the  railroad  company  failed  to  pay  the 
interest  on  its  bonds.  While  this  contract  was  in  force,  the 
mortgagee  filed  a  foreclosure  bill,  and  a  receiver  was  appointed 
in  the  foreclosure  suit,  who  took  charge  of  the  road,  and  used 


Fox  v.  Seal,  22  Wall.  424.  Compare 
Woods  v.  Pittsburgh,  Cinn.  and  St. 
L.  Ry.  Co.,  99  Pa.  St.  101. 

1  Duuhain  v.  Railway  Co.,  1  Wall. 
254;  Thompson  o.  Valley  R.  R.  Co., 
132  U.  S.  68. 

2Pennock  v.  Coe,  23  How.  117; 
Galveston  It.  R.  Co.  v.  Cowdrey,  11 
Wall.  459;  First  Nat.  Bk.  v.  Ander- 
son, 75  Va.  250.  See  Buck  v.  Sey- 
mour, 46  Conn.  156;  Branch  v.  At- 
lantic,  etc.,  R.  R.  Co.,  3  Woods,  481. 

8  Botsford  v.  New  Haven,  etc.,  R. 

806 


R.  Co.,  41  Conn.  454;  Williamson  v. 
New  Jersey  Southern  R.  R.  Co.,  29 
N.  J.  Eq.  311. 

4  United  States  v.  New  Orleans 
Railroad,  12  Wall.  362,  where  it  was 
held  that  a  failure  to  register  the 
purchase-money  mortgage  made  no 
difference;  but  the  court  said  that  if 
the  purchased  property  had  been 
rails  to  be  attached  to  the  road,  the 
case  might  have  been  decided  dif- 
ferently. See,  also,  Botsford  v.  New 
Haven,    M.   and   W.    R.    R.    Co.,  41 


CHAP.  XVII. ]  LEGAL  RELATIONS  AMONG  CREDITORS.  [§  820. 


the  cars  above  mentioned  in  operating  it.  The  court  held  that 
the  contract  between  the  railroad  company  and  the  car  company 
was  binding,  and  that  the  latter  was  entitled  to  the  possession 
of  the  cars,  and  to  compensation  for  their  use  by  the  receiver, 
payable  out  of  the  fund  to  the  credit  of  the  foreclosure  suit.1 

§  819.  A  railroad  company   may    give    distinct   mortgages 
covering  separate  portions  of  its  road,  and  in  such   Mortgages 

i  •    i  ,  ,i  ,.  of  separate 

case  one  mortgagee  has  no  rights  over  the  portion   portions  of 
of  the  road  covered  by  the  other  mortgage,  and  is   KoiiLog" 
not  even  a  necessary  party  to  a  suit  to  foreclose  it.2  stock- 
In  regard  to  rolling  stock,  however,  it  may  be  different,  and 
it  has  been  held  that  in  the  absence  of  any  specific  apportion- 
ment between  the  several  divisions  of  the  road  covered  by 
separate  mortgages,  the  terms  of  which  are  sufficiently  broad 
to  include  rolling  stock,  such  mortgages  attach  to  all  the  roll- 
ing stock  in  the  order  of  their  priority.3 

§  820.  Where,  according  to  the  terms  of  a  railroad  mort- 
gage, the  company  is  to  hold  possession,  of  the  road 
and  received  the  earnings,  until  the  mortgagees  take 
possession,  or  the  proper  judicial  authority  interposes,  such 
possession  gives  the  company  a  right  to  the  whole  fund  of  the 
earnings  and  subjects  them  to  its  control.  The  earnings,  con- 
sequently, remain  as  liable  to  the  creditors  of  the  company 
as  if  the  mortgage  did  not  exist.4     Thus,  a  corporation  mort- 


Conn.  454;  Hand  v.  Savannah,  etc., 
R.  R.  Co.,  12  S.  C.  314,  364;  Hall  v. 
Mobile,  etc.,  Ry.  Co.,  58  Ala.  10. 

1  Myer  v.  Car  Company;  102  U. 
S.  1. 

2  Bronson  v.  Railroad  Co.,  2  Black, 
524.  Compare  Chicago,  Danville, 
etc.,  Ry.  Co.  v.  Lowenthall,  93  111. 
433. 

3  Minnesota  Co.  v.  St.  Paul  Co.,  6 
Wall.  742.     See  §  676. 

Where  a  receiver  in  Kentucky  is 
appointed  under  a  mortgage  includ- 
ing rolling  stock,  an  Ohio  couivt  will 
enforce  his  claim  on  a  part  of  such 
rolling  stock,  temporarily  in  Ohio, 
as  against  the  attachment  of  an  un- 
secured Kentucky  creditor.  Bank 
v.  McLeod,  38  Ohio  St.  174. 


4  Gilman  v.  Illinois,  etc.,  Tel.  Co., 
91  U.  S.  603.  Even  though  the 
mortgage  cover  income.  Dow  v. 
Memphis  R.  R.  Co.,  124  U.  S.  652; 
Sage  v.  Memphis,  etc.,  R.  R.  Co., 
125  U.  S.  361.  A  decree,  silent  as 
to  the  profits  and  possession  of  the 
road  from  the  date  of  the  decree 
until  the  sale  thereby  ordered,  does 
not  affect  rights  to  such  profits  and 
possession  during  that  period.  lb. 
DeGraff  v.  Thompson,  24  Minn.  452. 
Compare  One  v.  Peacock,  14  O.  St. 
187;  Coe  v.  Columbus,  etc.,  R.  R. 
Co.,  10  O.  St.  372;  Coe  v.  Knox 
County  Bank,  10  O.  St.  412;  Contra, 
Dunham  v.  Isett,  15  Iowa,  284;  Jes- 
sup  v.  Bridge,  11  Iowa,  572. 

807 


§  822.]      THE   LAW    OF   PRIVATE   CORPORATIONS.   [CHAP.  XVII. 

gaged  its  property,  rents,  issues,  and  profits,  giving  to  the 
trustee  the  right  to  enter  and  take  possession  and  collect  the 
rents  and  issues.  Default  having  been  made,  the  trustee  tiled 
a  bill  to  subject  the  moneys  of  the  company  on  hand  to  the 
claims  of  the  mortgage.  A  judgment  creditor  whose  execution 
had  been  returned  nulla  bona,  also  tiled  a  bill  to  obtain  satis- 
faction of  his  judgment  from  the  same  moneys ;  and  it  was 
held  that,  since  the  trustee  had  not  taken  possession,  his  claim 
to  the  moneys  should  be  postponed  to  that  of  the  judgment 
creditor.1 

§  821.  When  pending  the  foreclosure  of  a  railroad  mortgage, 

the  trustees  or  the  bondholders  procure  the  appoint- 

mentof  re-   ment  of  a  receiver  of  the  corporate  property,  it  is 

foreclosure    competent  for  the  court  to  add  to  the  order  appoint- 

suit.   Pay-    ma.  ^e  receiver  such  terms  and  conditions  in  regard 

meat  of  cur-        ©  ° 

rent  ex-  to  the  payment  of  the  current  expenses  of  the  road 
incurred  prior  to  his  appointment,2  as  well  as  in  re- 
gard to  expenses  incurred  during  the  time  of  the  receivership, 
as  may  seem  to  the  court  just  or  expedient  in  view  of  the  cir- 
cumstances of  the  case. 

§  822.  Here  the  leading  authority  is  Fosdick  v.  Schall,3  where 
Chief  Justice  Waite  said,  giving  the  opinion  of  the  Federal  Su- 
preme Court :  "  We  have  no  doubt  that  when  a  court  of  chan- 
cerv  is  asked  by  railroad  mortgagees  to  appoint  a  receiver  of 
the  railroad  property,  pending  proceedings  for  foreclosure,  the 
court,  in  the  exercise  of  a  sound  judicial  discretion,  may,  as  a 
condition  of  issuing  the  necessary  order,  impose  such  terms 
with  reference  to  the  payment  from  the  income  during  the  re- 
ceivership of  outstanding  debts  for  labor,  supplies,  equipment, 
or  permanent  improvement  of  the  mortgaged  property  as  may, 
under  the  circumstances  of  the  case,  appear  to  be  reasonable. 
Railroad  mortgages  and  the  rights  of  railroad  mortgagees  are 
comparatively  new  in  the  history  of  judicial  proceedings.  They 
are  peculiar  in  their  character  and  affect  peculiar  interests.    The 


1  American  Bridge  Co.  v.  Ileidel- 
bacli,  94  U.  S.  798.  Compare  King 
v.  Housatonic  R.  R.  Co.,  45  Conn. 
220;  New  York  Security  Co.  v. 
Saratoga  G.  &  E.  L.  Co.,  159  N.  Y. 
137. 

808 


2  Metropolitan  Trust  Co.  v.  Tona- 
wanda,  etc.,  R.  R.  Co.,  103  N.  Y. 
245,  is  adverse  to  this;  but  the 
weight  of  authority  favors  the  full 
proposition  stated  in  the  text. 

3  99U.  S.  235. 


CHAP.  XVTI.j  LEGAL  RELATIONS  AMONG  CREDITORS.  [§  822. 

amounts  involved  are  generally  large,  and  the  rights  of  parties 
oftentimes  complicated  and  conflicting.  It  rarely  happens  that 
a  foreclosure  is  carried  through  to  the  end  without  some  con- 
cessions by  some  parties  from  their  strict  legal  rights,  in  order 
to  receive  advantages  that  could  not  otherwise  be  attained,  and 
which  it  is  supposed  will  operate  to  the  general  good  of  all  who 
are  interested.  This  results  almost  as  a  matter  of  necessity 
from  the  peculiar  circumstances  which  surround  such  litigation. 
"  The  business  of  all  railroad  companies  is  done  to  a  larger 
or  less  extent  on  credit.  The  credit  is  longer  or  shorter  as  the 
necessities  of  the  case  require ;  and  when  companies  become 
pecuniarily  embarrassed  it  frequently  happens  that  debts  for 
labor,  equipment,  and  improvements  are  permitted  to  accumu- 
late, in  order  that  bonded  interest  may  be  paid  and  a  disastrous 
foreclosure  postponed,  or  altogether  avoided.  In  this  way  the 
daily  and  monthly  earnings,  which  ordinarily  should  go  to  pay 
the  daily  and  monthly  expenses,  are  kept  from  those  to  whom 
in  equity  they  belong,  and  used  to  pay  the  mortgage  debt. 
The  income  out  of  which  the  mortgagee  is  to  be  paid,  is  the 
net  income  obtained  by  deducting  from  the  gross  earnings 
what  is  required  for  necessary  operating  and  managing  ex- 
penses, proper  equipment  and  useful  improvements.  Every 
railroad  mortgagee  impliedly  agrees  that  the  current  debts 
made  in  the  ordinary  course  of  business  shall  be  paid  from  the 
current  receipts  before  he  has  any  claim  on  the  income.  If, 
for  the  convenience  of  the  moment,  something  is  taken  from 
what  may  not  improperly  be  called  the  current  debt  fund,  and 
put  into  that  which  belongs  to  the  mortgage  creditors,  it 
certainly  is  not  inequitable  for  the  court,  when  asked  by  the 
mortgagees  to  take  possession  of  the  future  income,  and  hold 
it  for  their  benefit,  to  require  as  a  condition  of  such  an  order, 
that  what  is  due  from  the  earnings  to  the  current  debt  shall 
be  paid  by  the  court  from  the  future  current  receipts  before 
anything  derived  from  that  source  goes  to  the  mortgagees.1 


1  "  So  far  as  current  expense  cred- 
itors are  concerned,  the  court  should 
use  the  income  of  the  receivership 
in  the  way  the  company  would  have 
been  bound  in  equity  and  good  con- 
science to  use  it  if  no  change  in  the 


possession  had  been  made.  ...  If 
current  earnings  are  used  for  the 
benefit  of  mortgage  creditors  before 
current  expenses  are  paid,  the  mort- 
gage security  is  chargeable  in  equity 
with   the    restoration   of    the    fund 

809 


§  822.]      THE   LAW    OF   PRIVATE   CORPORATIONS.  [CHAP.  XVII. 

In  this  way  the  court  will  only  do  what,  if  a  receiver  should 
not  be  appointed,  the  company  ought  itself  to  do.  For  even 
though  the  mortgage  may  in  terms  give  a  lien  upon  the  profits 
and  income,  until  possession  of  the  mortgaged  premises  is 
actually  taken,  or  something  equivalent  done,  the  whole  earn- 
ings belong  to  the  company  and  are  subject  to  its  control.1 

"  The  mortgagee  has  his  strict  rights,  which  he  may  enforce 
in  the  ordinary  way.  If  he  asks  no  favors,  he  need  grant 
none.  But  if  he  calls  upon  a  court  of  chancery  to  put  forth 
its  extraordinary  powers  and  grant  him  purely  equitable  relief, 
he  may  with  propriety  be  required  to  submit  to  the  operation 
of  a  rule  which  always  applies  in  such  cases,  and  do  equity  in 
order  to  get  equity.  The  appointment  of  a  receiver  is  not  a 
matter  of  strict  right.  .   .  . 

"  We  think,  also,  that  if  no  such  order  is  made  when  the 
receiver  is  appointed,  and  it  appears  in  the  progress  of  the 
cause  that  bonded  interest  has  been  paid,  additional  equipment 
provided,  or  lasting  and  valuable  improvements  made  out  of 
earnings  which  ought,  in  equity,  to  have  been  employed  to 
keep  down  debts  for  labor,  supplies,  and  the  like,  it  is  within 
the  powers  of  the  court  to  use  the  income  of  the  receivership 
to  discharge  obligations,  which,  but  for  the  diversion  of  funds, 
would  have  been  paid  in  the  ordinary  course  of  business. 
This,  not  because  the  creditors  to  whom  such  debts  are  due 
have,  in  law,  a  lien  upon  the  mortgaged  property  or  the 
income,  but  because,  in  a  sense,  the  officers  of  the  company 
are  trustees  of  the  earnings  for  the  benefit  of   the  different 


which  has  been  thus  improperly  ap- 
plied to  their  use."  Burnham  v. 
Bower.,  Ill  U.  S.  776,  782,  783. 

1  Compare  King  v.  Housatonic 
R.  R.  Co.,  45  Conn.  226.  The  earn- 
ings of  a  road  in  the  hands  of  a  re- 
ceiver are  chargeable  with  the  value 
of  goods  lost  in  transport,  and  with 
damages  done  to  property  during 
his  management,  in  preference  to 
the  claims  of  bondholders,  under 
an  existing  mortgage.  Cowdrey  v. 
Galveston,  etc.,  R.  R.  Co.,  93  U.  S. 
352.  Earnings  of  the  road  in  the 
hands  of  a  receiver  are  chargeable 

810 


with  injuries  to  a  person  sustained 
while  the  road  is  in  the  receiver's 
hands.  Mobile  and  O.  R.  R.  Co.  v. 
Davis,  62  Miss.  271. 

The  assignee  of  a  claim  which  is 
entitled,  as  against  the  claims  of 
bondholders,  to  be  paid  from  earn- 
ings in  the  receivers'  hands,  has  all 
the  rights  of  his  assignor.  Union 
Trust  Co.  v.  Walker,  107  U.  S.  596; 
Burnham  v.  Bowen,  111  U.  S.  776. 
If  the  claim  as  against  the  funds 
of  the  receivership,  is  evidenced  by 
commercial  paper,  it  is  no  waiver  of 
the  claim  to  renew  the  paper.     lb. 


CHAF.  XVII.]  LEGAL  RELATIONS  AMONG  CREDITORS.  [§  823. 

classes  of  creditors  and  the  stockholders  ;  and  if  they  give  to 
one  class  of  creditors  that  which  properly  belongs  to  another, 
the  court  may,  upon  an  adjustment  of  the  accounts,  so  use  the 
income  which  comes  into  its  hands,  as,  if  practicable,  to  restore 
the  parties  to  their  original  equitable  rights.  While,  ordi- 
narily, this  power  is  confined  to  the  appropriation  of  the 
income  of  the  receivership  and  the  proceeds  of  moneyed  assets 
that  have  been  taken  from  the  company,  cases  may  arise  where 
equity  will  require  the  use  of  the  proceeds  of  the  sale  of  the 
mortgaged  property  in  the  same  way.  .  .  .  The  power  rests 
upon  the  fact,  that  in  the  administration  of  the  affairs  of  the 
company  the  mortgage  creditors  have  got  possession  of  that 
which,  in  equity,  belonged  to  the  whole,  or  a  part  of  the  general 
creditors." l 

§  823.  In  accordance  with  the  principles  indicated  iu   the 
foregoing  opinion,  it  is  held  that  a  court  of  equity, 
which  has  appointed   managing   receivers   of   such   ^raersVer8' 
property  as  a  railroad,  when  taken  under  its  charge 
as  a  trust  fund  for  the  payment  of  incumbrances,  has  power  to 
authorize  the  receivers  to  raise  money  necessary  for  the  preser- 
vation and  management  of  the  property,  and  make  such  money 
chargeable  as  a  first  lien  thereon.2     This  power  is  regarded  as 


1  Fosdick  v.  Schall,  99  U.  S.  235, 
251,  etc.  Affirmed  and  followed  in 
Fosdick  v.  Car  Co.,  ib.  256;  Huide- 
koper  v.  Locomotive  Works,  ib.  258; 
Union  Trust  Co.  v.  Souther,  107 
U.  S.  591;  Burnham  v.  Bowen,  111 
U.  S.  776;  Southern  Railway  v.  Car- 
negie Steel  Co.,  176  U.  S.  257;  Wil- 
liamson v.  Washington  City,  etc., 
R.  R.  Co.,  33Gratt.  (Va.)624;  Addi- 
son v.  Lewis,  75  Va.  701;  Atkins  v. 
Petersburg  R.  R.  Co.,  3  Hughes,  307; 
Douglass  v.  Cline,  12  Bush  (Ky. ), 
608. 

See,  also,  Hale  v.  Frost,  99  U.  S. 
389;  Meyer  v.  Johnston,  53  Ala. 
237;  Union  Trust  Co.  v-  Walker,  107 
U.  S.  596;  Farmers'  Loan,  etc.,  Co. 
v.  Missouri,  etc.,  R'y  Co.,  21  Fed. 
Rep.  264. 

Compare    Newport,    etc.,    Bridge 


Co.  v.  Douglass,  12  Bush  (Ky.),  673. 
The  cases  of  Metropolitan  Trust  Co. 
v.  Tonawanda  Valley,  etc.,  R.  R.  Co., 
103  N.  Y.  245,  and  Duncan  v.  Mobile, 
etc.,  R.  R.  Co.,  2  Woods,  542,  seem 
not  to  accord  with  the  above  deci- 
sions. 

But  the  rule  of  Fosdick  v.  Schall 
does  not  in  general  apply  to  the 
fund  realized  by  sale  of  the  mort- 
gaged railroad.  St.  Louis,  etc.,  R.  R. 
Co.  v.  Cleveland,  etc.,  Ry.,  125  U.  S. 
658.  Nor  does  the  rule  apply  to  give 
priority  to  a  debt  arising  for  work 
done  in  the  original  construction  of 
the  road;  and  not  in  keeping  up  the 
railroad  as  a  going  concern.  Toledo, 
etc.,  R.  R.  Co.  v.  Hamilton,  134  U. 
S.  296. 

-  Miltenberger  v.  Logansport  Rail- 
way,   106    U.    S.    286;     Wallace    v. 

811 


§  824. j      THE    LAW    OF    PRIVATE   CORPORATIONS.   [CHAP.  XVII. 

part  of  the  jurisdiction  which  is  exercised  by  a  court  of  equity 
in  carrying  out  its  duty  to  protect  and  preserve  trust  funds  in 
its  hands.  It  should  be  exercised  with  caution,  and  if  possible 
with  the  consent  or  acquiescence  of  the  parties  interested  in 
the  fund.1 

§  824.  In  the  case  of  Miltenberger  v.  Logansport  Railway 
the  Federal  Supreme  Court  held  that  a  court  of  equity  could 
create  claims,  through  a  receiver  appointed  by  it  on  the  fore- 
closure of  a  railroad  mortgage,  prior  to  the  lien  of  the  mort- 
gage ;  and  could  decree  that  the  receiver  should  pay  the 
operating  expenses  of  the  road  for  ninety  days  preceding  his 
appointment,  and  also  certain  sums  of  money,  amounting  to 
ten  thousand  dollars,  due  other  and  connecting  lines  for 
materials  and  repairs  and  for  ticket  and  freight  balances,  a 
part  of  which  last  indebtedness  was  incurred  more  than  ninety 
days  prior  to  the  appointment  of  the  receiver.  The  above 
claims  were  ordered  to  be  paid  out  of  the  net  proceeds  of  the 
sale,  before  paying  the  mortgage  bonds.2  Giving  the  opinion 
of  the  court,  J  udge  LUatchford  said :  "  It  cannot  be  affirmed 
that  no  items  which  accrued  before  the  appointment  of  a 
receiver  can  be  allowed  in  any  case.  Many  circumstances  may 
exist  which  make  it  necessary  and  indispensable  to  the  busi- 
ness of  the  road  and  the  preservation  of  the  property,  for  the 
receiver  to  pay  pre-existing  debts  of  certain  classes,  out  of  the 


Loomis,  97  U.  S.  146;  Langdon  v. 
Railroad  Co.,  53  Vt.  228;  see  Same  v. 
Same,  54  Vt.  593. 

1  Wallace  v.  Loomis,  supra.  While 
a  railroad  was  in  the  hands  of  a  re- 
ceiver appointed  in  a  foreclosure 
suit,  the  court  authorized  him  to 
borrow  money  and  issue  certificates, 
to  be  a  lien  prior  to  the  mortgage 
debt,  and  to  part  with  them  at  not 
less  than  ninety  cents  on  a  dollar. 
The  receiver  borrowed  money  by 
hypothecating  some  of  the  certifi- 
cates. Held,  that  tin:  hypothecated 
certificates  were  not  liens  to  the  ex- 
tent of  their  face;  but  that  a  decree 
was  proper  allowing  the  repayment 
of  the  moneys  loaned  on  certificates 

812 


issued  at  ninety  cents  on  the  dollar 
and  making  such  certificates  a  lien. 
Swann  v.  Clark,  110  U.  S.  602. 

For  ordinary  debts  which  were  not 
allowed  prior  payment  (over  bond- 
holders) out  of  funds  in  hands  of  re- 
ceiver, see  Addison  v.  Lewis,  75  Va. 
701;  Farmers'  L.  &  T.  Co.  v.  Tel.  Co. 
148  N.  Y.  315.  Such  are  debts  in- 
curred in  the  construction  (not  main- 
tenance) of  the  road.  Boston,  etc., 
Co.  v.  Chesapeake  &  O.  R.  R.  Co.,  76 
Va.  180. 

-  Miltenberger  v.  Logansport  Rail- 
way, 106  U.  S.  286.  See  Va.  &  Ala. 
Coal  Co.  v.  C.  R.  R.  &  B.  Co.  of  Ga., 
170  U.  S.  355. 


CHAP.  XVII.]  LEGAL  RELATIONS  AMONG  CREDITORS.  [§  824. 

earnings  of  the  receivership,  or  even  the  corpus  of  the  property, 
under  the  order  of  the  court,  with  a  priority  of  lien.  Yet  the 
discretion  to  do  so  should  be  exercised  with  very  great  care. 
The  payment  of  such  debts  stands  prima  facie  on  a  different 
basis  from  the  payment  of  claims  arising  under  the  receiver- 
ship, while  it  may  be  brought  within  the  principle  of  the 
latter  by  special  circumstances.  It  is  easy  to  see  that  the 
payment  of  unpaid  debts  for  operating  expenses,  accrued  within 
ninety  days,  due  by  a  railroad  company,  suddenly  deprived  of 
the  control  of  its  property,  due  to  the  operatives  in  its  employ, 
whose  cessation  from  work  simultaneously  is  to  be  deprecated, 
in  the  interest  both  of  the  property  and  of  the  public,  and  the 
payment  of  limited  amounts  due  to  other  and  connecting  lines 
of  road  for  materials  and  repairs  and  for  unpaid  ticket  and 
freight  balances,  the  outcome  of  indispensable  business  rela- 
tions, where  a  stoppage  of  the  continuance  of  such  business 
relations  would  be  a  probable  result,  in  case  of  non-payment, 
the  general  consequences  involving  largely,  also,  the  interests 
and  accommodation  of  travel  and  traffic,  may  well  place  such 
payments  in  the  category  of  payments  to  preserve  the  mort- 
gaged property  in  a  large  sense,  by  maintaining  the  good-will 
and  integrity  of  the  enterprise,  and  entitle  them  to  be  made  a 
first  lien. " * 


1  Miltenberger  v.  Logansport  Rail- 
way, 106  U.  S.  286,  311.  A  debt  from 
a  railroad  company  for  car  rental 
accruing  prior  to  the  receivership 
was  not  given  priority  over  mort- 
gage debt;  but  a  similar  debt  for 
car  rental  subsequent  to  receivership 
allowed  in  Thomas  v.  Western  Car 
Co.,  149  U.  S.  95.  See,  also,  Union 
Trust  Co.  v.  Illinois  Midland  Ry. 
Co.,  117  U.  S.  434;  Kneeland  v. 
Foundry  and  Machine  Works,  140 
U.  S.  592;  Williamson  v.  Washing- 
ton City,  etc.,  R.  R.  Co.,  33  Gratt. 
(Va.)  624;  Poland  v.  Lamoille  Val- 
ley R.  R.  Co.,  52  Vt.  144.  Compare 
Hand  v.  Savannah,  etc.,  R.  R.  Co., 
17  S.  C.  219,  266;  Ex  parte  Benson 
&  Co.,  18  S.  C.  38;  Ex  parte  Caro- 
lina Nat.  Bk.,   ib.  289;   Denniston  r. 


Chicago,  Alton,  etc.,  R.  R.  Co.,  4 
Biss.  414;  M'Cormack  v.  Salem  R'y 
Co.,  34  Or.  543.  When  bondholders 
suffer  certain  persons  to  act  as  re- 
ceivers, and  issue  negotiable  certifi- 
cates, which  come  into  the  hands  of 
bona  fide  holders  for  value,  the  bond- 
holders cannot  set  up  that  the  re- 
ceivers were  improperly  appointed. 
Langdon  v.  Vermont,  etc.,  R.  R.  Co., 
53  Vt.  228;  see  Humphreys  v.  Allen, 
101  111.  490.  But  it  has  been  held 
that  receiver's  certificates  payable 
to  a  given  person  "or  bearer1'  are 
not  negotiable,  and  when  issued 
without  benefit  or  consideration  to 
the  receivership,  so  that  the  payee 
could  not  have  recovered  on  them 
against  fuuds  in  the  hands  of  the 
receiver,    cannot    be    recovered    on 

813 


§  825.]      THE   LAW   OF   PRIVATE   CORPORATIONS.  [CHAP.  XVII. 


§  824a.  The  Supreme  Court  has  recently  spoken  some 
words  of  warning  as  to  these  matters  :.  "  The  appointment  of  a 
receiver  vests  in  the  court  no  absolute  control  over  the  prop- 
erty, and  no  general  authority  to  displace  vested  contract 
liens.  Because  in  a  few  specified  and  limited  cases  this  court 
has  declared  that  unsecured  claims  were  entitled  to  priority 
over  raortgao-e  debts,  an  idea  seems  to  have  obtained  that  a 
court  appointing  a  receiver  acquires  power  to  give  such  prefer- 
ence to  any  general  and  unsecured  claims.  .  .  .  Can  anything 
be  conceived  which  more  thoroughly  destroys  the  sacredness 
of  contract  obligations  ?  One  holding  a  mortgage  debt  upon 
a  railroad  has  the  same  right  to  demand  and  expect  of  the 
court  respect  for  his  vested  and  contracted  priority  as  the  holder 
of  a  mortgage  on  a  farm  or  lot.  So,  when  a  court  appoints  a 
receiver  of  railroad  property,  it  has  no  right  to  make  that  re- 
ceivership conditional  on  the  payment  of  other  than  those  few 
unsecured  claims  which,  by  the  rulings  of  this  court,  have  been 
declared  to  have  an  equitable  priority.  No  one  is  bound  to 
sell  to  a  railroad  company  or  to  work  for  it,  and  whoever  has 
dealings  with  a  company  whose  property  is  mortgaged  must 
be  assumed  to  have  dealt  with  it  on  the  faith  of  its  personal 
responsibility  and  not  in  expectation  of  subsequently  displac- 
ing the  priority  of  the  mortgage  liens.  It  is  the  exception 
and  not  the  rule  that  such  priority  of  liens  can  be  displaced."1 
§  825.  In  respect  of  the  statutory  individual  liability  of 
shareholders  it  is  said  that  "a  creditor  who  moves 
first  and  proceeds  so  far  as  to  establish  his  right  to 
seize  the  property  of  a  stockholder,  or  to  bring  his 
suit,  obtains  a  priority  of  right  in  the  fund  which 
the  statute  has  in  effect  set  apart  for  the  payment  of 
his  debt.     By  such  proceedings,  and  the  institution  of  a  suit 


Statutory- 
liability  of 
share- 
holders. 
Priorities  of 
creditors. 


against  such  funds  by  a  bona  fide 
holder  for  value.  Turner  v.  Peoria 
and  S.  R.  R.  Co.,  95  111.  134. 

1  Kneeland  v.  American  Loan  Co., 
136  U.  S.  89,  97.  Opinion  of  court, 
per  Brewer,  J.  See  Morgan's  Co.  v. 
Texas  Central  Ry.  Co.,  137  U.  S.  172. 
Compare  Quincy  R.  R.  Co.  v.  Hum- 
phreys, 145  U.  S.  82;  Va.  &  Ala.  Coal 
Co.  o.  C.  R.  R.  &  B.  Co.  of  Ga.,  170 
814 


U.  S.  355.  The  principle  of  Fosdick 
v.  Schall  has  never  been  applied  ex- 
cept in  the  case  of  a  railroad  com- 
pany. Wood  c.  Guarantee  Trust  Co., 
128  U.  S.  416;  Int.  Trust  Co.  v.  Uni- 
ted Coal  Co.,  27  Colo.  246,  collecting 
authorities  ;  followed  in  Standley  v. 
Hendrie,  etc.,  MTg  Co.,  27  Colo. 
331. 


CHAP.  XVII.]  LEGAL  RELATIONS  AMONG  CREDITORS.  [§  826. 

within  the  period  fixed  by  the  statute,  he  acquires  a  right  to 
recover  against  the  stockholder  to  the  amount  of  his  stock, 
with  which  no  creditor  subsequently  moving  can  rightfully 
interfere,  and  any  payment  made  to  such  subsequently  moving 
creditor  by  such  stockholder  must  be  regarded  as  a  payment 
in  his  own  wrong."  *  The  case,  however,  in  which  these  re- 
marks occur,  arose  under  the  construction  of  a  particular 
statute,  and  consequently  is  to  be  applied  with  caution.2 

§  826.  When  an  action  has  been  instituted  by  part  of  the 
creditors  of  an  insolvent  corporation  for  the  benefit  of  all  the 
creditors,  against  the  shareholders  to  enforce  the  (limited) 
statutory  liability  of  the  latter,  no  creditor  can  acquire  priority, 
or  institute  a  separate  suit  for  the  enforcement  of  such  liability 
on  his  own  behalf.3 


1  Cole  v.  Butler,  43  Me.  401,  404, 
per  May,  J.,  approved  in  Iugalls  v. 
Cole,  47  Me.  530,  541.  Accord, 
Jones  v.  Wiltberger,  42  Ga.  575;  The- 
bus  v.  Smiley,  110  111.  316. 

2  Semble  contra,  Pfohl  v.  Simpson, 
74  N.  Y.  137;  Donnelly  o.  Mulhall, 
12  Mo.  App.  139.  In  Illinois  a  cred- 
itor obtains  a  prior  lien  only  through 
a  final  judgment  in  his  favor.     Chi- 


cago v.  Hall,  103  111.  342;  but  see 
Thebus  v.  Smiley,  110  111.  316.  Com- 
pare State  SaviDgs  Ass'n  v.  Kellogg, 
63  Mo.  540. 

3  Wright  v.  McCormack,  17  Ohio 
St.  86;  Pfohl  v.  Simpson,  74  N.  Y. 
137.  See  Pollard  o.  Bailey,  20  Wall. 
520.  Also,  specially,  §§  725,  728, 
704-706. 

815 


APPENDIX. 


PRESENT  METHODS  OF  FORMING  A  CORPORATION. 

Although  in  England  corporations  may  have  come  into  ex- 
istence by  the  common  law  or  by  prescription,  there  has  never 
been  any  sanction  for  such  a  formation  of  a  private  corporation 
in  the  United  States.  Here  the  rule  is  universal  that  no  body 
of  persons  can  become  a  body  corporate  without  following  the 
plan  prescribed  for  that  purpose  by  a  law  of  Congress  or  a 
statute  of  the  legislature  of  that  state  wherein  incorporation 
takes  place.  While  it  is  not  essential  that  all  the  terms  of  a 
statute  should  be  strictly  complied  with  in  order  to  effect  an 
incorporation,  it  yet  is  clear  that  incorporation  cannot  be  ef- 
fected simply  by  contracts  among  individuals,  and  that  it  re- 
sults only  from  substantially  following  the  appropriate  statute. 

Such  statutes  differ  broadly  in  the  different  states  and  also 
differ  in  the  same  state,  according  to  the  various  kinds  of  cor- 
porations. Under  the  simplest  of  these  statutory  plans,  incor- 
poration is  effected  simply  by  filing  a  paper  in  the  office  of  the 
Secretary  of  State.  Under  the  most  complicated  there  are 
such  preliminaries  as  subscriptions  to  stock,  consents  of  various 
outside  interests,  and  other  formalities. 

On  account  of  the  great  number  and  variety  of  the  statutory 
requirements,  the  details  of  the  formation  of  corporations  are 
not  within  the  scope  of  such  a  treatise  as  the  present.  It  is, 
however,  of  importance  to  note  the  principles  lying  back  of  all 
proceedings  for  the  formation  of  corporations.  The  legal 
questions  to  be  considered  by  the  promoters  of  a  corporation 
naturally  differ  with  the  different  objects  which  they  may  wish 
to  attain  by  incorporation.  One  object  always  in  mind  is  to 
obtain  the  public  sanction  to  be  a  corporation,  and  receive  the 
two  chief  rights  appertinent  thereto,  viz  :  the  right  to  a  name 
and  the  right  to  a  succession  of  interests.  This  is  popularly 
termed  the  obtaining  of  the  franchise  to  be  a  corporation.  The 
52  817 


APPENDIX. 

next  object — winch  is  occasionally  very  prominent,  and  at  times 
of  no  importance — is  to  obtain  certain  privileges  from  the  public 
authority.  Some  of  these  privileges  are  the  right  of  eminent 
domain,  (in  instances  of  corporations  like  railroads,  which  sub- 
serve the  public  use,)  the  right  to  issue  credits  and  receive  de- 
posits, (as  that  of  banks  or  trust  companies,)  the  right  of  do- 
ing certain  acts  in  certain  places,  whether  exclusively  or  not, 
(as  to  furnish  water,  or  to  run  a  ferry,  or  to  occupy  the  streets 
of  a  municipality).  These  are  the  "  franchises  "  which  pertain  to 
a  corporation.  A  third  object  is  the  regulation  of  the  respective 
rights,  duties  and  liabilities  of  the  body  corporate,  stockhold- 
ers, creditors  and  directors,  either  of  one  class  as  against  an- 
other, or  one  member  of  a  class  as  against  another  member  of 
the  same  class  or  other  classes.  The  fourth  and  last  object 
(not  always  mentioned)  is  the  minimizing  of  taxation. 

With  these  four  objects  in  mind,  the  promoters  first  select  a 
state  wherein  to  incorporate.  In  the  early  part  of  the  nine- 
teenth century,  the  ordinar}^  method  of  incorporation  was  by 
special  act  of  the  Legislature  of  some  state.  The  difficulties 
of  obtaining  such  special  act,  the  attendant  expenses,  and  the 
abuse  of  giving  to  one  what  was  denied  to  another,  led  to 
amendments  in  the  constitutions  of  almost  all  of  the  states,  for- 
bidding such  special  charters.  There  were  substituted  general 
statutes,  by  following  which  incorporation  could  be  attained. 
The  most  celebrated  of  these  general  statutes  were  those  en- 
acted by  the  Legislature  of  the  state  of  New  York  between 
the  years  184-7  to  1854.  These  comprised  different  statutes  for 
different  kinds  of  corporations :  one  method  for  a  railroad, 
another  for  a  bank,  another  for  an  insurance  company,  and  yet 
another  for  an  ordinary  business  enterprise.  The  other  states 
for  the  most  part  followed  the  plan  of  the  New  York  statutes. 
Up  to  the  present  time,  in  regard  to  corporations  demanding 
special  privileges,  the  statutory  requirements  are  practically 
alike  throughout  the  states  of  the  Union.  The  tendency  is 
general  to  impose  additional  safeguards  against  the  indiscrimi- 
nate grant  of  incorporation  to  such  kind  of  enterprises.  For 
instance,  in  New  York,  incorporation  for  railway  purposes  is 
not  now  permitted  until  the  Board  of  Railway  Commissioners 
has  approved  of  the  enterprise  after  due  hearing  (section  59  of 
the  Railway  Law).  The  like  rule  obtains  in  Massachusetts. 
818 


APPENDIX. 

These  public  authorities  must  also  be  consulted  in  regard  to 
any  important  change  in  the  corporate  affairs,  such  as  the  is- 
suing of  bonds.  Inasmuch  as  the  Legislatures  of  almost  all  of 
the  states  have  taken  substantially  a  parallel  course  in  regard 
to  such  incorporations,  the  method  usually  adopted  is  to  in- 
corporate in  the  state  where  such  an  enterprise  is  to  be  located. 
Where  railways  run  through  different  states,  incorporation  is 
often  taken  out  in  each  of  them.  Banks  are  almost  universally 
incorporated  in  the  state  where  the  bank  is  located ;  while 
insurance  companies  are  incorporated  where  their  main  office 
and  financial  affairs  are  conducted. 

In  sharp  contrast  with  this  situation  of  general  uniformity 
as  to  corporations  that  desire  special  privileges,  the  Legislators 
of  the  different  states  have  taken  very  divergent  courses  re- 
garding incorporation  where  the  object  is  merely  existence, 
appropriate  internal  regulations,  and  avoidance  of  taxation. 
On  the  one  side,  the  states  of  New  Jersey  and  West  Virginia 
have  enacted  a  series  of  laws  by  which  in  return  for  a  compar- 
atively small  tax,  the  right  to  be  a  corporation  is  universally 
granted  and  under  just  such  a  charter  as  the  promoters  think 
best  for  themselves.  The  New  Jersey  statutes  have  permitted 
a  body  of  promoters  to  set  forth  in  their  certificate  of  incor- 
poration exactly  such  a  plan  as  they  desire  for  the  measure- 
ment of  the  rights,  duties,  and  obligations  of  all  who  are  or 
may  be  interested  in  the  corporation.  That  has  been  done 
upon  the  theory  that  it  was  a  matter  of  private  concern,  which 
those  interested  or  to  be  interested,  should  regulate  to  suit 
themselves,  substantially  without  interference  on  the  part  of 
the  state.  This  tendency  was  looked  upon  with  a  great  dis- 
favor by  New  York,  Massachusetts  and  Pennsylvania.  Not- 
withstanding the  adverse  attitude  of  their  Legislatures  and 
public  authorities,  enterprises  to  be  conducted  in  the  latter 
states  were  being  continually  organized  under  the  New  Jersey 
statutes.  The  Legislatures  put  numerous  restrictions  on  the 
right  of  foreign  corporations  to  do  business  within  their 
states.  Nevertheless,  in  spite  of  such  restrictions,  those  in- 
terested in  corporations  continued  to  prefer  the  plan  of  the 
New  Jersey  statutes.  Some  two  years  ago,  the  Legislature  of 
New  York  modified  its  corporation  laws  by  simplifying  the 
method,  lessening  the  tax  on  incorporation,  adopting  tin1  Xew 

819 


APPENDIX. 

Jersey  plan  by  which  the  value  of  the  property  for  which  the 
stock  is  issued  is,  in  the  absence  of  actual  fraud,  conclusively 
presumed  to  be  the  same  as  the  value  of  the  stock,  doing  away 
with  onerous  penalties  for  failure  to  file  reports,  and  in  other 
ways  assimilating  the  statutory  plan  of  incorporation  to  mod- 
ern business  methods. 

The  formation  of  an  ordinary  business  enterprise  at  the 
present  time  has,  therefore,  resolved  itself  practically  into 
drafting  a  plan  under  which  the  affairs  of  all  interested  there- 
in are  to  be  regulated.  This  plan  is  embodied  in  the  certificate 
of  incorporation.  It  sets  forth,  among  other  details,  the  name 
of  the  corporation,  the  various  objects  of  the  corporation,  and 
its  capital  stock.  Under  the  heading  of  its  objects,  there  is 
scope  for  restriction  upon  what  it  may  do,  if  that  is  what  the 
incorporators  desire  for  the  protection  of  one  as  against  the 
other,  or  of  amplification  to  such  an  extent  that  it  may  do  any- 
thing and  everything,  thereby  eliminating  almost  entirely 
questions  of  ultra  vires.  The  certificate  may  also  state  what 
powers  one  class  of  stockholders  shall  have  as  against  another, 
who  shall  elect  the  directors,  wdiat  shall  be  the  powers  of  the 
directors,  what  limitations  shall  be  thereon,  what  shall  be  the 
restrictions  against  mortgages  upon  the  property,  etc.  In  short 
the  certificate  of  incorporation  becomes  a  comprehensive  basic 
contract,  which  is  to  be  read  into  all  other  contracts  thereafter 
made  in  regard  to  any  matters  of  that  corporation.  There  are 
provisions  for  the  amendment  of  the  original  charter,  by  con- 
sent of  certain  members,  or  a  proportion  of  the  people  in- 
terested. 

It  is  manifest  from  this  resume  of  the  present  method  of  the 
formation  of  corporations,  that  where  a  corporation  is  care- 
fully formed,  there  is  now  substantially  no  restraint  put  upon 
it  by  the  public  authority,  unless  it  desires  or  has  obtained  some 
special  public  privileges.  Corporations  of  the  most  enormous 
magnitude  now  regulate  themselves  with  almost  the  same 
amount  of  secrecy  as  a  private  individual  gives  to  his  own  af- 
fairs. The  almost  unvarying  attitude  of  the  courts  to  an  in- 
quisitive stockholder  or  creditor,  is  that  no  rights  will  be  ac- 
corded to  them,  so  long  as  the  corporate  body  apparently 
moves  along  the  contract  lines  laid  down  in  its  certificate  of 
incorporation.  The  stockholder  or  creditor  became  such  with 
820 


APPENDIX. 

that  in  mind,  and  must  not  look  for  the  old  "  visitorial"  rights 
of  the  state  to  assist  him. 

This  matter  of  the  formation  of  corporations  is  the  subject 
of  continual  change.  The  question  is  not  altogether  a  legal 
one,  but  becomes  also  an  economic  and  political  one.  Changes 
in  the  method  of  incorporation  will  doubtless  follow  as  solu- 
tions may  be  reached  of  the  problems  relating  to  the  great 
trusts  and  monopolies  which  have  recently  arisen.  The  sub- 
ject can  only  be  dealt  with  at  present  as  one  which  is  in  the 
transition  stage. 

821 


TABLE  OF  CASES 


EEFEKENCES   ARE   TO   THE   SECTIONS. 


A. 

SECTION 

Abbey  v.  Dry  Goods  Co.  725 

v.  Long  732 

Abbott  v.  American  Hard  Rub- 
ber Co.  229,  628,  638 
Abbott  v.  Aspinwall  738 
v.  Chase  189 
v.  Baltimore,       etc.,       Steam 

Packet  Co.  273 

v.  Johnston,  etc.,  R.  R.  Co.  170,  305 

Abeles  v.  Cochran  696,  754 

Abell  v.  Penn.  Mut.  Life  Ins.  Co.  392 

Abendroth  v.  Manhattan  Ry.  Co.    176 

Aberdeen  Bank  v.  Chehalis  Co.      484 

Aberdeen  Ry.  Co.  v.  Blakie   627,  630 

Ableman  v.  Booth  456,  461 

Academy  v.  Exeter  489 

Ackerman  v.  Halsey  694 

Adamant  Mg.  Co.  v.  Wallace  655 

Adams  v.  Mills  772 

v.  R.  R.  Co.  421,  490 

Adams  Express  Co.  v.  Deyette       135 

v.  Fenwick  353 

v.  Haynes  353 

v.  Ohio  477a,  482 

v.  Schlesinger  193 

v.  Stettaners  353 

0.  Wilson  363 

Adams  Mfg.  Co.  v.  Sentor  642 

v.  R.  R.  Co.  305 

Adden  v.  White  Mountains,  etc., 

R.  R.  Co.  179 

Adderly  v.  Storm  741 

Addison  v.  Lewis  632,  822 

Addyston   Pipe   &   Steel  Co.  v. 

U.  S.  309a 

Adelbert  v.  Kearns  659 

Adler  o.  Milwaukee,  etc.,  Brick 

Co.  661,  704,  705 

v.  Reeves  583 

Adriance  v.  Roome  195,  196 

A'D.  St.  Nav.  and  Coal  Co.,  In  re  572 
^tna  Ins.  Co.  v.  Black  396 

t».  Wheeler  364 

Mtna,  Nat.  Bank  v.  Fourth  Nat. 

Bank  672 

v.  Ins.  Co.  236 

Africa  v.  Duluth  Tribune  Co.        237 

Agate  v.  Sands  732 


SECTION 

Age-Herald  Co.  v.  Potter       655,  668 
Aggs  v.  Nicholson  753 

Agricultural  Bank  v.  Burr  587 

v.  Wilson  587 

Agricultural  Branch  R.  R.  Co.  v. 

Winchester  530 

Aiken  v.  Western  Union  Tel.  Co.  357 
Aimen  v.  Hardin  774 

Alabama  v.  Montague  676 

Alabama  Nat.  B1k  v.  O'Neill         258 
Albany    Fertilizer     Co.    v.    Ar- 
nold 568,  750 
Albany  Northern  R.  R.     Co.    v. 

Bromwell  163a 

Alabama  Foundry  Machine  Wks. 

v.  Dallas  523 

Alabama   and   F.    R.    R.    Co.    v. 

Kenny  163a 

Alabama  and  Tenn.  Rivers  R.  R. 

Co.  v.  Kidd  360 

v.  Burkett  179 

Alabama  Gt.  Southern  Ry.  Co. 

v.  Fulghum  392 

v.  Gilbert  163 

v.  Little  359 

v.  Moorer  372 

v.  Thomas  353 

Alberger  v.  Bank  668 

Albeit  v.  Northern  Cent.  Ry.  Co.  368 

v.  Savings  Bank  338 

v.  State  611 

Albion  Steel,  etc.,  Co.  v.  Martin      83 

Aldham  v.  Brown  99 

Aldrich      v.       Chemical      Nat. 

Bank  161,  240,  310 

«.  Coal  Co.  393 

v.  Drury  162a 

Aldridge  v.  Tuscumbia  R.  R.  Co.  163 

Alexander  v.  Atlantic,  etc.,  R.  R. 

Co.  681,  557 

v.  Cauldwell  267 

v.  Commissioners  of  McDowell 

Co.  325 

v.  Culbertson,  etc.,  Co.  212 

v.  Relfe  338 

v.  Rollins  284 

v.  Searcy  556 

v.  Winters  87 

823 


TABLE    OF    CASKS. 


SECTION 

Alexandria  and  F.  Ry.  Co.  v. 
Alexandria  and  W.  K.  K. 
Co.  163 

Alexandria   and   F.    Ry.    Co.    v. 

Faunce  174 

Alexandria  Canal  Co.  v.  Swann     137 
Aliboue  v.  Hager  709,  730,  710 

Allbritton  v.  J.  and  G.  N.  R.  R. 

Co.  377 

Allegheny  v.  Railway  Co.  801 

Allegheny  R.  R.  Co.  v.  McLain      347 
Allemoug  v.  Simmons  258 

Allen  v.  Baltimore  and  O.  R.  R. 

Co.  4926 

v.  Citizens'  Steam  Nav.  Co.       193 
v.  City  of  Portland  248 

v.  Clark  773 

v.  Commonwealth  477a 

v.  Curtis  G90 

v.  Dykers  794 

v.  First  National  Bank  301 

v.  Freed  man's  Savings  Co.         276 
v.  Hotel  Co.  759 

y.  Jones  163,  473 

v.  London  and  S.  W.  Ry.  Co. 

339,  344 
v.  Louisiana  620 

v.  Montgomery  R.  R.  Co. 

661,  703,  745,  746 
v.  South  Boston  R.  R.  Co.  591 

v.  Woousocket  Co.  130 

Ailing  v.  Boston  and  Albany  R.  R. 

Co.  355 

v.  Wenzel  745 

Allison  v.  Southern  R'y  Co.  400 

Allinan  v.   Havana,    etc.,   R.   R. 

Co.  518 

Allyn  v.  Boston  and  Albany  R.  R. 

Co.  376 

Alma  Spinning  Co.,  In  re  547 

Alta  Silver  Mining  Co.  v.  Mining 

Co.  236 

Alton  Horse  Ry.  Co.  v.  Deitz  173 

American  Bible  Soc.  r.  Marshall  391 
American  Bridge  Co.  v.   Heidel- 

bach  320 

American  Casualty  Co.  v.  Lea       392 
American    Central    Ry.    Co.     v. 

Miles  646 

American  Clay  M'f'g  Co.  v.  Idem  137 
American  Coal  Co.  v.  Consolida- 
tion Coal  Co.  497,  502 
American  Credit  Indemnity  Co. 

v.  Eld  774 

v.  County  Commissioners  479 

American  Express  Co.  v.  Conant 

395,  472 

v.  Second  National  Bank  353 

tJ.  Smith  361 

v.  Spellman  359 

American  File  Co.  v.  Garrett         733 

824 


SECTION 

American  Ins.  Co.  v.  Oakley  236 

v.  Wellman  401 

American  L.  and  T.  Co.  v.  Minn., 

etc.,  R.  R.  Co.  419 

American   Merchants'  Un.  Exp. 

Co.  v.  Milk  360 

American  Mirror  Co.  v.  Bulkley  739 
American  Mort'g  Co.  v.  Tennille  388 
American  Mut.  Life  Ins.  Co.  v. 

Owen  384 

American   Nat.    Bank  v.    Amer. 

Wood  Paper  Co.  679 

American  Nat.  Bank  v.  Wheelock  752 
v.  Hammond  336 

American  Rapid  Tel.  Co.  v.  Con- 
necticut Telephone  Co.    454,  455 
American  Ref.  Transit  Co.  v.  Hall  479 
American  Ry.  Frog  Co.  v.  Haven    136 
American    Refrigerating   Co.    v. 

Linn  5596 

American  Saving,  etc.,  Ass'n  v. 

Smith  248 

American  Surety  Co.  v.  Pauly  249 
American  Tube  Works  v.  Boston 

Machine  Co.  541 

American    Union    Exp.    Co.    v. 

Robinson  360 

American     Union     Tel.    Co.    v. 

Union  Pac.  Ry.  Co.  305,314 

v.  Western  Un.  Tel.  Co.        383,  486 
American  Wire  Nail  Co.  v.  Bay- 
less  598 
Ameriscoggin  Bridge  Co.  v.  Bragg  449 
Amerman  v.  Wiles  277 
Ames  v.  Kansas  460 
v.  Lake   Superior,   etc.,  R.   R. 
Co.  464 
Amesburyr.  Bowditch  Mut.  Ins. 

Co.  583 

Amesbury  Woolen,    etc.,  Co.  v. 

Amcsbury  477a 

Amherst  Academy  v.  Cowles  92 

Amy  v.  Dubuque  326 

Anderson  v.  Buckley  432 

v.  Bullock  Co.  Bk.  300,759 

v.  U.  S.  309a 

v.  Kinley  210 

v.  Longden  235 

v.  Phila.  Warehouse  Co.  741 

v.  Santa  Anna  318 

v.  Scott  523 

v.  Speers  775 

v.  Thompson  537 

Anderson  Brick  Co.  v.  Sobkowish  365 

Anderson   County    v.    Houston, 

etc.,  R.  R.  Co.  330 

Anderson  County  Com'rs  v.  Beal  329 

Anderson  Transfer  Co.  v.  Fuller    204 

Andrews  v.  Murray  764,  805 

v.  Union  Mut.  Fire  Ins.  Co. 

21,  269,  583 


TABLE    Of    OA8E8. 


SECTION 

Androscoggin,  etc.,  R.  R.  Co.  v. 

Androscoggin  R.  R.  Co.  308 

Angier  v.  East  Tenn.,  etc.,  R.  R. 

Co.  409 

Angle  c.  Mississippi,  etc.,  R.  R. 

Co.  363 

Anglo-Amer.    Provision    Co.    v. 

West  India  Improvement  Co. 

392, 480 
Anglo-Calif ornian  Bank  y.  Gran- 
gers' Bank  196,  601 
Ansonia  B.  and  C.  Co.  v.  New 

Lamp  Chimney  Co.  724 

Anspach  v.  Mahanoy,  etc.,  R.  R. 

Co.  162 

Anthony  y.  County  of  Jasper         320 
Antoni  v.  Greenehow  494 

Appleby  v.  Erie  County  Savings    199 
Appleby  y.  Terre  Haute  and  I. 

R.  R.  Co.  305 

Appleton  v.  Turnbull  729 

Application  of  Cooper  400 

Aransas  P.  H.  Co.  v.  Manning       183 
Arapahoe  Cattle  Co.  v.  Stevens    522r 
Archambeau  v.  N.  Y.  R'y  Co.        415 
v.  Piatt  417 

Archer  v.  Terre  Haute,   etc.,   R. 

R.  Co.  305 

Anlesco  Oil   Co.   v.  North  Am. 

Oil  Co.  130,  668 

Argus  Co.'s  Petition  577,  580 

Argus  Printing  Co.,  In  re  578 

Arkadelphia     Cotton     Mills     u. 

Trimble  518 

Arkansas  River,  etc.,  Co.  v.  Far- 
mers' L.  &  T.  Co.  710 
Arkansas    Valley     Ag.    Soc.    v. 

Eichholtz  568 

Armaut  v.  Railroad  Co.  568 

Armington  v.  Palmer  137 

Armour  v.  National  Bank       392,  796 

Arms  v.  Conant  225,  381 

Armstrong  v.  Karshner  517,  523,  530 

Arnold  v.  Covington  Bridge  Co.    163 

v.  Hudson  River  R.  R.  Co.  174 

v.  Illinois  Central  R.  R.  Co.         353 

v.  Suffolk  Bank  599 

Arnot  v.  Erie  R'y  Co.  280,  308 

Arthur  u.  Commercial,  etc.,  Bank  668 

v.  Griswold  755.  774 

Ashbury  Railway  Carriage,  etc., 

Co.  v.  Riche  291,  296 

Ashe  v.  Johnson  790 

Asher  v.  Sutton  236 

Ashley  r.  Ryan  479 

Ashmore  o.  Penn.  Steam  Tow  Co.  353 
Ashpitel  v.  Sercombe  104 

Ashtabula,    etc.,    R.    R.    Co.    v. 

Smith  517 

Ashton  v.  Burbank  531 

v.  Dashaway  Assoc.  556 


SECTION 

Ashton  v.  Zeila  Mining  Co.  587 

Ashuelot  M'f'g  Co.  v.  Marsh  236 

Ashuelot  R.  R.  Co.  u.  Elliott 

496,  499,  629.  642 
Ashurst  v.  Mason  526,  763,  804 

Ashville  Division  v.  Aston 

159,  430,  437 
Asiatic  Banking  Co.,  In  re,  Bank 

of  India's  Case  196 

Aspinwall  v.  County  of  Daviess     320 
v.  Ohio,  etc.,  R.  R.  Co.  382 

v.  Torrance  783 

Association  v.  Fenner  153 

Asylum  v.  New  Orleans  848 

Atchison  Board  u.  De  Kay  320 

Atchison  and  Neb.   R.   R.  Co.  v. 

Washburn  353 

Atchison  and  D.  R'y  Co.  v.  Lyon  178 
Atchison   and   N.    R.    R.  Co.  v. 

Garsirle  175a 

Atchison,  etc.,  R.  R.  Co.  v.  Holt  365 
Atchison,  etc.,  R.  R.  Co.  v.  Moore  365 
Atchison,  T.  &  S.  F.  R.  R.  Co.  v. 

Denver  &  N.  O.  R.  R.  Co.  162,  309 
v.  Matthews  475 

v.  Fletcher  381,  534 

Athenaeum   Society,    In    re,    Ex 

parte  Eagle  Co.  251 

Athol  Music  Hall  Co.  v.  Carey      109 

Atkins  v.  Albree  800 

v.  Petersburg  R.  R.  Co.  822 

v.  Marietta,  etc.,  R.  R.  Co.  125,  155 

Atkinson  v.  Marietta,  etc.,  R.  R. 

Co.  451 

v.  St.  Croix  M'f'g  Co.  193 

Atlanta,  etc.,  R.  R.  Co.  v.  Kim- 

berly  170 

Atlantic  and  Gulf  R.   R.   Co.  v. 

Allen  488 

Atlantic    and    G.    R.    R.  Co.  v. 

Jacksonville,  etc.,  R.  R.  Co.  395 
Atlantic  and    Pac.   R.   R.  Co.  v. 

St.  Louis  166,  168,  204 

v.  Reisner  193 

Atlantic    and    Pac.     Tel.   Co.  u. 

Union  Pac.  R.  R.  Co.  309,  314 
Atlantic  Cotton  Mills  v.  Abbott  518 
Atlantic,  etc.,  R'y  Co.  v.  Dunn  377 
Atlantic  Delaine  Co.  v.  Mason 

522c,  574 
Atlantic  Mills  v.  Indian  Orchard 

Mills  342 

Atlantic  State  Bank  v.  Savery  161 
Atlantic,  Tenn.,    etc.,    R.    R.  v. 

Johnson  809 

Atlas  Nat.  Bank  v.  Moran  Co.        655 
v.  Savery  293,  302 

Atlas  Tack  Co.  v.  Exchange  Bank  759 
Attaway  v.  National  Bank  627 

Attleborough      Nat.      Bank     v. 

Rogers  ^3,  302 

825 


TABLE   OF    CASES. 


SECTION 

Att'y-Gen'l  v.  Am.  Tob.  Co. 

309a,  460 
v.  Bank  of  Niagara  459 

v.  Chicago,  etc.,  R.  R.  Co.  460 

v.  Great  Eastern  R'y  Co.  308 

v.  Guardian  Mut.  Ins.  Co. 

143,  395,  542,  758 
v.  Jamaica  Pond  Aqueduct  457 
u.  Metropolitan  R.  R.  Co.  175 

v.  North  American  Life  Ins.  Co.  451 
v.  Petersburg,  etc.,  R.  R.  Co.  460 
o.  Eailroad  Co.  433 

v.  Railroad  Companies  4766 

v.  Utica  Ins.  Co.  156,  457,  458 

Auburn  Bolt  Works  v.  Schultz        91 
Auerbach  v.  Le  Seuer  Mill  Co. 

125,  127,  286 
Augsburg  L.  &  I.  Co.  v.  Pepper  136 
Augur   Steel    Axle,  etc.,   Co.  v. 

Whittier  157 

Augusta  Bank  v.  Hamblet  234 

Augusta  M'f'gCo.  v.  Vertrees       449 
Aultman  v.  Waddle  738 

Aultman's  Appeal  393,  715,  749 

Aurora  Agricul.Soc.  v.  Paddock  125 
Aurora  City  v.  West  326 

Aurora,  etc.,  R.    R.  Co.  v.  Law- 

renceburg  147 

Aurora,    etc.,    Turnpike  Co.  v. 

Holthouse  453 

Austin  v.  Daniels  615,  616,  618 

v.  Tecumseh  Bank  415 

Austin's  Case  614 

Australian,  etc.,  Co.  v.  Mounsey  125 
Ayrault  v.  Pacific  Bank  161 

Ayres,  In  re  462 


B. 


Babcock  u.  Beman  752 

Bach  v.  Pac.  Mail  S.  S.  Co.  554 

Bachman,  In  re  601,  748 

Backus  v.  Lebanon  470 

Bacon  v.  Cohea  437 

v.  Irwin  140 

v.  Michigan  Central  R.  R.  Co.    342 

r.  Mississippi  Ins.  Co.  125,  20li 

v.  Robertson  264,  460 

Badger  v.  American  Popular  Ins. 

Co.  253 

Badger  P.  Co.  v.  Rose  108 

Ba^lev  v.  Carthage  R.  R.  Co.         647 
Bagnall  v.  Carlton  82 

Bagshaw,  Ex  parte  608 

Bahia,  etc.,  R'y  Co.,  In  re  593 

Baile  i\  Educational  Society 

521,  522c 

Bailey  v.  Bancker  733,  784 

v.  Birkenhead,  etc.,  R'y  Co.        554 

v.  Buchanan  County  326 

82G 


SECTION 

Bailey  v.  Citizens'  Gas  Light  Co. 

536,  788 
v.  Macaulay  77 

v.  Maguire  489 

v.  Malheur  Irr.  Co.  137 

v.  Pittsburgh  Coal  R.  Co.  703 

v.  Pittsburgh,  etc.,  Gas    Coal 

Co.  521,  522a,  522c,  779 

v.  Railroad  Co.  564 

v.  Rome,  etc.,  R.  R.  Co.  365 

v.  Sawyer  727 

v.  The 'Master  Plumbers,  309a,  582 

Bailey's  Appeal  788 

Bailey's  Case  110 

Baine's  v.  Babcock  703,  706 

Baird  v.  Bank  of  Washington        189 

v.  Calvert  713 

v.  Midvale  Steel  Works  695 

v.  Morford  376 

v.  Petitt  365 

v.  Ross  98 

Baker  v.  Atlas  Bank  721,  736 

v.  Backus  611,  716 

v.  Loan  Co.  281 

v.  Louisiana    Portable    R.    R. 

Co.  611 

v.  Marshall  595,  599 

v.  Neff  146 

v.  Wassen  594 

v.  Woolston  210 

Baker's  Appeal  227,  449,  577 

Balch  u.  Hallet  799 

«.  Wilson  810,  813 

Baldwin  v.  Canfield  187,  258 

13.  U.  S.  Tel.  Co.  357 

Bale  v.  Cleland  696 

Balfour  v.  Gas  Co.  108 

Ball  i).  Anderson  393 

v.  Reese  393,  737 

Ball  El.  Light  Co.  13.  Child 

715,  720,  731 
Ball    &    O.    S.    W.    R'y  Co.    v. 

Voight  352 

Ballin  v.  Bank  668 

Balliott  v.  Brown  229 

Baltimore  13.  Baltimore  Railroad    674 
B.  C.  &  A.  Ry.  Co.  v.  Ocean  City  491 
13.  Wicomico  Co.  491 

Baltimore  and    Ohio  R.   R.    Co. 

13.  Baugh  365 

13.  Brady  359 

13.  Creeger  475 

13.  Noell's  Adm'r  412 

13.    Pittsburgh,  W.    &     K.    R. 

R.  Co.  163,  163a 

13.  Pumphrey  360,  361 

13.  Sherman  137 

13.  Schwindling  371 

v.  State  374 

v.  Wheeling  554,  558 

13.  Whittington  376 


TABLE    OF    CASES. 


SECTION 

Baltimore  and  Ohio  R.  R.  Co.  v. 

Wilkins  201 

v.  Wightman's  Adm'r  412 

Baltimore  and  P.  R.  Co.  v.  Fifth 

Baptist  Church  145,  169 

Baltimore    aud    Potomac  R.   R. 

Co.  v.  Reaney  173,  177 

v.  State  327 

Baltimore  &  S.  P.  R.   R.  Co.  v. 

Hackett,  173 

Baltimore,  etc.,  R.  R.  Co.  v.  Mus- 

selmaD  665 

v.  Nesbit  495 

Baltimore,  etc.,  Railway  Co.  v. 

Sewell  599 

Baltimore,  etc.,  Steamboat  Co.  v. 

Brown  362,  363 

Baltimore,  etc.,  Turnpike  Co.  v. 

Boone  377 

v.  Cassell  169 

v.  Union  Ry.  Co.  163a 

Baltimore,  P.,  and  C.  R.  R.  Co. 

v.  Lansing  178 

Baltzen  v.  Nicolay  789 

Banet  v.  Alton,  etc.,  R.  R.  Co.      227 
Bandcroft  v.  Wilmington  Conf. 

Acad.  248 

B.  &  P.  R.  R.  Co.  v.  Cumberland  374 
Bangor  and  P.  R.  R.  Co.  v.  Mc- 

Comb  178 

Bangor,  etc.,  R.  R.  Co.  v.  Smith    449 

Banigan  v.  Bard  750 

v.  U.  S.  Rubber  Co.  647 

Banister  v.  Pennsylvania  Co.  344 

Bank  v.  City  of  Charlotte  531 

v.  Cotton  Mills  668 

v.  Durfee  601 

v.  Flour  Co.  114,  127,  193 

v.  Hill  616 

v.  Lanier  594,  602 

v.  Lumber  Co.  813 

u.  McLeod  819 

v.  Penland  240 

v.  Railroad  Co.  125 

v.  Salt  Co.  668 

v.  Statesville  328 

v.  Tanning  Co.  671 

v.  Tennessee  489 

v.  Wickersham  135 

v.  Zent  161 

Bank  Commissioners  v.  Bank  of 

Brest  225,  230 

v.  Bank  of  Buffalo         224,  233,  457 

v.  Granite  State  Prov.  Assn.       394 

v.  James  Bank  457 

v.  St.  Lawrence  Bank  273 

Bank  of  America  v.  McNeil  606 

Bank  of  Attica  v.  Manufacturers' 

Bank  599,  601 

Bank  of  Augusta  v.  Earle 

380,  381,  382,  384 


SECTION 

Bank  of  Australasia  w.  Breillat  125 
Bank  of  Batavia  v.   N.  Y.,  etc., 

R.  R.  Co.  204 

Bank  of   Bethel   v.  Pahquioque 

Bank  432,  669 

Bank  of  British  Columbian.  Page  401 
Bank  of  Buffalo  v.  Thompson  51,  62 
Bank  of  Chattanooga  v.  Bank  of 

Memphis  272 

Bank  of  Chillicothe  v.  Dodge        195 

v.  Swayne  298 

Bank  of  Columbia  v.  Patterson     248 

Bank  of  Commerce  v.  McGowan  488 

v.  New  York  City  482 

v.  Tennessee  489 

Bank  of  Genesee  v.  Patchin  Bank  244 

Bank  of  Georgia  v.  Savannah      477a 

Bank  of  Greenboro'  v.  Clapp  342 

Bank  of  Hamilton  v.    Dudley's 

Lessee  468 

Bank  of  Hindostan,  In  re  586 

Bank  of  Holly  Springs  v.  Pinson  601 
Bank   of    Kentucky    v.    Adams 

Exp.  Co.  352,  354 

v.  Bonnie  Bros.  604 

v.  Schuylkill  Bank  224,  263 

v.  Wister  462 

Bank  of  Little  Rock  u.  McCarthy  260 

Bank  of  Louisiana  u.  Wilson  435 

Bank  of  Madison,  In  re  672 

Bank  of  Metropolis  v.  Guttsch- 

lick  248 

v.  Jones  236,  241 

v.  New  England  Bank  673 

Bank  of  Middlebury  v.  Rutland, 

etc.,  R.  R.  Co.  259 

Bank  of  Mississippi  v.  Wren  435 

Bank  of  Mutual  Redemption  v. 

Hill  756 

Bank  of  New  Hanover  v.  Kenan 

161,  346 
Bank  of  New  London  v.  Ketchum  259 
Bank  of  North  American.  Rindge  393 
Bank  of  Ohio  v.  Knoop  453 

Bank     of    Omaha    v.    Douglass 

County  410 

Bank  of  Oregon,  In  re  239 

Bank  of  Pennsylvania  v.  Reed  239 
Bank  of  Poughkeepsie  v.  Ibbotson  725 
Bank  of  Redemption  v.  Boston  484 
Bank  of  Republic  v.   County  of 

Hamilton  495 

Bank  of  Saline  v.  Alvord  298 

Bank     of     South    Australia    v. 

Abrahams  225 

Bank  of  South  Carolina  v.  Ham- 
mond 257 
Bank   of  St.   Mary's  «.  St.  John 

658,  757 
Bank  of  Tennessee  v.  Cummings  293 
Bank  of  U.  S.  v.  Dallam  '    724 

827 


TABLE    OF   CA8ES. 


SECTION 

Bank  of  U.  S.  v.  Dandridge 

188,  204,  217,   219,  248,  449,  250, 
257,  263 
v.  Davis  210 

v.  Devereaux  21,  410 

v.  Dunn  224,  230,  241 

i>.  Owens  298 

v.  Waggener  298 

Bank  of  Utica  v.  Smalley  589 

Bank  of  Vergennes  v.  Warren  241 
Bank  of  Washtenaw  v.  Montgom- 
ery 384 
Bank  Tax  Case  482 
Banks  v.  Ga.  R.  R.,  etc.,  Co.  170 
Banks,  The,  v.  Poitaux  303 
Bansemer  v.  Toledo,  etc.,  R.  R. 

Co.  360 

Barclay  v.  Culver  794 

v.  Quicksilver  Mining  Co.  657 

v.  Wainwright  800 

Bard  v.  Poole  384,  386,  389 

Bardstown  and  L.  R.   R.  Co.  v. 

Metcalfe  305 

Bargate  v.  Shortridge,     224,  232,  589 
Barings  v.  Dabney  507 

Barker,  Ex  parte  578 

Barker  v.  Cairo,  etc.,  R.  R.  Co.     561 
Barksdale  v.  Finney  342 

Bailey  v.  Gittings,  392 

Barnard  v.  Vermont,  etc.,  R.  R. 

Co.  563 

Barndollar  v.  Dubois  57 

Barnes  v.  Brown  580 

v.  District  of  Columbia  315 

v.  Lynch  638 

v.  Ontario  Bank  240,  253 

v.  Suddard  303 

v.  Trenton  Gas  Light  Co.  210 

Barnes  Bros.  v.  Coal  Co.  196 

Barnett  v.  Chicago,    etc.,   R.   R. 

Co.  399 

v.  Denison  329 

Barnett's  Case  731 

Barney  v.  Oyster  Bay  Steamboat 

Co.  350 

Barnum  v.  Okolona  319 

Barr  v.  Bartram,  etc.,  Mfg.  Co.      663 

v.  Glass  Co.  629 

v.  King  402 

v.   New  York,    L.    E.  and  W. 

R.  R.  Co.  140,  141,  612,  631 

Barrell  v.  Lake  View  Land  Co. 

189,  261 

Barrett  v.  County  Court  325 

v.  Maiden,  etc.,  R.  R.  Co.  347 

Barrett  &  Co.  v.  Pollak  &  Co.        655 

Barrick  v.  Austin  241 

v.  Gifford  713,  716 

Barron  v.  Burnside  400 

v.  Burrill  511 

v.  Eldredge  360 

828 


SECTION 

Barron  v.  Paine  737 

Barrow  v.  Nashville,  etc.,  T.  C.     303 
Barrow  Stm.  Ship  Co.  v.   Kane, 

392,  395,  400,  412 
Barrows  v.  National  Rubber  Co.    606 
v.  Natchoug  Silk  Co.  541 

Barry   v.    Merchants'    Exchange 

Co.  127,  129,  561 

v.  N.  Y.  Cent,  and  H.  R.  R.  R. 

Co.  371 

v.  Screwmen's  Association  249 

Barstow  v.  City  R.  R.  Co.  646 

v.  Savage  Mg.  Co.  795 

Barter  v.  Wheeler  364 

Bartemeyer  v.  Iowa  476 

Bartholomew   v.  Derby   Rubber 

Co.  608 

Bartlett  v.  Drew  655,  705,  708 

v.  Kinsley  187 

v.  Mystic  River  Co.  647 

v.   Western   Union   Telegraph 
Co.  357 

Bartlette  v.  Norwich  and  Wor- 
cester R.  R.  Co.  308 
Barto  v.  Nix                              135,  521 
Barton    v.   Port    Jackson,    etc., 

Plank  Road  Co.  135,  298 

Barton  Nat'l  Bank  v.  Atkins  501,  719 

Bass  v.  City  of  Columbus  325 

v.  Roanoke  Nav.  Co.  163 

Bassett  v.  St.  Alban's  Hotel  Co. 

770,  775 
v.  Fairchild  647 

v.  Monte  Christo  M.  Co. 

381,  633,  759 
Basshardt  Co.  v.  Oil  Co.  276 

Basshor  v.  Dressell  157,  460 

v.  Forbes  735 

Batard  v.  Hawes  81 

Batchelor  v.  Planters'  Nat.  Bank 

249,  625 
Bates  v.  Androscoggin  R.  R.  Co. 

563,  564,  572 

v.  Bank  of  Alabama  257 

v.  Day  726 

v.  Great  Western  Tel.  Co.         522a 

v.  Mackniley  799 

v.  Wilson,  etc.,  Co.  146 

Bates  County  v.  Winters         320,  324 

Batho.  Caton  755 

Bath  Gas  Co.  v.  Claffy,  276 

Bathe  v.  Decatur  Agric.  Soc.  222 

Battelle  v.  Pavement  Co.  87,  630 

Batty  o.  Eureka  Bk.  302,  604 

Bavington    v.    Pittsburgh,    etc., 

R.  R.  Co.  519 

Bawknightv.  Liverpool,  etc.,  Ins. 

Co.  396 

Baxter  v.  Moses  756 

v.  Roberts  365 

Bayless  v.  Oine  611 


TABLE    OF   CASES. 


SECTION 

Beach  v.  Fulton  Bank  276,  342 

v.  Miller  632 

Beach  &  Weld  v.  Wakefield  286 

Beale  v.  Mouls  77 

v.  Railway  Co.  377 

Beals  v.  Illinois,  etc.,  R.  R.  Co.  814 
Bear  River  O.  Co.  v.  Hanley  640 
Beard  v.  The  Union,  etc.,  Pub. 

Co.  400 

Beardslev  ».  Johnson  573 

Beardsley   v.  N.   Y.  L.    I.  &  W. 

R.  R.  Co.  4766 

Beattie  v.  Ebury  754 

Beatty  v.  Marine  Ins.  Co. 

195,  253,  262 
v.  Bartholomew  County  Agric. 
Soc.  146 

Beaty  c.  Knowler's  Lessee  224 

Beauregard  v.  New  Orleans  468 

Beck  v.  Henderson  738 

v.  Kantorowics  82 

Becker  v.  Western  Un.  Tel.  Co.  357 
Becket  v.  Houston  511 

Beckwith  v.  Burrough  796 

Bedford  v.  Eastern  B.  &  L.  Ass'n  400 
v.  Hannibal  and  St.   Jo.  R.  R. 
Co.  368 

Bedford  and  Cambridge  R'y  Co. 

v.  Stanley  90 

Bedford  R.  R.  Co.  v.  Bowser 

229,  517,  549,  780 
Bee  o.  San  Francisco,  etc.,  R'y  Co.  647 
Beebe  v.  Beebe  Co.  236 

Beecher  v.  Marquette,  etc.,  Ins. 

Co.  282 

v.  Marquette  and  Pac.  Rolling 
Mill  Co.  300 

Beekman  v.  Saratoga,  etc.,  R.  R. 

Co.  163,  476 

Beene  v.  Cahawba,  etc.,  R.  R.  Co. 

513,  546 
Beer  Co.  v.  Massachusetts  476 

Beers  v.  Arkansas  462 

v.  Bridgeport  Spring  Co.     563,  568 
v.  Phoenix  Glass  Co.  193 

v.  Waterbury  783 

Beeson  v.  Lang  417,  418 

Behre  v.  Nat.  Cash  Register  Co.  342 
Beitman  v.  Steiner  580 

Belcher  Sugar  Ref.  Co.  v.  Eleva- 
tor Co.  281 
Belfast,  etc.,  R.  R.  Co.  v.  Belfast 

563,  564,  565 

v.  Coffrell  518 

v.  Moore  513 

Belger  v.  Dinsmore  359 

Belknap  v.  Boston  and  M.  R.  R. 

Co.  377 

Rec'r,  p.  Adams  &  Rice  542 

v.  Schild  462 

Bell  v.  Americus,  etc.,  R.  R.  Co.   521 


SECTION 

Bell  v.  Farwell  393 

v.  Indianapolis,  etc.,  R.  R.  Co. 

417,  432 
v.  Railroad  Co.  319 

Bell's  Appeal  655,  703 

Bellows    v.    Hallowell   and  Au- 
gusta Bank  667 
v.  Todd  381 
Bell's  Gap  R.  R.  Co.  v.  Christy    86 
Belmont  v.  Erie  R'y  Co.  611 
Belton,  In  re                                      429 
Benbow  v.  Cook                               260 
Bend  v.  Susquehanna  Bridge  Co.  587 
Benedict  v.  Columbia  Cons.  Co.   611 
v.  Lansing                                       201 
Bengley  v.  Wheeler                           686 
Benignia  v.  P.  R.  R.  Co.                   365 
Bennett  v.  Keene                               229 
v.  Maryland  Fire  Ins.  Co.            216 
v.  Railroad  Co.                               371 
v.  S.  A.  R.  E.  B.  and  L.  Ass'n     249 
v.  St.  Louis  Car  Roofing  Co. 

628,  647 
Bennett's  Case  747 

Benninghoff  u.  Agricultural  Ins. 

Co.  212,  214 

Bennison  v.  McConnell  783 

Benscic  v.  Thomas  270 

Bensinger  v.  Wren  51 

Benson,  Ex  parte  309,  822 

Bent  v.  Priest  629,  630 

v.  Underdown  124,  702 

Benton  v.  Bank  641 

v.  C.  R.  I.  and  P.  R.  R.  Co.         372 
v.  Springfield  Y.  M.  C.  A.  258 

Benwood  Iron  Works  v.  Hutchin- 
son 396 
Berg  v.  Atchison,  etc.,  Railroad 
Co.  363 
v.  Marietta,  etc.,  R'y  Co.  523 
Bergen  v.  Fishing  Co.  668 
Bergman  v.  St.  Paul  Mut.  B'ld'g 

Ass'n  546,  583 

Bergner,  etc.,  Br'w'g  Co.  v.  Drey- 
fus 395 
Berkeley  v.  C.  &  O.  Ry.  Co.  374 
Berks  Turnpike  Road  v.  Myers 

159,  251,  254 
Bernard's  Township  v.  Stebbins 

254,  318,  328 
Bernhardt  v.  Brown  407 

Berrison  v.  Chicago  R.  R.  Co.         173 
Berry  v.  Broach  610 

v.  Kansas  City,  etc.,  R.  R.  Co.    425 
v.  W.  Ya.  &  P.  R.  R.  Co.  359 

Berrvman  v.  Cincinnati  Southern 

R.  R.  Co.  162 

Besel  v.  N.  Y.  C.  and  H.  R.  R.  R. 

Co.  365 

Best  Brewing  Co.  v.  Classon  283 

Bestor  v.  Wathen  162 

829 


TABLE    OF    OASES. 


SECTION 

Beveridge  v.  New  York  El.  R.  K. 

Co.  229,  502,  563 

Bezaa  v.  Pike  214 

Bibb  v.  Hall  145 

Bickley  v.  Schlag  702/> 

Biddle  Pur.  Co.  v.  Steel  Co.  668 

Biddle's  Appeal  799,  800 

Bidwell  v.   Pittsburgh,  etc.,  R'y 

Co.  187 

Bigbee,  etc.,  Co.  v.  Moore  303 

Bigelow  v.  Gregory  451,  739 

Bill  v.  Western  Union  Telegraph 

Co.  642,  644 

Billings  v.  Robinson  542,  586 

v.  Trask  764 

Bingharnton  Bridge,  The 

450,  453,  461,  468 
Binghampton  Trust  Co.  v.  Autou  342 
Bird  v.  Bird  Patent,  etc.,  Co.  268 

v.  Chicago,  etc.,  R.  R.  Co.  592 

v.  Hayden  764 

Bird  Coal  Co.  v.  Humes  629 

Birmingham  Nat.  Bank  v.  Roden  110 
Birmingham    T.    and   S.    Co.    v. 

Louisiana  Nat.  Bank  606 

Birney  v.  N.  Y.,  etc.,  Telegraph 

Co.  357 

Bish  v.  Bradford  738 

v.  Johnson  535,  536 

Bishop  v.  American  P.  Co.   309c,  388 

v.  Brainerd  408,  420,  536,  663 

v.  Globe  Co.  210,  392,  603 

v.  Kent  &  Stanley  Co.  185 

Bissell  v.  Farmers,'  etc.,  Bank       790 

v.  Heath  744 

v.  Jeffersonville  331 

v.  Michigan  Southern,  etc.,  R. 

R.  Co.   264,  275,  280,  287,  290,  338 
v.  N.  Y.  O.  R.  R.  Co.  353 

v.  Spring  Valley  Township         332 
Bisset  v.   Kentucky  River   Nav. 

Co.  733,  737 

Bjorngaard  v.  County  Bank  5596 

Black  v.  Burlington,  etc.,   R.  R. 

Co.  374 

v.  Delaware  and  Raritan  Canal 

Co.  229,  305,  384,  420,  557 

Black  v.  Goodrich  Trans.  Co.         353 

v.  Huggins  687,  690 

v.  Wabash,  etc.,  Ry.  Co.  356 

v.  Wo  mar  737 

v.  Zacharie  796 

Black  &  Co. 's  Case  731 

Blackburn  v.  Selma  M.  and  M. 

R.  R.  Co.  146 

Blackman  v.  Central  R.  R.  Co.       138 
v.  Levman  326 

Black   River,   etc.,  R.    R.  Co.  v. 

Barnard  178 

v.  Clarke  537 

830 


SECTION 

Black  River  Improvement  Co.  v. 

La  Crosse  Booming,  etc.,  Co.  174 
Black  Run  Improvement  Co.  v. 

La  Crosse  Booming,  etc.,  Co.  174 
Blackstock  v.  N.  Y.   and  Erie  R. 

R.  Co.  361 

Blaekwell,  The  137 

Blair  u.  (umming  County  319 

v.  Erie  R'y  Co.  353 

v.  Gray  722 

v.  Illinois  Steel  Co.  759 

v.  Perpetual  Ins.  Co.  381 

v.  Telegram  News  Co.  693 

Blair  Town  Lot  Co.  v.  Walker       628 

Blaisdell  v.  Bohr  593 

Blake  v.  Griswold  263 

v.  Hinkle  432,  703 

v.  Holly  204 

v.  Maine  Central  R.  R.  Co.  366 

v.  McClung  383,  394 

v.  Portsmouth,  etc.,  R.  R.  Co.    436 

v.  Rich  162n 

v.  Winona,  etc.,  R.  R.  Co.  476a 

Blakeman  v.  Benton  735 

Blalock  v.  Manufacturing  Co.         135 

Blanc  v.  Paymaster  M'g  Co.  395,  396 

Blanchard  v.  Dedham  Gas  Light 

Co.  796 

v.  Hillard  195 

Bland's  Case  629 

Blatchford  v.  Ross  227,  646 

Blen  v.  Bear  River,  etc.,  Co.  214,  236 
Blien  v.  Rand  740 

Bliss  v.  Anderson  688 

v.  Kaweah  Co.  204,  236 

Block  v.  Commissioners  330 

Bloede  Co.  v.  Bloede  583 

Blood  v.  La  Serena,  L.  &  W.  Co. 

187,  281 
v.  Marcuse  201 

Bloodgood  v.  Mohawk,   etc.,  R. 

R.  Co.  163,  476 

Bloom  v.  National  Sav.  Co.  694 

Bloomfield  v.  Charter  Oak  B'k      334 
Blossom  v.  Dodd  358 

v.  Railroad  Co.  682 

Blouin  v.  Liquidators  of  Hart        796 
Blount  v.  Windley  493 

Bloxham  v.  Metropolitan  R'y  Co.  565 
Blue  v.  Bank  647 

Blumenthal  v.  Brainerd  360,  417 

Blundell  v.  Windsor  719 

Blunt  v.  Walker  249 

Bly  v.  Water  Co.  120 

Board,  etc.,  Tippecanoe  County 
v.  Lafavette,  etc.,  R.  R.  Co. 

229,  268,  305,   556 
Board  of  Administrators  v.  Gas 

Light  Co.  421,  425 

Board  of  Liquidation  v.  McComb  462 


TABLE   OF    OASES. 


SECTION 

Board  of  Public  Works  u.  Gaunt  462 
Board  of  Trade  Tel.  Co.  v.  Bur- 
nett 175 
Boardman  v.   Lake  Shore,  etc., 

R'y  Co.      474c,  563,  564,  786,  798 
Bockhover  ».  Life  Ass'n  390,  495 

Bocock  v.  Coal  Co.  196 

Bodlev  ».  Goodrich  668 

Bohan  v.  Port  Jervis  G.  L.  Co.  169 
Bohmer  v.  City  Bank  264,  606 

Bolin  v.  Brown  734 

Boice  v.  Hodge  715 

Boise  City  Canal  Co.  v.  Pinkham  146 
Boisgerard  y.  New  York  Banking 

Co.  159 

Bommer     v.     American     Spiral 

Hinge  M'f'g  Co.  90 

Bonaparte  v.  Appeal  Tax  Court    479 

v.  Baltimore,  etc.,  R.  R.  Co.        449 

Bond  v.  Appleton  720 

v.  Central  Bank  257 

v.  Morse  775 

v.  Terrell  M'f'g  Co.  276,  295 

Bonelli's  Electric  Tel.  Co.,  In  re  258 

Bouewitz  v.  Van  Wert   County 

Bank  727 

Bonham  v.  Needles  330 

Bouham's  Case  456 

Bonnell  v.  Griswold  764,  769,  770,  774 
Bonner  v.  City  of  New  Orleans  127 
Bouuey  v.  Tilley  759 

Booe  v.  Junction  R.  R.  Co.  531 

Boogher  v.  Life  Association  342 

Booker  v.  Young  260 

Boom  Co.  v.  Patterson  178,  473 

Booske  v.  Gulf  Ice  Co.  146 

Boot  and  Shoe  Co.  v.  Hoit  109 

Booth  v.  Boston  and  Albany  R. 

R.  Co.  365,  366 

v.  Bunce  657 

v.  Campbell  735 

v.   Farmers'    and    Mechanics' 

Bank  236 

v.  Robinson  125,  130,  642,  687, 

688,  693,  694 

v.  Rome,  etc.,  R.  R.  Co.  167 

Borchardt  v.  Wauseau  Boom  Co.  167 

Borough   of  Easton    v.    Lehigh 

Water  Co.  455 

Borry  v.  Cooper  353 

Boscowitz  v.  Adams  Exp.  Co. 

353,  359 
Bosher  v.  Land  Co.  523 

Bostock  v.   North   Staffordshire 

Ry.  128 

Boston   and    Albany  R.  R.   Co., 

Matter  of  163a 

v.  Greenbush  163a 

v.  Pearson  56 

v.  Richardson  597 

v.  Shanley  369 


SECTION 

Boston,  etc.,  Co.  v.  Chesapeake, 

etc.,  R.  R.  Co.  823 

Boston  and  L.  R.  R.  Co.  v.  Com- 
monwealth 477a 
v.  Nashua,  etc.,  R.  R.  Co.  137 
v.  Salem,  etc.,  R.  R.  Co.       152,  470 
Boston  and  M.  R.  R.  Co.  v.  Lowell, 

etc.,  R.  R.  Co.  163a 

Boston  and  Providence  R.  R.  Co. 
v.  New  York  and  N.  E.  R.  R. 
Co.  608 

Boston  and  W.  R.   R.  Co.  v.  Old 

Colony  R.  R.  Co.  174 

Boston,  Barre,  etc.,  R.  R.  Co.  v. 

Wellington  96 

Boston,  Concord,  etc.,  R.  R.  Co. 

v.  Gil  more  676 

Boston     Glass     Manufactory    v. 

Langdon  429,  432,  433 

Boston  Water  Power  Co.  v.  Bos- 
ton and  W.  R.   R.  Co.     163,  163a 
Bostwicku.  Baltimore,  etc.,  R.  R. 

Co.  359 

v.  Van  Voorhis  249,  257 

Boswell  v.  Hudson  R.  R.  Co.  353,  359 

Bosworth  v.  Bank  759 

v.  Allen  690 

v.  Terminal  Road  Ass'n  814 

Botsford  v.  New  Haven,  etc.,  R. 

R.  Co.  818 

Botts  v.  Turnpike  Co.  536 

Bouch  v.  Sproule  800 

Bouden  v.  Farmers',   etc.,  Bank  741 
v.  Johnson  749 

v.  Santos  749 

Boughton  y.  Otis  768 

Bolton  Carbon  Co.  v.  Mills     522c,  729 
Bourdette  v.  Sreinard,  585 

Bourdier  v.  Morgan,  etc.,  R.  R. 

Co.  173 

Bouton  v.  Dement  745 

Bowditch  v.  New  England  Life 

Ins.  Co.  301 

Bower  v.  B.  and  S.  W.  Ry.  Co.       170 
Bowman  v.  Chicago,  etc.,  Ry.  Co. 

474a" 
Boyce  u.  Montauk  Gas  Co.  185 

v.  St.  Louis  387 

Boyd   v.    Chesapeake   and   Ohio 

Canal  Co.  210 

v.  Hall  728 

v.  Peach  Bottom  Ry.  Co.  516 

v.  Redd  604 

v.  Rockport  Steam  Cotton 

Mills    '  796 

v.  Sims  140 

v.  Worsted  Mills  798 

Boyden  v.  Bank  of  Cape  Fear        672 

Boyd  en  v.  Fitchburg  R.  R  Co.        372 

Boyer  r.  Boyer  483 

Boyington  v.  Van  Etten  739 

831 


TABLE    OF    CASE8. 


SECTION 

Boyleu  v.  Huguet  794 

Buy n ton  v.  Andrews  723 

v.  Hatch  522c,  702,  723 

v.  Rowe  130,  225,  068 

Brabbits  v.  Chicago  and  N.   W. 

Ky.  Co.  365 

Braceville  Coal  Co.  v.  People         475 

Brackett  v.  Griswold  771 

Brad  dock  r.   Philadelphia,   etc., 

K.  R.  Co.  97,  517 

Bradford  B.  Frankfort,  etc.,  R.  K. 

Co.  536 

Bradford   Banking   Company    u. 

Briggs  603 

Brad  lee  ».  Boston  Glass  Mfy.  753 

Bradley  v.  Ballard  125,  280 

o.  Farwell  759 

v.  New  York  and  N.  H.  R.  R. 

Co.  175a 

v.  People  484 

v.  Reppell  430 

o.  Richardson  138,  642 

Bradstreet  v.  Bank  of  Royalton      259 

Brady  v.  Insurance  Co.  146 

Brague  b.  No.  Cent.  Ry.  Co.  372 

Brady  v.  Johnson  676 

Brainard  v.  Clapp  162a 

v.  Missiquoi  R.  R.  Co.  175a 

Brainard  v.  New  York,  etc.,  R.  R. 
Co. 
v.  Peck 

Brampton,  etc.,  Ry.  Co.,  In  re 

Branch  v.  Atlantic,  etc.,  R.  R.  Co, 

Branch  v,  Dawson 

v.  Jesop  131,  270,  305,  565 

v.  Roberts  756 

Branson  v.  City  of  Phila. 
i\  Trump  Machine  Co. 

Brant  b.  Ehlen 

Braslin  v.  Railroad  Co. 

Brass  v.  Stoeser 

Brassell  v.  N.   Y.   C.   and   IT.   R. 
R.  R.  Co. 

Brause  v.  New  England  Fire  Ins. 
Co. 

Bray  v.  Seligman 

Bray  ton  v.  Fall  River 

Breed  v.  Mitchell 

Breen  p.  Merchants',  etc.,  Bank 

Breese  o.  U.  S.  Tel.  Co. 

Breitung  v.  Lindauer 

Brenham  v.  German  Am.  Bank 
v.  Water  Co. 

Brent  v.  Bank  of  Washington 

505,  601 

Brewer  v.  Boston  Theatre  Co. 

560,  688,  689,  690 
r.  Michigan  Salt  Association      750 

Brewer  Brewing  Co.  v.  Boddie      286 

Brewing  Co.  r.  Flanner  630 

v.  Templeman  309c 


679 

676 

86 

818 
672 


163a 
398 
702 
170 

476a 

374 

392 
741 
473 
361 
813 
357 
764 
320 
309c 


SECTION 

re 

wster  v.  Hartley 

136,  577,  578 

v. 

Hatch 

103 

v. 

Hough 

488 

V. 

Sime 

797 

V. 

St  rat  man 

627 

Bridenbecker  v.  Lowell  240 

Bridge  Co.  v.  Fowler  759 

v.  Hoboken  Land,  etc.,  Co.         461 

v.  Traction  Co.  187 

v.  United  States  497 

Bridge  Proprietors  v.  Hoboken 

Co.  461,  468 

Bridgeport  Old  Brewery  Co.,  In  re  574 
Bridgeport  Sav'gs  Bk.  v.  Eldrige  236 
Briggs  v.  Cape  Cod  Ship  Canal 

Co.  460 

v.  Easterly  772 

v.  Penniman  731 

v.  Spaulding  619 

Brigg's  Case  110 

Brigham  o.  Agricultural  Branch 

i;.  R.  Co.  162a,  164 

Bright  o.  Lord  798 

v.  Metaire  Cemetery  Ass'n  236 

Brightman  v.  Bates  788 

v.  Davis  580 

Brimmer  v.  Rebman  474d 

Biinham   v.  Wellersburg  Coal  Co. 

561,  663,  725,  783 
Brinkershoff  v.  Bostwick  689,  690,  693 
Briuley  v.  Grow  800 

Briutnall  v.  Saratoga,  etc.,  R.  R. 

Co.  363 

Brisbane  v.  Delaware,  etc.,  R.  R. 

Co.  593 

v.  St.  Paul  and  S.  C.  R.  R.  Co.   174 
Bristol  o.  Sanford  721 

Bristol  Milling,  etc.,  Co.  v.  Pro- 

basco  760,  811 

Bristol,  etc.,  Tr.  Co.  v.  Jones- 

boro  Tr.  Co.  522c,  614 

Bristol  Nor.  Co.  v.  Selliez  529 

British  American  Land  Co.  v. 

Ames  384 

British,  etc.,  Assurance  Society, 

In  re  699 

British  Provident,  etc.,  Ass.  Soc, 

In  re,  Lane's  Case  211 

Britton  r.  Atlantic,  etc.,  R'y  Co. 

347,  348 

v.  D.  N.  O.  and  S.  R.  Co.  179 

Broadway  Bank  v.  McElrath  796 

Broadway  Nat.  B'k   u.  Baker         393 

Brockett  v.  Ohio,  etc.,  R.  R.  Co.    408 

Brockway  v.  Allen  159,  753 

v.  Gadsden,  etc.,  Co.  518 

B.  Iuness  734 

Brockway  M'f'g  Co.,  In  re      756,  757 

Brodie  b.  McCabe  333 

Brokaw  v.  New  Jersey  R.  R.  Co. 

335,  338 


TABLE    OF    CASES. 


SECTION 

Bronson,  Lire  479 

v.  Insurance  Co.  704 

v.  Kinzie  450 

v.  La  Crosse,  etc.,  R.  R.  Co.  138,  813 
v.  Railroad  Co.  819 

Brooklyn,  In  re  453 

v.  Insurance  Co.  330 

Brooklyn  Central  R.  R.  Co.  v. 

Brooklyn  City  R.  R.  Co.  164 

Brooklyn  Steam  Transit  Co.  v. 

Brooklyn  150,  432,  458,  460 

Brooklyn  W.,  etc.,  R.  R.  Co., 

Matter  of  155,  432,  458,  460 

Brookman  v.  Metcalf  125 

Brooks  v.  Ball  93 

v.  Davenport  and  S.  P.  R.  Co. 

178,  179 
v.  Martin  313 

v.  Railway  Co.  817 

Broughton  v.  Pensacola  316,  667 

v.  Jones  258 

Brown  v.  Adams  Exp.  Co.  353 

v.  Atlantic  R'y   Co.  145,  157 

v.  Beatty  179 

v.  Brink,  Rec'r  707 

v.  Colorado  468 

0.  De  Young  693 

v.  Eastern  R.  R.  Co.  359 

v.  Fairmount  Gold  M'gCo.  227,  530 
v.  Hannibal,  etc.,  R.  R.  Co.  369 
v.  Hitchcock  718,  719,  791 

v.  Houston  474c 

v.  Insurance  Co.  198 

o.  Maryland  474a,  480 

v.  Merrill  733 

v.  Monmouthshire  Ry.  Co. 

563,  565 
v.  Mortgage  Co.  146,  27(5 

v.  Pacific  Mail  S.  S.  Co. 

577,  579,  581 

v.  Republican  Mountain  Mines  640 

v.  Vandyke  687,  688 

v.  Weunissiinet  Co.  121 

Brown's  Exec.  v.  Galveston 

Wharf  Co.  647 

Brown,  Administrator,  Petition 

of  801 

Brown's  Case  614 

Brownell  v.  Troy,  etc.,  R.  R.  Co.  412 
Bruce  v.  Piatt    *  770 

Bruff  ».  Mali  696,  755 

Bruffet  v.  Great  Western   R.  R. 

Co.  458,  665,  667 

Brum  v.   Merchants'    Mut.    Ins. 

Co.  657 

Brundage  v.  Brundage  798 

v.  Monumental  Gold,  etc.,  Co.    704 
Brundred  c.  Rice  309 

Brunei-  v.  Brown  655 

Brunswick  G.   L.   Co.  v.  United 

Gas,  etc.,  Co.  310,  305,  309c 

53 


SECTION 

Brunswick  G.  L.  Co.  v.  Gale  350 

v.  Hughes  675 

Bruschke  v.  Schuetzen  Verein  690 
Brush  Elec.  L.  &  T.  Co.  v.  Mont- 
gomery 210,  237 
Bryan  v.  Carter  601,  603 
Bryant  u.  Goodnow  92 
v.  Rich  347 
Bryson  v.  Warwick,  etc.,  Canal 

Co.  314,  656 

Buchanan  v.  Bartow  Iron  Co.         775 

v.  Litchfield  321 

v.  Meisser  728,  732 

Bucher  i\  Dillsburg,  etc.,  R.   R. 

Co.  521 

Buchner  v.  Chicago,  etc.,  R.  R. 

Co.  175a 

Buck  v.  Ross  655 

v.  Seymour  818 

Buckeye  Marble,  etc.,  Co.  v.  Har- 
vey 309,  309c 
Buckingham  v.  McLean  298 
Buckley   v.   Great   Western  Ry. 

Co.  360 

Bucksport,    etc.,    R.    R.    Co.    v. 

Buck  517,  530 

Budd  v.  Munroe  797 

v.  New  York  476ffl 

v.  Street  Ry.  Co.  546,  599 

7?.  Walla  Walla  Printing  Co. 

261,  633 

Budd' s  Case  749 

Buell  o.  Buckingham  260 

v.  Warner  775 

Buffalo     German     Ins.     Co.     v. 

Third  Nat'l  Bank  602 

Buffalo  and  Jamestown  R.  R.  Co. 

v.  Clark  109 

v.  Gifford  108 

Buffalo  L,  T.,  &  Safe  D.  Co.  i\ 

Medina  Gas  (Jo.  680 

Buffalo  and  N.  Y.  C.  R.  R.  Co.  v. 

Braiuard  163 

Buffalo,  etc.,  R.  R.  Co.  v.  Gary      537 
v.  Dudley  533,  546 

0.  Hatch  530 

v.  Lampson  631 

v.  Pottle  630 

Buffet  15.  Troy  and  Boston  R.  R. 

Co.  275,  308 

Buff ord  v.  Keokuk,  etc..  Packet 

Co.  608,  609,  779 

Building  Ass'n  o.  Lamson  276 

Bulkley  ».  Big  Muddy  Iron  Co.     688 
v.  Derby  Fishing  Co.  253 

v.  Whitcomb  731,  759 

Bullard  v.  Bank  602 

Bullock  v.  Turnpike  Co.  511 

Buncombe  Turnpike  Co.  v.  Mc- 

Carson  155 

Bundy  v.  Iron  Co.  813 

833 


TABLE    OF    CASES. 


SECTION 

Bunn's  Appeal  703,  712,  734 

Bunnell  v.  Slemmons  634 

v.  St.  Paul,  etc.,  By.  Co.  365 

Burbank  v.  Dennis  82 

v.  Jefferson    City  Gas    Light 

Co.  3056 

v.   West   Walker   River  Ditch 

Co.  561 

Burbridge  v.  Morris  77 

Burcli  v.  Taylor  703 

v.  West  237 

Burden  v.  Burden     644,  270,  303,  554 

Burges  and  Stock's  Case  311 

Burgess  v.  Pue  263 

v.  Seligman  468,  741 

o.  St.  Louis  Ry.  Co.  556 

Burgess's  Case  523 

Burke  v.  Ellis  417 

Burke  v.  Louisville  and  N.  R.  R. 

Co.  368 

v.  Smith  229,  745 

Burlington  v.  P.  R.  R.  Co.  175a 

Burlington  and  M.   R.  R.  Co.  v. 

Boestler  518 

v.  Reimpackle  175a 

Burnham  v.  Bowen  822 

v.  San  Francisco  Fuse  Mfg.  Co.  610 

v.  Webster  239 

Burns  v.   Commencement    Bay, 

etc.,  Co.  646 

Burnside  v.  Dayrell  104 

Buinsville  Turnpike  Co.  v.  State  599 
Burr  v.  McDonald  125 

v.  Wilcox  511,  723,  740,  742 

Burrall  v.  Bushwick,  etc.,  R.  R. 

Co.  437,  567 

Burrill  v.  Nahant  Bank 

219,  225,  233,  234 
Burroughs  v.  Housatonic  R.  R. 

Co.  368 

v.  North  Carolina  R.  R.  Co.        798 

v.  Norwich,  etc.,  R.  R.  Co.  193,  363 

Burrows  u.  Smith  90,  97 

Burt  v.  Batavia  Paper  M'f'g  Co.    210 

v.  Farrar  92,  96 

v.  Rattle  565 

v.  Real  Estate  Exchange  749 

Burton  v.  Schildbach  148 

Bnsey  v.  Hooper  511 

Bush  v.  Peru  Bridge  Co.  453 

Bushel  o.  Commonwealth  Ins.  Co. 

392,  399 
Bushnell  v.  Chautauqua  County 

Nat.  Bank  161 

v.  Consolidated  Ice  Co.  538 

Buswell  v.  Order  of  the  Iron  Hall  394 
Butchers'  and  Drovers'  Bank  v. 

McDonald  146 

Butchers'  Union  Slaughter 
House,  etc.,  Co.  v.  Crescent 
City  Co.  474 


SECTION 

Butler  v.  Land  Co.  759 

v.  Railroad  Co.  360 

v.  Smalley  774 

v.  Thomson  642 

v.  United  States,  etc.,  Ass'n       401 

v.  Watkins  338,  342 

Butler  Paper  Co.  v.  Bobbins  635,  668 

Butler  University  v.  Scoonover     511 

Butternuts,  etc.,  Turnpike  Co.  v. 

North  97 

Button  v.  Hoffman  187 

v.  Hudson  River  R.  R.  Co.  376 

Buttrick  v.  Nashua,  etc.,  R.  R.  Co.  796 
Butts  v.  WTood  628,  646,  689 

Byers  v.  Rollins  688 

Byrne  v.  Schuyler  &  Co.         130,  608 


C. 


C.  B.  and  Q.  R.  Co.  v.  Lewis  204 

C.  B.  U.  P.  R.  Co.  v.  Smith  319 

Cabot,  etc.,  Bridge  Co.  v.  Chapin  96 
Cadle  v.  Muscatine  W.  R.  R.  Co.  175a 
Cady  v.  Sandford  773 

v.  Smith  714 

Cahill  v.   Citizens'  Mut.    B'ld'g 

Ass'n  146 

v.  Kalamazoo  Ins.  Co.  200,  432 

Cahn  v.  Mich.  Cent.  R.  R.  Co.        360 

Cain  v.  C.  R.  I.  and  P.  R.  Co.       175a 

Cairo  v.  Zane  320,  332 

Cairo  and  St.  L.  R.  R.  Co.  v.  City 

of  Sparta  325 

v.  Nav.  Co.  371 

Caldwell  v.  National  Mohawk 

Valley  Bank  239 

v.  New  Jersey  Steamboat  Co.     378 
v.  Southern  Express  Co.  350 

Caledonia,  etc.,  R'y  Co.  v.  Hel- 
ensburgh 87,  88 
Caldeion  v.  Atlas  Steamship  Co.  352 
Caley  v.  Philadelphia,  etc.,  R.  R. 

Co.  517,  531 

California  v.  Armstrong  179 

v.  Pacific  R.  R.  Co.  481 

California  Bank  v.  Kenuedy 

162,  283,  305a 
California  Southern  Hotel  Co.  v. 

Callendar  519 

v.  Russell  96 

California  Sugar  M'f'g  Co.  v. 

Schafer  109 

Callahan  v.  Louisville,  etc.,  R.  Co.  412 
Callisber's  Case  731 

Calumet  Paper  Co.  v.  Show  Co. 

230, 258 
Calteaux  v.  Mueller  236 

Calvin's  Case  756 

Camanche,  The  137 

Camden  v.  Stuart  702a 


TABLE    OF   CASES. 


SECTION 

Camden  and  Amboy  R.  R.  Co.  v. 

Baldauf  353,  359 

».  Elkins  576 

0.  Forsyth  364 

v.  May's  Landing  R.  E.  Co. 

277,  3056 
Camden  Horse  R.  R.  Co.  v.  Citi- 
zens' Coach  Co.  165 
Camden    Rolling     Mill    Co.     v. 

Swede  Iron  Co.  396 

Came  v.  Brigham  582 

Caraeron«.  Kenyon  Commett  Con. 

Co.  758 

Cameron  v.  Seaman  769 

v.  Tome  816a 

Cammeyer    v.    United    German 

Churches  258 

Camp  v.  Byne  382 

v.  Hartford,     etc.,    Steamboat 

Co.  351,  353 

v.  Western  Un.  Tel.  Co.  357 

Campbell  v.  Brunk  138 

v.  Campbell  472 

v.  City  of  Kenosha  325 

v.  Farmers',  etc.,  Bank  415 

v.  Marietta,  etc.,  R.  R.  Co.  416 

v.  Morgan  567 

v.  Pope  212 

v.  Portland  Sugar  Co.  752 

Campbell,  etc.,  Co.  v.  Marder        668 

Campbell's  Case  632 

Canada  Southern  R.   Co.  v.  Geb- 

hard  390,  816a 

Canal  Bridge  v.  Gordon  187 

Canal  Co.  v.  Sansom  587 

v.  Vallette  450 

Canastota  Knife  Co.  v.  Newing- 

ton  Tramway  Co.  175 

Candee  ».  West.  Un.  Tel.  Co.  357 
Canfield  v.  Baltimore  and  O.  Co.  353 
Cannon  v.  New  Orleans  480 

v.  Trask  560,  688 

Cape  Breton  Co.,  In  re  83 

Cape's  Ex'rs'  Case  719,  720 

Capebart  v.  Seaboard,  etc.,  R.  R. 

Co.  356 

Cape  May,  etc.,  Nav.  Co.  577 

Capital  State  Bank  v.  Lane  346 

Capital  Traction  Co.  v.  Orcutt  421 
Caps  v.  Prospecting  Co.  538 

Carbon     Iron     Co.     v.      Carbon 

County  477a 

Card  v.  Carr  262 

Carden  v.  General  Cemetery  Co.  86 
Cardot  v.  Barney  417 

Cardwell  v.  Bridge  Co.  474a 

v.  Kelley  526 

Cargill  Co.  v.  Minnesota  476a 

Carlen  v.  Drury  554 

Carley  v.  Hodges  771 

Carli  v.  Stillwater  Street  R'y  Co.  175 


SECTION 

Carlisle  v.   Cahawba,  etc.,  R.  R. 

Co.  518 

v.  Saginaw  Valley  R.  R.  Co.        516 
v.  South  Eastern  R'y  Co.  565 

v.  Terre  Haute,  etc.,  R.  R.  Co.  531 
Carlow  v.  Aultman  384 

Carlton  v.  Southern  Mut.  Ins.  Co.  570 
Carnahanv.  Western  Un.  Tel.  Co.  393 
Carney  v.  Duniway  244 

Carolina  Nat.  Bank,  Ex  parte        824 
Carpenter  v.  Black  Hawk  Min- 
ing Co.  125,  131,  678 
».  Danforth  698 
v.  N.  Y.  and  N.  H.  R.  R.  Co.       565 
Carr  v.  Cbartiers   Coal  Co.             646 
v.  La  Fevre                                      679 
v.  Ga.  L.  &  T.  Co.                         204 
Carriage  Co.  v.  Graiu  Co.                668 
Carriage     Co-operati  ve     Supply 

Ass'n,  In  re  615 

Carriger  u.  EastTenn.,  etc.,  R.  R. 

Co.  173 

Carroll  v.  East  St.  Louis  388 

v.  Green  717,  736 

v.  Mullanphy  Savings  B'k  582 

Carroll  County  v.  Smith 

316,  327,  328,  332 
Carrothers  v.  Newton  Spring  Co.  146 
Carrugi  v.  Atlantic  Fire  Ins.  Co. 

255,  754 
Carrutbers  v.  Kansas  City,  etc., 

R.  R.  Co.  170,  425 

Carson  v.  Central  R.  R.  Co.  175 

v.  Gas  Ligbt  Co.  556 

Carson-Rand  Co.  v.  Stern  401 

Carstens  v.  Leidigb,   etc.,  Lum- 
ber Co.  392 
Cartan  v.  Father  Matthew  Soc.      583 
Carter  v.  Howe  Machine  Co.  342 
v.  Central  Vt.  R.  R.  Co.                 374 
v.  Ford  Plate  Glass  Co.        142,  688 
v.  Union  Printing  Co.                    745 
Carton  &  Co.  v.  Illinois  Central 

R.  R.  Co.  474c 

Cartwright  v.  Dickinson  546,  549 
Casco  Nat.  Bank  v.  Clark  210 

Case  v.  Bank  240,  599 

v.  Kelly  128 

Casey  v.  Galii  727,  738 

Cass   v.    Manchester    Iron    and 

Steel  Co.  229 

Cassaday  v.  American  Ins.  Co.  400 
Casserly  v.  Manners  759 

Castellan  v.  Hobson  791 

Castle  o.  Belfast  Foundry  Co.  238 
Castleberry  v.  State  187 

Castlemen  v.  Templeton  393 

Castner  v.    Twitcbell  Champlin 

Co.  185 

Cates  ».  Baxter  796 

v.  Sparkman  554 

835 


TABLE    OF    OASES. 


SECTION 

Catlin  ».  Eagle  Bank  225,  6ti3,  668 
Cattle  Co.  r.  Haines  599 

Cauley  v.  Pittsburgh,  etc.,  R.  R. 

Co.  165,  371 

Caulkins  v.  Gas  Light  Co.  592,  795 
Cayuga  Lake  R.  R.  Co.  v.  Kyle  537 
Cazeaux  v.  Mali  696,  755 

Cecil,  Matter  of  579 

Cedar  Grove  Co.  578 

Cedar   Rapids,   etc.,  R'y   Co.  v. 

Spofford  162 

Ceeder  v.  Lumber  Co.  238 

Center  Creek  L.  Co.  v.  Lindsay     627 
Central   Agricultural     Ass'n    v. 
Alabama  Gold  Life  Ins.  Co. 

157,  738,  749 
Central  Branch  U.  P.  R.   R.  Co. 

v.  Andrews  175a 

v.  Atchison,  T.  and  S.  F.  R.  R. 

Co.  164,  470 

v.  Twine  175a 

v.  Western  Union  Tel.  Co.  314 

Central  Bridge  Co.  v.  Lowell,  137,  470 

Central    City    Savings    Bank   v. 

Walker '  751 

Central,  etc.,  Road  Co.  v.  People  460 
Central  Gold  Mining  Co.  v.  Piatt  125 
Central  Nat.  Bank  t>.  Levin  210 

v.  Williston  796 

Central  Nebraska  Nat.  Bank  v. 

Wilder  798 

Central  Pac.   R.   R.   Co.   v.    Cal- 
ifornia 482 
o.  State  Board  480 
Central  R'y  Co.  v.  Brown  335 
Central  R.  R.  Co.  v.  Collins    309,  556 
0.  (ieorgia  Co.  392 
r.  Smalley                                      374 
v.  Smith                                   308,  336 
v.  Ward                                  597,  599 
r.  Wright                                       489 
Central  R.  R.,  etc.,  Co.  v.  Cheat- 
ham 202 
v.  Georgia                                421,  491 
v.  Letcher                                        368 
Central   Transportation    Co.    v. 
Pullman's  Palace  Car  Co. 

123,  264,  283,  286,  305a,   310 
Central  Trust  Co.  r.  Kneeland       676 

r.  McGeorge,  395 
Central  Union  Telephone  Co.  v. 

Bradbury  357,  475 

Cliaffee  v.  Boston  and  L.  R.  R.       374 

v.  Bromberg  668 

v.  Ludeling  418 

v.  Middlesex  R.  R.  302 

v.  Rutland  R.  R.  Co.  565,  814 

Chaffee  County  r.  Potter  321 

ChafHn  v.  Cummins  511 

Challis  v.  Atchison,   etc.,   R.   R. 

Co.  165 

836 


8ECTION 

Chamberlain  v.  Bromberg  225 

v.  Pacific  Wool-growing  Co.        628 
Chamberlain  v.  Painesville,  etc., 

R.  R.  Co.  190,  517 

v.  St.  Paul,  etc.,  R.  R.  Co.  507 

Chamberlin  v.  Mammoth  Mining 

Co.  238 

Chambers  v.  Falkner  276 

v.  Lewis  768 

v.  Lancaster  237 

v.  Manchester,  etc.,  Ry.  Co.        305 

v.  St.  Louis  303 

Chambers  County  v.  Clews  328 

Chandler  v.  Bacon  82 

v.  Brown  542,  780 

v.  Keith  707 

Chapin  v.  Sullivan  R.  R.  Co.         162a 

Chapman  v.  Rates  580,  788 

Chapman  v.  Colby  121,  389 

v.  Ironclad  Co.  135,  283 

v.  Lynch  767,  770 

v.  Oshkosh,  etc.,  R.  R.  Co.  174,  179 

v.  Mad  River,  etc.,  R.R.Co.  532,  557 

v.  McCrea  346 

Chapman's  Case  614 

Chapman  &  Barber's  Case  740 

Charitable  Corporation  ».  Sutton 

619,  620,  624,  803 
Charles  River  Bridge  Co.  v.  War- 
ren Bridge  Co.  122,  147,  453,  464 
Charleston     Boot,    etc.,    Co.   v. 

Dansmore  617,  645 

Charleston,  etc.,  Turnpike  Co.  v. 

Willey  284,  390 

Charleston  Ins.  Co.  v.  Sebring       690 
Charlotte,    etc.,    R.    R.    Co.     v. 

Gibbes  474tZ 

Charlton  v.  New  Castle  and  Car- 
lisle Ry.  Co.  309,  556 
Charter  Oak  Ins.  Co.  v.  Sawyer     401 
Chartiers  Ry.  Co.  v.  Hodgens        531 
Chase  v.  Curtis                 764,  770,  773 
r.  Lord  717 
v.  Mich.  Tel.  Co.  657 
r.  Railroad  Co.                      513,  546 
D.  Kedfield  Creamery  Co.  87 
B.  Sutton  Mfg.  Co.                         175 
o.  Sycamore,  etc.,  R.  R.  Co.       518 
v.  Tuttle                                           260 
v.  Vauderbilt                                  666 
Chautauqua  County  Rank  v.  Ris- 

ley  204 

Chater  v.  San   Francisco  Sugar 

Refg.  Co.  108,  790 

Chattahoochee  National  Bank  v. 

Schley  337,  346 

Chattanooga,  etc.,   R.  R.  Co.  v. 

Liddell  170 

Chatteroi  Ry.  Co.  v.  Kinner  495 

Cheale  v.  Kenward  789,  790 


TABLE    OF    CASES. 


SECTION 

Cheeney  v.  Lafayette,  etc.,   Ry. 

Co.  647 

Cheever  v.  Railroad  Co.  206 

Cheltenham,    etc.,    Ry.    Co.    v. 

Daniel  520,  589 

Chemical  Nat.  Bank  v.  Bailey        750 

v.  Havermale  283 

v.  Kohner  202 

Chenango  County  Mat.  Ins.  Co., 

Ex  parte  577 

Cheraw,  etc.,  R.   R.  Co.  v.  Com- 
missioners 421 
Cherokee  Iron  Co.  ».  Jones  556 
Cherokee  Nation  v.  Kansas  Ry. 

Co.  470 

Cherry  v.  Colonial  Bank  754 

v.  Frost  794,  795 

Chewacla  Lime    Works   v.  Dis- 

mukes  283a 

Chesapeake  and  Ohio  Canal  Co. 

v.  Dulany  512 

v.  Howard  336 

v.  Knapp  248 

Chesapeake  and  O.  R.  R.  Co.  v. 

Miller  490 

v.  Paine  796 

Chesapeake  O.  &  S.  R.  R.  Co.  v. 

Griest  657 

Chesapeake,  etc.,   R.  R.   Co.  v. 

Virginia  491 

Cheshire  County  Telephone  Co. 

v.  State  477a 

Chesley  v.  Pierce  511,  718 

Chester  v.  Buffalo  Mfg.  Co.  800 

Chester  Glass  Co.  v.  Dewey 

276,  411,  546 
Chetlain   v.    Republic   Life   Ins. 

Co.  515,  529 

Chew  v.  Ellingwood  249 

Chicago  and  Alton   R.  R.  Co.  v. 

Becker  375 

v.  Chicago,  etc.,  Coal  Co.  415 

v.  People  475,  476a 

v.  Shea  356 

v.  Suffern  309 

v.  Sullivan  365 

Chicago,  etc.,  R.  R.  Co.  v.  State    485 
Chicago  Bldg.  &  Mfg.  Co.  v.  Sum- 

merous  549 

Chicago   Bldg.     &    Mfg.    Co.    v. 

Lyon  551 

Chicago  and  A.  Ry.  Co.  v.  Derkes  276 
v.  Erickson  350 

Chicago  and   C.  A.  L.  R.  R.  Co. 

v.  McCo-.l  360 

Chicago  and  Eastern  R.  R.  Co. 

v.  Flexman  347 

Chicago  and  M.  R.  R.  Co.  r.  Ross  365 
Chicago  and  N.   W.   Ry.   Co.  v. 

Auditor-General  406 

v.  Bentley  360 


SECTION 

Chicago  and   N.  W.  Ry.  Co.  v. 

Crane  170 

v.  Morand  365 

v.  Northern  Line  Packet  Co.      642 
v.  Ward  365 

v.  Williams  248 

Chicago  and  R.   I.   R.   R.  Co.  v. 

Whipple  170 

Chicago  and  Vincennes  R.  R.  Co. 

B.  Fosdick  682 

Chicago  and  W.   I.   R.   R.   Co.   v. 

Ayres  175a 

Chicago  and  Western  Ind.  R.  R. 

Co.  v.  Dunbar  163 

Chicago  B.  and  Q.   R.   R.  Co.  v. 

Bryan  348 

v.  Chamberlain  163 

v.  George  350 

v.  Gregory  365 

».  Griffin  348 

v.  Haggerty  474 

v.  Lewis  303 

v.  Siders  477 

v.  Stumps  368 

v.  Wilson  3,  164 

Chicago  Building  Soc.  v.  Crowell  212 

Chicago  City  Ry.  Co.  v.  People      460 

Chicago,  Danville,  etc.,  R.  R.  Co. 

v.  Loewenthal  669,  819 

v.  Smith  319 

Chicago  Edison  Co.  v.  Fay  593 

Chicago,  etc.,  R.  R.  Co.  v.  Ackley  476a 
o.  Ashling  421 

v.  Chicago  470 

v.  Chicago  Bank  656 

v.  Iowa  474c,  476a 

v.  James  215,  236 

v.  Miller  374 

v.  Minnesota  476a 

v.  Moffit  425 

v.  Nebraska  465 

v.  People  454 

v.  Solan  352 

v.  United  States  450,  467 

v.  Wellman  476a 

Chicago  Gas   Light  Co.  v.  Peo- 
ple's G.  L.  Co.  304,  309c 
Chicago    Hansom    Cab    Co.     v. 

Yerkes  5596 

Chicago  Life  Ins.  Co.  v.  Auditor  495 
v.  Needles  457,  474 

Chicago,  M.  &  St.  P.  R.  R.  Co.  v. 

Milwaukee  475 

Chicago,  M.  &.  St.   P.   v.   Tomp- 
kins 4706 
Chicago    Mut.    Life  Ins.   Co.    v. 

Hunt  458 

Chicago,  P.  &  St.  L.  Ry.  Co.  v. 

Ayres  308 

Chicago,  Pekin,  etc.,  R.  R.  Co.  v. 

Marseilles  135 

837 


TABLE    OF    CASES. 


SECTION 

Chicago,  K.  I.  and  P.  K.  R.  Co. 

o.  Town  of  Lake  163,  103a 

».  Zeruecke  400a,  499 

Chicago  R.  K.  Co.  v.  Jarrett  377 

o.  Jones  374 

v.  Scurr  377 

Chicago,   St.   L.  and  N.  O.  R.  R. 

Co.  v.  Abels  356 

Chicago  v.  Hall  825 

Chicago,  T.  &  T.  Co.  v.  Bank        202 

Chickaming  y.  Carpenter  324 

Chicora  Co.  v.  Crews  149 

Child  v.  Boston,  etc.,  Iron  Works  773 

v.  Cotliu  720 

v.  Hudson  Bay  Co.  601 

Cliilds  v.  Bank  of  Missouri  342 

v.  Cleaves  393 

v.  New  Haven  &  N.  Co.  179 

Cliincleclaraouche   Lumber   Co. 

v.  Commonwealth     454,  457,  498 
Chinnock's  Case  586,  749 

Chippendale,  Ex  parte  645,  698 

Chisholra  Bios.  v.  Forney  701 

Chouquette  v.  Barada  204 

Chouteau  v.  Allen  256,  679 

v.  Deane  522c 

Chouteau  Ins.  Co.  y.  Floyd 

517,  521,  549 
v.  Holmes  184,  261,  540 

Chouteau  Spring  v.  Harris  601 

Christ  Church  v.  County  of  Phil- 
adelphia 489 
Christian  v.  American  Mortgage 

Co.  401 

Christian,   etc.,   Grocery    Co.    v. 

Fruitdale  Lumber  Co.  146 

Christensen  v.  Eno  702 

Christenson   y.    American   Exp. 

Co.  353 

Christian's  Appeal  360 

Christian  Union  v.  Yount       384,  388 
Chv  Lung  v.  Freeman  4746 

Chubb  v.  Upton  147,  537 

Cincinnati  C.  Co.  v.  Bate  158 

Cincinnati    and    S.    Gr.   Ave.   Ry. 

Co.  ».  Cumminsville  175,  176 

Cincinnati     and    S.    Ry.   Co.    v. 

Longworth  178,  179 

Cincinnati,  B.  and  Q.   R.   R.   Co. 

y.  Chicago  476 

Cincinnati  C.  Co.  v.  Bate  739 

Cincinnati,   etc.,  Air  Line  R.  R. 

Co.  v.  McCool  360 

Cincinnati,   etc.,   R.   R.    Co.    v. 

Clarkson  647 

v.  Cole  449 

v.  Interstate  Commerce  Com- 

m'n  474d 

v.  Pontius  353,  354,  359,  363 

Cincinnati  H.  and  D.  R.    R.   Co. 

i-.  Spratt  364 

838 


SECTION 

Cincinnati  H.  and  D.  R.  R.  Co. 

v.  Sullivan  475 

Cincinnati,  Lafayette,  etc.,  R.  R. 

Co.  o.  Danville,  etc.,  R'y  Co.  151 

Cincinnati  Mat.  Ass.  Co.  v.  Ro- 
senthal 401 

Cinn    Volksblatt    Co.    v.   Hoff- 

meister  585 

Citizens'  Building  Ass.  v.  Coriell 

616,  617,  620 

Citizens'  Ins.  Co.  v.  Sortwell 

184,  573,  575 

Citizens'  Loan  Assoc,  v.  Lyon       616 

Citizens'  Nat.  Bank  v.  Elliott  646,  647 
v.  Columbia  County  484 

Citizens'  Sv'gs  B'k  r.  Blakesley    342 
v.  Owensboro  461,  497 

Citizens'  Street  R.  R.  Co.  v.  Rob- 
bins  599 

Citizens'  etc.,  Ass'n  v.  Perry  Co.  332 

Citizens'  etc.,  Sav.  Bank  v.  Gil- 
lespie 703 

City  v.  Lamson  680 

City  Bank  v.  Bruce  135,  136 

p.  Bartlett  523 

v.  Cutter  195 

y.  Perkins  239 

City  El.  Ry.  Co.  v.  National  Bank  236 

City  El.  St.  Ry.  Co.  v.  First  Nat. 

B'k  267 

City  Fire  Ins.  Co.  v.  Carrugi 

JiC),  ^86,  292,  396 

City  Ins.  C<>.  v.  Commercial 

Hank  432,  435 

City  National  Bank  v.   Paducah  484 
v.  Phelps  416 

City  of  Bridgeport  v.  N.  Y.  and 
*  N.  II.  R.  R.  Co.  490 

City  of  Buffalo,  In  re  613a 

City   of  Carthage  v.  First   Nat. 

Bank  483 

City  of  Chicago  v.  Cameron  142 

City  of  Covington  v.  Covington, 

etc.,  Bridge  Co.  571 

City    of     Danville    v.    Danville 

Water  Co.  475 

City  of  Georgetown  y.  Alexandria 

Canal  Co.  167,  171 

Cit}r  of  Indianapolis  r.  Nevin       476a 

Citv  of  Jacksonville  v.  Jackson- 
ville R'y  Co.  171 

City  of  Kansas  y.  Hannibal  and 

St.  Jo.  R.  R.  Co.  753 

City  of  Lexington  v.  Butler 

326,  328,  329 

City  of  London  v.  Wood  456,  503 

City  of  Lvnchburg  y.  Slaughter    319 

City  of  Madison  v.  Smith  319 

City  of  Menasha  v.  Milwaukee, 
"etc.,  R.  R.  Co.  415 

City  of  Mt.  Vernon  v.  Hovey         326 


TABLE    OF    CASES. 


SECTION 

City  of  Natchez  v.  Mallery  303 

City  of  New  York  v.  Miln  4746 

City  of  Ottawa  v.  Carey  319,  320,  322 
City  of  Quiucy  v.  Chicago  B.  and 

Q.  R.  R.  Co.  676 

City  of  Savannah  v.  Kelly  322 

City  of  St.  Louis  v.  Shields  146 

Claflin  v.  Farmers1,  etc.,  Bank  636 
Claibourne  County  v.  Brooks  318,  319 
Clapp  v.  Peterson  135,  136,  747 

Claremont  Bridge  Co.  v.  Royce  384 
Clark,  Appeal  of  734 

v.  American  Coal  Co.  646 

v.  Barnard  407,  462 

v.  Bever  5226,  702,  702  a 

v.  City  of  Rochester  319 

v.  Colton  759 

v.  Edgar  752 

v.  Farrington  121,  123 

v.  Faxton  351 

v.  German  Security  Bank  796 

v.  Iowa  City  326,  680 

v.  Monongahela  Nav.  Co.  530 

v.  Myers  733,  734 

v.  Port  of  Mobile  480 

v.  Read  125 

v.  St.  Louis,  etc.,  R'y  Co.  353 

v.  Titcomb  125,  236 

v.  Trust  Co.  642 

v.  Turner  541 

Clarke  Nat.  Bank  v.  Bank  of  Al- 
bion 244 
Clarke  i\  Brooklyn  Bank  515 
v.  Dickson  755 
v.  Lincoln  Lumber  Co.                 541 
v.  Needles                                        360 
v.  Thomas                                        541 
Clarkson  v.  Claikson  799 
Clayton  v.  Ore  Knob  Co.                 702 
Clearwater  v.  Meredith   419,  421,  510 
Cleghorn  v.  New  York  Central 

R.  R.  Co.  378 

Clegg  o,  Crawford  374 

v.  Hamilton,  etc.,  Grange  Co.     739 
Clements  v.  Todd  104 

Cleveland  v.  Burnham  720 

Cleveland  C.  and  C.  R.  R.  Co.  v. 

Keavy  365 

Cleveland,  O,  C.  and  I.  R.  R.  Co. 

v.  Coburn  162 

Cleveland,   etc.,  R.  R.  Co.  v.  Illi- 
nois 474d" 
Cleveland,    etc.,    R.    R.    Co.   v. 

Robbins  594 

v.  Rowan  376 

v.  Spear  408 

Cleveland,    Painesville,    etc.,  R. 

R.  Co.  v.  Cm-ran  353 

Cleveland  Paper  Co.  v.  Courier  Co.  130 
Cleveland  Trust  Co.  v.  Lander  484 
Clews  v.  Bank  of  New  York  245,  246 


SECTION 

Clinch  v.  Financial  Co.  608 

Clinkscales  v.  Pendleton  M'f'g  Co.  813 
Clinton  Bridge,  The  171 

Close  v.  Gleuwood  Cemetery  Co. 

146,  498,  499 

v.  Potter  723 

Clowes  o.  Miller  580,  788 

Clyde  ».  Hubbard  363 

Coal    Creek    Co.    v.    Tennessee 

Coal  Co.  130 

Coates  v.  Missouri,  K.  and  T.  Ry. 

Co.  368 

v.  Nottingham,  etc.,  R.  R.  Co.  565 

v.  United  States  Exp.  Co.  364 

Coats  v.  Donnell  240,  668 

Cobb  v.  111.  Cent.  R.  R.  Co.  361 

Cocheco  Nat.  Bank  v.  Haskell       241 

Cochran  v.  Arnold  157 

v.  Ocean  Dry  Dock  Co.  750 

v.  Wiechers  714 

Cockburn  v.  Union  Bank  585 

Coe  v.  Columbus,  etc.,  R.  R.  Co. 

125,  131,  676,  820 

v.  Errol  485 

v.  Knox  County  Bank  820 

v.  Peacock  820 

Coffey  v.  National  Bank  416,  667 

Coffin  v.  Ransdell  522c,  702 

v.  Rich  501 

Coggin  v.  Central  R.  R.  Co.  425 

Coggs  v.  Bernard  619 

Cogswell  v.  Bull  555,  688 

v.  New  York,  etc.,  R.  R.  Co.       167 

v.      Rockingham     Ten     Cents 

SVgs  B'k  672 

Cogwin  v.  Town  of  Hancock  330 

Cohen  v.  Southern  Exp.  Co.  363 

Cohen  v.  Berlin-Jones  Co.  309c 

Coit  v.  Gold  Amalgamating  Co. 

701,  702 
Cole  v.  Butler  723,  825 

v.  Dyer  577 

v.  Goodwin  351,  359 

v.  Knickerbocker  Life  Ins.  Co.  664 
v.  Lagrange  319 

v.  Millerton  Iron  Co.     419,  656,  657 
v.  N.   Y.,  N.    H.   &   H.    R.  R. 

Co.  374 

v.  Ryan  747 

Coleman  v.  Cassidy  696 

v.  Columbia  OilCo.  135 

v.  Howe  522a,  522c,  655,  702 

v.  Oil  Co.  236 

v.  San  Rafael  Turnpike  Co.  128,303 

v.  Second  Ave.  R.  R.  Co.  628 

v.  White  725 

Coles  v.  Whiteman  790 

Colfax  Hotel  Co.  v.  Lyon        263,  511 

Collier  o.  Davis  401 

Collingswood  v.  Berkley  77 

Collins  v.  Collins  567 

839 


TABLE   OF    CASES. 


SECTION 

Collins  v.  Hammock  137 

v.  New  Hampshire  474a" 

v.  Sherman  453 

Colman  v.  Eastern  Counties  R'y 

Co.  556 

Colorado  Iron  Works  v.  Mining 

Co.  400 

Colorado    Merchants'    Dispatch 

Trans.  Co.  v.  Comforth  353 

Colquhouu  v.  Courtney  790 

Colt  v.  Ives  796 

v.  Woolaston  104 

Coltou  v.  Mississippi,  etc.,  Boom 

Co.  451 

v.  Drovers'  Bldg.  Ass'n  672 

v.  Mover  721 

Columbia  County  v.  King       318,  333 

Columbia  Nat.  Bank's  Appeal 

133,  541 

Columhian  Bank's  Estate       135,  552 

Columbus,  etc.,  R'y  Co.  v.  Powell  6b6 

v.  Skidmore  425,  666 

Columbus  P.  and  I.  K.  K.  Co.  v. 

Indianapolis  and  B.  R.  R.  Co.  308 

Colvin  v.  Williams  789 

Comanche  County  v.  Lewis  157 

Commercial  Bank  v.  Burgwyn       210 

V.  Chambers  484 

v.  Hughes  672 

v.  Lockwood  437 

v.  Nolan  298 

v.  Pfeiifer  146 

v.  Sherman  400 

v.  St.  Croix  M'f'gCo.  205 

v.  State  of  Mississippi  459 

v.  Ten  Eyck  618 

Commercial  Bank  of  Natchez  v. 

State  459 

Commercial  Elec.  Light  &  R.  R. 

Co.  v.  Judson  479 

Commercial  F.  I.  C.  v.  Board  of 

Revenue  130 

Commercial  Nat.  Bank  v.  Burch  135 
Commercial,  etc.,  B'kr.  Slocomb  410 
Commercial,   etc.,  Nat.   Bank  v. 

First  Nat.  Bank  672 

Commercial  Mut.  Assurance  Co. 

v.  Scammon  388 

Commissioners,  etc.,  v.  Bolles  330 
v.  Holyoke  Water  Power  Co.  502 
r.  Thayer  814 

v.  Tobacco  Co.  477 

Commissioners  of  Craven  v.  At- 
lantic, etc.,  R.  R.  Co.  125 
Commissioners       of       Johnson 

County  v.  January  325,  331 

Commissioners  of  Marion  County 

v.  Clark  326 

Commissioners     of     Tippecanoe 

County  ?).  Beynolds  698 

Commonwealth  v.  Arrison  459 

840 


SECTION 

Commonwealth  v.  Boston  &  A. 

R.  R.  Co.  136 

v.  Boston  &  N.  R.  R.  Co.  171 

v.  Bringhurst  579 

v.  Building  Co.  477a 

v.  Chesapeake,  etc.,  R.  R.  Co.  479 
v.  Coal  Co.  400 

v.  Cochituate  Bank  500,  501 

v.  Commercial  Bank  459 

v.  Cullen  227,  432,  449,  453,  530,  573 
v.  Dalzell  794 

v.  Eastern  R.  R.  Co.  475 

v.  Erie  and  N.  E.  R.  R.  Co.  120 

v.  Erie  Trans.  Co.  489 

v.  Essex  Co.  163a,  502 

v.  Evans  476 

v.  Fayette  County  R.  R.  489 

v.  Fitchburg  R.  R.  Co.  454 

v.  Gas  Co.  477 

v.  Gloucester  Ferry  Co.  479.  480,  485 
v.  Hamilton  Mfg.  Co.  474,  477a 

v.  Lancaster  Savings  Bank  388 

v.  Lowell  Gas  Light  Co.  477a 

v.  Milton  383 

v.  New  Bedford  Bridge  450,  503 
v.    Old    Dominion    Steamship 

Line  479 

v.  Owensboro,  etc.,  R.  R.  Co.  462 
v.  R.  R.  Co.  477 

v.  Philadelphia  Co.  481 

v.  Pittsburg  530 

v.  Pittsburg  and  Connellsville 

R.  R.  Co.  459,  503,  801 

v.  Phoenix  Iron  Co.  585 

v.  Pottsville  Water  Co.  489 

v.  Power  371 

v.  Railroad  477a,  565 

v.  Reading  Savings  Bank 

210,  233,  263,  342 
v.  Smith  125,  305,  813 

v.  Standard  Oil  Co.  400,  477,  479 
v.  Susquehannah,  etc.,   R.    R. 

Co.  815 

v.  Texas,  etc.,  R.  R.  Co.  403,  480 
v.  Union  Fire,  etc.,  Ins.  Co.  459 
v.   Vermont,    etc.,  R.    R.   Co. 

350,  353 
v.  Woelper  576 

v.  Woodward  578 

Com  p.  v.  Carlisle  Deposit  Bank     161 
Compton  v.  Schwabacher  6H8 

v.  The  Chelsea  187 

Comstock,  In  re  401 

Conant  v.  Van  Schaick  734 

Conard  v.  Atlantic  Ins.  Co.  137 

Concord  v.  Robinson  320 

Concord  First  Nat.  Bk.  v.  Haw- 
kins 283 
Concord  R.  R.  Co.  v.  Clough  618 
v.  Greely                                  163,  4fi4 
Concordia  Savings  Asso'nu.  Reed  137 


TABLE  OF  CASES. 


SECTION 

Condon  v.   Mut.    Reserve,    etc., 

Assn.  392 

Congregational  Soc'y  v.  Sperry      575 
Conkey  v.  Hark  493 

Conklin  v.   Second   Nat.    Bank, 

594,  602 
Connecticut  and  P.  Rivers  R.  R. 

Co.  v.  Bailey        97,  521,  529,  779 
v.  Cooper  382 

Connecticut    Mut.    Ins.    Co.    v. 

Cushman  450,  498 

Connecticut  Mut.  L.  Ins.  Co.  v. 
Cleveland,  etc.,  R.  R.  Co.  251,  681 
v.  Spratley  395 

Connecticut  River  Savings  Bank 

v.  Fiske  286 

Connecticut  Ry.  Co.  v.  Union  Ry. 

Co.  454 

Connolly's  Est.  799 

Connolly  v.   Union   Sewer  Pipe 

Co.  309« 

Connover  v.  Hull  668 

Conover  v.  Mut.  Ins.  Co.  262 

Conrad  v.  Trustees  of  Ithaca  169 

Conro  o.  Gray  432,  658 

v.  Port  Henry  Iron  Co.  181 

Consolidated      Channel    Co.     v. 

Central  Pac.  R.  R.  Co.  163 

Consolidated     Gregory     Co.     v. 

Raber  202 

Const  v.  Harris  112,  556 

Continental  Improvement  Co.  v. 

Phelps  369 

v.  Stead  368,  374 

Contoocook  Valley  R.   R.   Co.  v. 

Barker  518 

Contra  Costa  Coal  Mines  R.  R. 

Co.  ».  Moss  163,  163a 

Converse  v.  Norwich,  etc.,  Trans. 

Co.  363 

Conway  v.  John  796 

v.  Taylor's  Executor  4746 

v.  Smith  Mercantile  Co.  668 

Cook  v.  Berlin  Woolen  Mill  Co.    630 

v.  City  of  Burlington  483 

v.  Detroit,  etc.,  Ry.  Co.        415,  663 

v.  Kuhn  248 

v.  Moody  667 

v.  Pearce  767 

v.  Pennsylvania  485 

Cooke  v.  Marshall  133 

v.  State  Nat.  Bank  244 

Cooley  v.  Board  of  Wardens         4746 

Coon  o.  Syracuse,  etc.,  R.  R.  Co.  366 

Cooney  v.  Packing  Co.  303 

v.  Pullman  Palace  Car  Co.  347 

Cooper  v.  Ardel  Security  Co.  660 

v.  Corbin  424 

v.  Curtis  189 

v.  Frederick  135,  745 

v.  Mullins  365 


SECTION 

Cooper  v.  Oriental  Savings  Ass'n 

435,  436 
v.  Security  Co.  706 

Cooper  Mfg.  Co.  v.  Ferguson  400 

Coosa  River   Steamboat    Co.    v. 

Barclay  325 

Copes  v.  Charleston  325 

Copley  v.  Grover  &  Baker  Sew- 
ing Machine  Co.  342 
Copp  v.  Lamb  382 
Coppage  v.  Hutton  516 
Coppin  v.  Greenless  &  Co.  134 
Coquard  v.  Nat.  So.  Co.  611 
Corbett  v.  Woodward  574,  759 
Corcoran  v.  Snow  Cattle  Co.  210 
Cordell  v.   N.  Y.   C.  and  H.   R. 

R.  R.  Co.  374 

Cordova  Coal  Co.  v.  Long  427 

Corey  v.  Wadsworth  655,  759 

Cork,  etc.,  R'y  Co.,  In  re  311 

v.  Cazenove  515 

Corn  Exchange  Bank  v.  Nassau 

Bank  246 

Cornell  v.  Roach  772 

Cornell  and  Michler's  Appeal  701,  706 
Cornick  v.  Richards  796 

Corning  v.  McCullough   501,  717,  762 
Cornwall  v.  Eastham  774,  775 

Cortello  v.  Brewing  Co.  601 

Cory  v.  Lee  739 

Costello's  Case  586,  747,  749 

Cotting  v.   Kansas    City   Stock 

Yards  4766 

Cotton  Mills  Co.  v.  Burns  537 

Cotton  Mills  v.  Dunstan  546 

Cotton  Press  Co.  v.  McKellar  90 

County  Court  v.  Griswold  163 

County  Life  Ass.  Co.,  In  re     189,  195 
County   of    Allegheny  v.    Cleve- 
land, etc.,  R.  R.  Co.  406,  412 
County  of  Bates  v.  Winters  322 
County  of  Blue  Earth  v.  St.  Paul, 

etc.,  R.  R.  Co.  171 

County  of  Cass  v.  Gillett        324,  327 

v.  Johnson  328 

v.  Morrison  467 

County  of   Clay  v.   Society    for 

Savings  330 

County  of  Daviess  v.  Huidekeper  322 
County  of  Green  v.  Daniell  333 

County  of  Henry  v.  Nioolay  324 

County  of  Jasper  v.  Ballon  325 

County  of  Macon  v.  Shores  327 

County  of  Mobile  v.  Kimball 

469«,  4746 
County  of  Morgan  v.  Allen  655 

County  of  Moultrie   v.    Savings 

Bank  322 

County  of  Ouachita  v.  Wolcott      S26 
County  of  Ralls  v.  Douglass  330 

County  of  Randolph  v.  Post  322 

841 


TABLE    OF    CASES. 


SECTION 

County  of  Schuyler  v.  Thomas  324 
Couuty  of  Scotland  t.  Thomas  324 
County  of  Travers  v.  St.  P.  M.  & 

M.  B.  B.  Co.  491 

County  of  Tipton  v.  Locomotive 

Works  324 

County  of  Warren  r.  Marcy  327,  330 
County  Palatine  Loan,  etc.,  Co., 

In  re,  Cartwell's  Case  234 

Court  Grange  M'g  Co.,  In  re  045 

Courtwright  v.  Deeds  511,  520 

Covert  ».  Kogers  260 

Covey  v.  Pittsburgh,  etc.,  R.  R.  Co.  817 
Covington    v.     Covington,    etc., 

Bridge  Co.  571 

v.  Kentucky,  497 

Covington  Bridge  Co.  v.  Mayor 

406,  409 
v.  Kentucky  474d 

v.  Sargent  572 

Covington     Drawbridge    Co.    v. 

Shepherd  413,  663 

Covington,  etc.,  T.  Co.  v.  Sand- 
ford  4766 
Covington   Stock   Yards   Co.    v. 

Keith  360 

Cowdrey  v.  Galveston,  etc.,  R.  R. 

Co.  822 

Cowell  v.  Springs  Co. 

286,  384,  388,  460 
Cowan  v.  Plate  Glass  Co.  759,  813 
Cowles  u.  Cromwell  586,  587 

Cox  v.  Central  Vt.  R.  R.  Co.  356 

v.  Elmendorf  748 

».  Louisville,  etc.,  R.  R.  Co.     175a 
Cox's  Case  742 

Cozart  v.  Georgia    R.    R.,    etc., 

Co.  550 

Cracker  Co.'s  Estate  210 

Craddock  v.  American  Mortgage 

Co.  401 

Craft  y.  South  Boston  R.  R.  Co.  193 
Cragie  v.  Hadley  210,  342,  672 

Craig     v.     Cumberland     Valley 

State  Normal  School  519 

».  First  Presbyt'n  Church  579 

v.  Gregg  690 

v.  Town  of  Andes,  332 

Craig's  Appeal  759 

Craker  v.  Chicago  and  N.  W.  R'y 

Co.  335,  347,  377 

Cram  v.  Bangor  House   Proprie- 
tary 260,  263 
Crandall  v.  Lincoln  135,  552 
v.  State  of  Nevada  485 
Craven  v.  Atlantic  and  N.  C.  R. 

R.  Co.  298 

Cravens  v.  Eagle  Mills  Co.  517 

Crawford  v.  Branch  Bank  of  Mo- 
bile 494 
v.  Cincinnati,  etc.,  R.  R.  Co.       348 
842 


SECTION 

Crawford  v.  Longstreet  128,  248 

v.  Rohrer  702,  703,  705 

v.  Southern  R.  R.  Ass.  363 

v.  West  Side  Bank  072 

Crawford sville,  etc.,  T.  P.  Co.  v. 

State  459 

Crease  v.  Babcock  726,  727,  741 

Credit  Co.  i\  Howe  Machine  Co.  205 
Creed  v.  Pennsylvania  R.  H.  Co.  350 
Creighton  &  Birch  v.  Mfg.  Co.  759 
Crenshaw  v.  Ullman  151 

Crenver,  etc.,  M'g  Co.,  In  re  622 

Crescent   City   Slaughter  House 

Co.  v.  New  Orleans  474 

Cresswell  v.  Oberly  739 

Creswell  v.  Lanagan  193 

Crippen  r.  Leighton  393 

Crisswell's  Appeal  561 

Crocker  v.  Crane  91,  234 

v.  Old  Colony  R.  R.  Co.  592 

v.  Whitney  302 

Crolley  v.  Minneapolis  and    St. 

L.  R'y  Co.  166 

Cromwell  v.  County  of  Sac  326,  680 
Crook  o.  Girard  Iron  Co.  390 

Cropper,  Ex  parte  312,  645 

Cross  v.  B  and  S.  W.  R.  Co.  567 

Cross  v.  W.  Va.  R.  R.  Co.  577 

v.  Pinckneyville  Mill  Co.  108 

v.  St  Louis,  etc.,  R.  R.  Co.        175a 
Crossley  v.  East  Orange  479 

Crow  «.  Oxford  332 

Crowley  o.  Christensen  474d 

Crown  v.  Brainerd  763 

Crum's  Appeal  211,  237 

Crumlish  v.  Railroad  Co.  140 

Crump  o.  U.  S.  Mining  Co.  236 

Cruse  v.  Paine  791 

Crutcher  v.  Kentucky  486 

Crvmble  v.  Mulvaney  632 

Culbreth  v.    Phila.,    W.  and   B. 

R.  R.  Co.  360 

Cullen  v.  Thomson  755 

Cullerne  v.    London,  etc.,  Build- 
ing Soc.  623 
Culver  v.  Reno  Real  Estate  Co.      209 
v.  Third  Nat.  Bk.      713,  722,  725 
Cumberland  Coal  Co.  v.  Parish     027 
Cumberland  Lumber  Co.  v.  Clin- 
ton. Hill  Lumber  Co.  703 
Cumberland   Valley  R.   R.  Co.'s 

Appeal  309,  556 

Cumberland  &  P.  A.  R.  R.  Co.  d. 

State  485 

Cummings  v.  National  Bank  484 

v.  Webster  196 

Cummings  v.  Union  Blue   Stone 

Co.  309c 

Cunningham  v.  Alabama  L.  Ins. 

Co.  601 


TABLE    OF    CASES. 


SECTION 

Cunningham  v.   Edgefield,   etc., 

K.  R.  Co.  521,  523,  529 

v.  Macon  and  B.  R.  R.  Co.  462 

v.  Pacific  R.  R.  Co.  166 

v.  Pell  690 

Cunningham's  Appeal  569 

Cupit  v.  Park  City  B'k  260 

Curran  v.  State  of  Arkansas 

437,  501,  507,  656,  664 
Currier  v.  Lebanon  Slate  Co.  135,  747 
Curry  v.  Supervisors  of  De- 
catur County  238 
v.  Woodward  709 
Curtinv.  Salmon  R.,  etc.,  Co.  260,  628 
Curtis  v.  Delaware,  etc.,    R.    R. 

Co.  364 

v.  Harlow  719,  720 

v.  Leavitt  123,  125,  295,  299 

572,  631,  663 

v.  Rochester,  etc.,  R.  R.  Co.        349 

v.  St.  Paul,  etc.,  Ry.  Co.  178 

v.  Tracey  739 

v.  Whitney  450 

Cusick  v.  Bartlett  511,  627 

Cushing  v.  Perot  393 

Cushman  v.  Thayer  M'f'g  Co. 

594,  599, 790 

Custar  v.  Titusville  Gas  Co.  105 

Cutting  v.  Damerel  542,  588,  748 

v.  Grand  Trunk  Ry.  Co.  361 

v.  Marlor  342 

v.  Corning  724 

Cuykendall  v.  Miles  714 


I). 


D.  R.  Martin,  The  350 

Dabney  v.  Bank  of  South  Caro- 
lina 704 
v.  Stevens                                195,  196 
Deland  v.  William  800 
Daley   v.   Norwich,    etc.,    R.    R. 

Co.  372 

Dallas  v.  Atlantic  &  O.  R.  R.  Co.  395 
Dallas  County  v.  McKenzie  321,  330 
Dalton,    etc.,    R.    R.    Co.  v.  Mc- 

Daniel  661 

Dana  v.  Bank  of  St.  Paul         253,  254 

v.  Bank  of  U.  S.  181,  219,  224. 

225,  253 

Danburv    and    Norwalk    R.    R. 

Co.V  Wilson  91,  738 

Dane  v.  Young  748 

Danforth  v.   Philadelphia,    etc., 

R.  R.  Co.  790 

Daniell,  Ex  parte  522a,  545 

Daniell's  Case  586,  747 

Daniels  v.  Clegg  375,  376 

v.  Hart  125,  305 

v.  St.  Lonis,  etc.,  R.  R.  Co.        416 
Dannmeyer  v.  Coleman  140,  688 


SECTION 

448 


437 
460 

171 

178 
258 


Danolds  v.  State  of  New  York 
Danville  Seminary  v.  Mott 
Danville,  etc.,  Plankroad  Co. 

v.  State 
Danville,    etc.,   R.    R.    Co.    u. 
Commonwealth 
v.  Gearhart 
D'Arcy  v.  Tamar,  etc.,  R'y  Co. 
Darling  v.  Boston  and  Worces- 
ter R.  R.  Co.  363,  364 
v.  Mayor,  etc.,  of  Baltimore       334 
Darlington  v.  United  States  470 
Darrington    v.     Bank    of    Ala- 
bama 507 
Darst  v.  Gale                      212,  280,  282 
Dartmouth     College     v.    Wood- 
ward                      21,450,453,472 
Dauchy  v.  Brown                      717,  749 
Davenport  v.  County  of  Dodge       333 
v.  Dows                                    505,  690 
Rec'r,  v.  Lines                        566,  708 
Davenport  Bank  v.  Davenport       484 
Davenport  v.  Newton                        755 
Davey  v.  Jones  161 
Davidson  v.  Bridgeport                    263 
v.  County  Commissioners           319 
v.  Lanier                                          293 
v.  New  Orleans                            492 
v.  Rankin                                 718,  736 
u.  Tulloch                                        696 
v.   West   Chester     Gas    Light 
Co.                                                 125 
Davies,  In  re                                  309a 
Daviess  County  v.  Dickinson          321 
Davis  v.  Bank  of  River  Raisin       298 
o.  C.  and  N.  W.  R.  Co.              175a 
v.  Dumont                                       523 
v.  England                                       753 


Flagstaff  Silver  M'g  Co.  195,  225 
u.Gemmell  688 

v.  Uray  450,  460,  462,  542 

v.  Jackson  800 

v.  Memphis,  etc.,  R.   R.  Co.         432 
o.    Old  Colony   R.  R.  Co. 

195,  264,  267,  286 
v.  Proprietors  572 

v.  Railroad  Co.  140 

v.  Rock   Creek    L.    F.   and   M. 

Co.  628 

v.  Rockingham  Investment  Co.  193 
v.  Smith  672 

v.  State  4(i4 

o.  Stewart  747 

v.  Tuscumbia  R.  R.  Co.  163 

v.  United  States  Electric,  etc., 

Co.  130,  559 

v.  Watkins,  Rec'r  738 

Davis's  Case  123 

Davis    Improved  Wrought   Iron 

Wagon  Wheel  Co.  v.  Davis, 

etc.,  Co.  210 

843 


TABLE    OF    CASES. 


SECTION 

Davis  Bros.  v.  Montgomery,  etc., 

Co.  87,  660 

Davoue  v.  Fanning  6:J0 

Dawes  v.  North  River  Ins.  Co. 

236,  262 
Dawley  v.    Wagner  Palace  Car 

Co.  347 

Dawson  v.  Morrison  77 

Day  v.  Essex  County  Bank  137 

v.  Insurance  Co.  150 

v.  Ogdensburg,  etc.,  R.  R.  Co. 

381,  458 

v.  Postal  Tel.  Co.  384 

v.  Savage  456 

v.  Spiral  Spring  Buggy  Co.  276 

0.  Worcester,  etc.,  R.  R.  Co.       426 

Dayton  v.  Borst  513,  707 

Dayton  C.  &  I.  Co.  v.  Barton       400a 

Dayton,  etc.,  R.  R.  Co.  v.  Hatch 

181,  227 
Daytou  Nat.  Bank  v.  Merchants' 

Nat.  Bank  599 

Deaderick  v.  Wilson       154,  227,  449. 
585,  688,  695,  698 
v.  Bank  619 

Dean  &  Son's  Appeal  813 

Dean  v.  Mace  724 

Dearborn    v.    Washington    Sav. 

Bank  600 

Dearborn  Foundry  Co.  v.  Augus- 
tine 401 
De  Bemer  v.  Drew  394 
Debnam  r.  Telephone  Co.  400 
De  Bost  v.  Albert  Palmer  Co.  196 
De  Camp  v.  Alward  432 
Decatur  Mineral  Land  v.  Palm  687 
De  Comeau  v.  Guild  Farm  Oil 

Co.  599 

Dedham  Bank  v.  Chickering  235 

Dedbam    Nat.    Bank  v.  Everett 

Nat.  Bank  672 

Dedricb  v.  Ormsby,  etc.,  Co.  211 

De  Graff  v.  Thompson  820 

De    Grof    v.     American      Linen 

Thread  Co.  204 

Deitrichs  v.  Lincoln,  etc.,  R.  Co.  164 
De  Kay  r.  Hackensack  Water  Co.  641 
De  La  Cuesta  v.  Insurance  Co.  568 
De  La  Grange  v.  Southwestern 

Tel.  Co.  357 

De  La  Vergne  Co.   v.   Ger.  Sav. 

Inst.  130,  283,  309 

De  Lancey  v.  Insurance  Co.  122 

Delano  v.  Butler  541 

Delaplane  v.  Chicago,  etc.,  R.  R. 

Co.  174 

Delaware,    etc.,    Canal     Co.    v. 

Mahlenbrock  400 

Delaware,  etc.,  Canal  Co.  v.  Penn- 
sylvania Coal  Co.  189 

844 


SECTION 

Delaware,  etc.,  Nav.  Co.  v.  San- 

som  546 

Delaware,  etc.,  R.  R.  Co.  v.  Irick  109 

v.  Oxford  Iron  Co.  602 

v.  Tborp  464 

Delaware,  etc.,  Tow  Boat  Co.  v. 

Starrs  353 

Delaware  Railroad  Tax 

470a,  485,  489,  491,  505 
Delta  Lumber  Co.  v.  Williams       242 
Del    Valle   v.    Steamboat    Rich- 
mond 355 
Demarest  v.  Fleck                             384 
Deming  v.  Bull  725 
v.  Grand  Trunk  R.  R.  Co.           361 
v.  Puleston  769 
Den  v.  Fillings                                   574 
Denham  &  Co.,  In  re                       625 
Denike  v.  New  York,  etc.,  Lime 

Co.  610 

Dennis  v.  Joslin  Mfg.  Co.  263 

Denniston  v.  Chicago,  etc.,  R.  R. 

Co.  824 

Denny  v.  Manhattan  Co.  696 

Densmore  Oil  Co.  v.  Densmore  83 
Dent's  Case  522a,  545,  614 

Denver  and  R.  G.  R'y  v.  Harris  335 
Denver  and  Swansea  R'y  Co.  v. 

Denver  City  R'y  Co.         153,  156 
Denver  Fire  Ins.  Co.  v.  McClel- 
land 277 
Denver,  S.  P.  and  P.  R.  R.  Co.  v. 

Couwav  366 

De  Pass's  Case  101,  586,  749 

De  Peyster  v.  Am.  Fire  Ins.  Co.  566 
Dijrby  Council  v.  State  Council  382 
Derosia  v.  Winona,  etc.,  R.  R.  Co.  360 
Derrick  v.  Lamar  Ins.  Co.  342 

Derrickson  v.  Smith  764 

Derringer  v.  Derringer  389 

Derringer's    Ad.   v.  Derringer's 

Ad.  384 

Derry  v.  Lowry  348 

De  Ruvi^ne's  Case  614 

Descombes  v.  Wood  225,  230 

Desdoity,  Ex  parte  578 

Des  Moines  Bank  v.  Hotel  Co.        511 
Des  Moines  L.  &  F.  Co.  v.  Til- 
ford  237 
Despatch  Line  v.  Bellamy  M'f'g 

Co.  89,  188,  248,  258,  260 

Desper     v.     Continental    Water 

Meter  Co.  392 

Detroit  v.  Dean  140,  141,  142 

v.  Detroit,  etc.,  v.  Plank  Road 

Co.  502 

v.  Detroit  St.  Ry.  Co.  4766 

v.  Mutual  Gas  Co.  418 

Detroit    Fire,    etc.,    Ins.    Co.    v. 

Judge  of  Saginaw  Co.  121 


TABLE    OF    CASES. 


SECTION 

Detroit    Savings   Bank    v.   Bur- 
rows 672 

Detroit  Scheutzen  Bund  ».  De- 
troit Agitations  Verein  149 

Detroit  Cit.  St.  Ry.  Co.  ».  Detroit 
Ry.  316 

Devereaux  v.  Buckley  361 

Dewey  v.  St.  Albans  Trust  Co. 

513, 701 

Dewing  v.  Perdicaries  789 

De  Witt  0.  Hastings  145,  770 

Dexter,  etc.,  Plank  Road  Co.  v. 

Millard  513 

Dey  b.  Jersey  City  258 

De  Yturbide     v.     Metropolitan 

Club  14 

Diamond  Match  Co.  v.  Powers      389 

Diamond  Match  Trust  309c 

Dickerman  v.  Northern  Trust  Co. 

82,  139,  522a 

Dickinson  v.  Central  Nat.  Bank    595 

Diefenbach  v.  Vaughan  401 

Dietrich  v.  Baltimore,  etc.,  R'y 

Co.  210 

Diligent  Fire   Ins.   Co.   v.   Com- 
monwealth 120 

Dill  v.  Wabash  Valley  R.  R.  Co. 

108,  542 

Dillard   r.  L.   and  N.   R.   R.  Co. 

353,  359 

Dillon  v.  Barnard  675 

Dimpfell   v.  Ohio  and    Miss.   R. 

Co.  140,  555,  556 

Dinsmore   i\   Louisville,    C.  and 
L.  R'y  Co.  309 

v.  Racine,  etc.,  R.  R.  Co.  676 

Directors  v.  Kisch  524.  745 

Distilling  Co.  v.  People  309c 

District  of  Col.  v.  Camden  Iron 

Works  248 

Ditchett  v.  Spuyten  Duyvil,  etc., 
R.  R.  Co. 

Diven  v.  Duncan 
r.  Phelps 

Diversey  v.  Smith 

Dixon's  Case 

Dixon  County  v.  Field 

Dobbin  v.  Richmond,  etc 
Co. 

Dobbins  ».  Walton 

Dobson  v.  More 
v.  Simonton 

Dock  v.  Cordage  Co. 

Dockery  v.  Miller 

Dodge  v.  City  of  Council  Bluffs 

381,  384 
v.  County  of  Platte  330 

Dodge  v.  Pyrolusite   Manganese 

Co.  394 

v.  Woolsey,     139,  140,  141,  488,  556 


587, 


170 
T41 
810 
714 
550,  780 
332 
R.  R. 

365 
603 
236 
435,  813 
135,  568 
204 


SECTION 

Doernbecker  v.  Lumber  Co.  260 

Dolan  v.  Del.  and  Hud.  Canal  Co.  368 
v.  Wilkerson  263 

Donnell  v.  Lewis  County  S'v'gs 

Bank  161,  240 

Donnelly  b.  Mulhall  825 

Donohoe  v.  Mariposa  Land,  etc., 

Co.  224 

Donovan  v.  Halsey  Fire  Engine 

Co.  197 

Donworth  v.  Coolbaugh  504,  737 

D'Ooge  v.  Leeds  799 

Dooley  b.  Cheshire  Glass  Co.         146 
Doolittle  v.  Marsh  734 

Doon  Township  v.  Cummings        321 
Dorr  v.  Life  Ins.  C.  L.  Co.  603 

v.  New  Jersey  Steam  Nav.  Co. 

351,  359 
Dorris  b.  French  83 

Dorsey   Harvester   Rake   Co.    v. 

Marsh  114,  120 

Dorsey  M.  Co.  v.  McCaffrey  342 

Doty  b.  Patterson  148 

Doud    i'.   Wisconsin,   etc.,    Rail- 
road Co.  687 
Dougberty  v.  Hunter  237 
Doughty  v.  Somerville,  etc.,  R.  R. 

Co.  163 

Douglas  b.  Ireland  723 

v.  Kentucky  474 

Douglass  b.  Cline  822 

v.  County  of  Pike  318,  468 

r.  Merchants'  Ins.  Co.  649 

8.  Phenix  Ins.  Co.  392 

Dousman  b.  Wisconsin,  etc.,  M'g 

Co.  569 

Dovey's  Appeal  795 

Dow  v.  Beidelman  476a 

v.  Memphis  R.  R.  Co.  820 

v.  Northern  R.  R.  Co.  305 

v.  R.  R.  Co.  502 

Dowd  n.  Chicopee  375 

Downie  b.  White  521 

Downing  b.  Indiana  State  Board     58 

B.  Mt.  Washington  Road  Co.       267 

B.  Potts  578 

Dovle  i:  Continental  Ins.  Co. 

383,  400 
v.  Misner  150,  260 

Drake  b.  Hudson  River  R.  R.  Co.  175a 
Draper  b.  Springport  328 

v.  Stone  790 

Dreher  v.  I.  S.  W.  R.  Co.  178 

Dresser  v.  Traders'  Nat.  Bank     283a 
Driscoll  v.  Norwich,  etc.,  R.  Co. 

170,  305 
v.   West   Bradley,    etc.,    M'f'g 
Co.  599,  600,  601 

Droitwich  Patent     Salt    Co.    v. 

Curron  133 

845 


TABLE    OF    CASES. 


SECTION 

Drummond's  Case  522c 

Drummond      Tobacco     Co.     v. 

Handle  158 

Drury  0.  Cross  700,  815 

v.  Midland  It.  R.  Co.         174,  179 
Dryden  v.  Kellogg  715,  I'M 

Dry  mala  v.  Thompson  305 

Dublin,  etc.,    R'y  Co.  v.  Black      515 
Ducat  o.  Chicago  383,  480 

Duckworth  r.  Koach  770 

Dudley  v.  Kentucky  High  School 

553,  083 
Dueber  Watch  Case  M'f'g  Co.  v. 

Howard  Co.  309a 

Dugas  v.   Town   of   Donaldson- 

ville  326 

Duke  v.  Andrews  99 

v.  Cahawba  Nav.  Co.  263,  460,  589 

u.  Dire  99 

v.  Markham  187 

Dukes  v.  Love  734 

Duluth  &  F.  K.  R.  Co.  v.  St.  Louis 

County  488 

Du  Laurens  v.  First  Div.   St.  P. 

and  P.  R.  R.  248,  348 

Duncan  v.     Mobile,    etc.,  R.  R. 

Co.  822 

Duncomb  v.  New  York  H.  and 

N.  R.  R.  Co.  225,  301,  630,  633,  759 
Duncuft  o.  Albrecht  789,  790 

Dundee  Mortgage  Co.  v.  Nixon     400 
Dunham  b.  Isett  820 

v.  Railway  Co.  818 

Dunkerson,  In  re  583 

Dunlap  v.  International  Steam- 
boat Co.  355 
u.  Toledo,  A.  A.,  etc.,  R'y  Co.    172 
Dunn  v.  Commercial  Bank              598 
v.  Grand  Trunk  R'y  Co.  350 
v.  Kyle  694 
Dunphy  v.  Newspaper  Assoc.         560 
Dunston  v.   Imperial  Gas  Light 

Co.  629 

Dupee  v.  Boston  Water    Power 

Co.  135 

Durant  p.  Palmer  376 

Durfee   i\   Old   Colony,   etc.,  R. 

R.  Co.  534,  553,  556,  562 

Durham  r.    Monumental    Silver 

M'g  Co.  509 

Durkee  v.  People  577 

Durlacher  v.  Frazer  187 

Dutch  West    India    Co.  v.  Van 

Moses  158 

Duteher  0.  Importers,  etc.,  Bank  668 
v.  Maine  Nat.  Bank  721 

Dutchess    Cotton    M'f'g    Co.   v. 

Davis  276,  546 

Dutchess,  etc.,  R.  R.  Co.  v.  Mab- 

bett  516 

846 


SECTION 

Dwinelle  v.  New  York  Central, 

etc.,  R.  R.  Co.  335 

Dyer  v.  Erie  R'y  Co.  368 


E. 


Eagle,  etc.,  M'f'g  Co.  v.  Brown     647 
Eagle  Ins.  Co.  v.  Ohio  474 

Eakins  v.  White  Bronze  Co.  222 

Eakright    e.    Logansport,    etc., 

R.  R.  Co.  529 

Eames  b.  Doris  725,  726 

Earp's  Appeal  799 

East  Alabama  R'y  Co.  v.  Doe         671 
East  and    West   R.     R.     Co.    v. 

East  Tennessee,  etc.,  R.  R. 

Co.  155,  163 

East  Anglian  R'y  Co.  v.  Eastern 

Counties  R'y  Co.  291,  305 

East  Birmingham  Land    Co.    v. 

Dennis  795 

East  Boston  R.  R.  Co.  v.  East- 
ern R.  R.  Co.  125 
East  Hartford  v.  Hartford  Bridge 

Co.  316 

East  Line,    etc.,    R.    R.  Co.    v. 

Garrett  258 

East  N.    Y.,  etc.,  R.  R.  Co.    v. 

Elmore  618 

East  Penn.  R.  R.  Co.  v.  Hotten- 

stein  178 

East  River  Bank  v.  Hoyt  210 

East    River    National    Bank    v. 

Grove  193 

East  St.  Louis  v.  Zebley  333 

East  Tenn.,   etc.,     R.   R.   Co.    v. 

Evans  665 

v.  Interstate  Com.  Commission 

474d 
v.  Gammon  •")1"> 

v.  Rogers  363 

Eastern     Counties    R'y    Co.     v. 

Hawkes  204,  232,  286 

Eastern     Plank      Road     Co.     v. 

Vaughan  91,  92,  93,  108, 

109,  451.  547 
Eastern  R.  R.  Co.  v.  Boston  and 

Maine  R.  R.  Co.  103a.  227 

Eastman  v.  Meredith  335 

Eaton  v.  Aspinwall  537,  738 

v.  Boston,  etc.,  R.  R.  Co.  173 

Eaton  o.  N.  Y.  C.  &  H.  R.  R.  Co.  365 

v.  Robinson  688,  690,  693 

p.  St.  Louis,  etc.,  M'g  Co.  412 

r.  Walker  146 

Eaton,  etc.,  R.  R.  Co.  v.   Hunt 

409.  005 
Eby  v.  North' n  Pacific  R.  R.  Co.  404 
Ecker  v.  First  Nat.  Bank  241 


TABLE    OF    CASES. 


SECTION 

Eckert  v.  Long  Island  R.  R.  Co.  375 
Eckman  v.  C.  B.  and  Q.  R.  Co.  276 
Eddys  tone  Ins.  C,  In  re  702 

Edelhoff  v.  Horner  it  Miller  Co.  238 
Edelmau  v.  St.  Louis  Transfer  Co.  378 
Eden  ».  Ridsdales  Lamp  Co.  629 

Edgar  Collegiate  Inst.  v.  People  459 
Edgerly  v.  Emerson  258,  260 

Edgerton  v.  New  York,  etc.,  R. 

R.  Co.  350 

Edgewood  R.  R.  Co.'s  Appeal  476 
Edgeworth  v.  Wood  56 

Edgiugton  v.  Fitzmaurice  752 

Edinboro  Academy  v.  Robinson  92 
Edison,  etc.,   Co.   v.   Navigation 

Co.  401 

v.  Spokane  Co.  479 

Edwards  v.  Fairbanks  276,  303 

v.  Grand  Junction  R'y  Co.  88 

v.  Kearsey  493 

v.  London  and  N.  W.  R'y  Co. 

339,  344 
v.  People  324,  536 

Edwards  Co.  v.  Jennings  309c 

Eel  River  R.  R.  Co.  v.  State  305 

Eels  v.  Telegraph  Co.  175 

Elird  y.  Piedmont,  etc.,  Laud  Co. 

587,  729 
Ehret  p.  Camden  &  Trenton  Ry. 

Co.  175 

Ehrgott  v.  Bridge  Manufactory  209 
Ehrmau  v.   Union   Central   Life 

Ins.  Co.  264,  282 

Eidman  v.  Bowman  228,  569 

Einstein  ».  R.  G.  &  E.  Co.  133 

Eisenlord  v.  Oriental  Ins.  Co.  745 
Eisfeld  v.  Kenworth  148,  739 

Eisner's  Appeal  799,  800 

Elder  v.  New  Zealand  Land  Im- 
provement Co.  96.  518 
Eldridge  ».  Smith     131,  132,  676,  814 
Election    of     Cape     May,     etc., 

Nav.  Co.,  In  re  577« 

Electric  Co.  v.  Bates  629 

v.  Electric  Co.  655 

v.  Tandy  511 

Electric  Co.   of   America  ».  The 

Edison  Electric  Co.  569 

Electric   Lighting   Co.   v.  Leiter 

137.  432 
».  Rust  401 

Electric  Street  Co.  of  M.  v.  Ruft  125 
Elevator   Co.   v.   Memphis,  etc., 

R.  R.  Co.  267,  562,  565 

Eloy  r.  Positive  Assurance  Co.  87 
Elizabeth  town,  etc.,  R.    R.    Co. 

v.  Combs  175c 

v.  Helm  179 

Elkins  o.  Camden  and   Atlantic 

R.  R.  Co.  224,  308.  309.  577, 

644,  684,  688 


SECTION 

Ellerman  v.  Chicago  June.  Rys.  127 
Elliott   Nat.    Bank   v.    Western, 

etc.,  R.  R.  Co.  193 

Ellis  v.  American  Tel.  Co.  357 

v.  Barheld  800 

v.  Branstrator  204 

v.  Boston,  etc.,  R.  R.  Co.  029 

v.  Colman  754 

v.  First  Nat.  B'k  241 

v.  Little  542 

v.  Marshall  449 

v.  Pacific  R.  R.  Co.  166 

v.  Ward  612,  646 

Ellison  v.  Schneider  589 

Ellsworth  v.   St.    Louis,  etc.,  R. 

R.  Co.  285,  390 

Ellsworth  v.  Tartt  304 

Elmendorf  v.  Taylor  468 

Elmore  v.  Naugatuck  R.  R.  Co.  363 

Elston  v.  Piggott  384,  400 

Elwell  v.  Fosdick  814 

Ely  v.  Sprague  561 

Elyea  v.  Lehigh  S.  M.  Co.  434 
Elyton  Land  Co.  v.  Birmingham 

Warehouse  Co.  m 
v.  Dowdell 
Embury  v.  Connor 
Emerson  v.  Slater 


702 
556 
400 
715 


Emerson,  Talcott  &   Co.   v.  Mc- 
Cormick     Harvesting      Ma- 
chine Co.  392 
Emery   v.    Boston    Marine    Ins. 

Co.  197 

Emmert  v.  Smith  731,  732 

Empire  Ass.  Co.,  In  re  608 

Empire    City    Bank,    Matter    of 

589,  731,  732 
Empire  M'f'g  Co.  v.  Stuart  146 

Empire  Trans.  Co.  i\  Wamsutta 

Oil  Co.  353 

Emporium   Real    Estate    Co.    v. 

Emrie  647 

Enfield  v.  Jordan  327 

Enfield  Toll  Bridge  Co.  v.  Hart- 
ford, etc.,  R.  B.  Co.  470 
England  v.  Dearborn  187,  236 
English  v.  New  Haven  and  North- 
ampton Co.  502 
English  Am.  L.  &  T.  Co.  v.  Hiers  210 
Enterprise  Ditch  Co.  v.  Moffett 

498,  522c 
Epps  v.  Miss.,  Gainesville,  etc., 

R.  R.  Co.  147,  530,  738 

Eppright  v.  Nickerson  225,  543 

Equitable   B.  &  L.  Assn.  v.  Bid- 
well  146 
Equi  table     Life     Ass.     Soc.     v. 

Vogel's  Executrix  392 

Era    Assurance    Soc,    In  re,  Ex 

parte  Williams  227 

Erickson  v.  Nesmith        393,  704,  783 

847 


TABLE    OF   CASES. 


SECTION 

Erie  and  N.  E.  R.  R.  Co.  v.  Casey  503 
Erie  and  N.  Y.   City  R.  R.  Co.  v. 

Owen  91,  96 

Erie  and  Western  Trans.  Co.  v. 

Dater  350 

Erie  City  Iron  Works  v.  Barber     342 
Erie,   etc.,    Plank    Road    Co.    v. 

Brown  519 

Erie  R.  Co.  v.  State  383,  485 

v.  Steward  162a,  1(34 

r.  Wilcox  363 

Erie  R'y  Co.  v.  Del.,  Lack,   and 

W.  R.  R.  Co.  152 

».  Pennsylvania  479,  489 

Ernest  v.  Croysdill  314,  656 

v.  Nicholls  195,  311 

v.  Peck  745 

Erskine  v.  Louvenstein  741 

Ervin  v.  Oregon,  etc.,  R'y  Co. 

392,  558,  608,  610 
Escanaba  Co.  v.  Chicago  474c,  475 
Eschweiler  v.  Stowell  560 

Eslava  v.  Ames  Plow  Co.  384 

Esmond  ».  Ballard  770 

Espy  v.  Hank  of  Cincinnati     245,  246 
Essex    Turnpike    Co.    v.  Collins 

92,  515 
Estabrook,  Ex  parte  205 

Etna  Ins.   Co.,   In  re,   Ex  parte 

Shields  523 

Eureka  Basin,  etc.,  Co.,  hire         163 
Eureka  Co.  v.  Bailey  Co.  248 

Eureka  Iron  Works  ».  Bresnahan 

236,  259 
European,    etc..    R.     R.    Co.    v. 

Poor  628,  629 

Evans  v.  Bailey  26:'» 

o.  Brandon  688,  690 

v.  Coventry  134,  622,  659 

v.  Interstate  R'y  Co.  435 

v.  Lee  204 

o.  Memphis,  etc.,  R.  R.  Co.         348 
v.  Osgood  575 

d.  Smallcombe  217,  780 

v.  Wood  791 

Evansich  v.  G.   C.  and  S.  F.  R'y 

Co.  371 

Evansville  o.  Dennett  330,  332 

Evansville  Bank  v.  Britton  484 

Evansville,  etc.,  Co.  ».  Bank  644 

Evansville,   etc.,    R.    R.    Co.    v. 

Dick  173 

o.  Duncan  350 

v.  Hyatt  376 

r.  I'osey  521 

o.  Shearer  517 

v.  Young  353 

Evansville    R.   R.    Co.   v.  Evans- 
ville 572 
Everhart  v.  Phila.,  etc.,  R.  R.  Co.  577 

848 


SECTION 

Evarts    v.    Killingsworth    M'f'g 

Co.  432 

Everett  v.  Union    Pacific  R.  R. 

Co.  178 

Everhart  v.  Phila.,  etc.,  R.  R.  Co. 

530,  572,  577 
Ewell  v.  Daygs  450 

Ewing  v.  Toledo  S'v'gs  Bk. 

298,  380,  388 
v.  Composite  Brake  Shoe  Co.     657 
Ex-Mission  Land  Co.  v.  Flash  82 

Excelsior  Fire  Ins.  Co.,  Matter 

of  227 

Excelsior    Grain    Binder   Co.  v. 

Stayuer  516 

Excelsior  Petroleum  Co.  v.  Lacey 

620,  622 
Excelsior  Water  Co.  v.  Price  565 
Exchange    B'k   v.  Macon   Cons. 

Co.  187 

v.  Sibley  752 

Exchange    Nat.     B'k    v.    Third 

Nat.  B'k  161 

Express  Cases  350 

Exposition  R.    R.   Co.    v.    Rail- 
road Co.  518 
Express  Co.  v.  Caldwell                  356 
r.  Kountze  Bros.                    352,  413 
o.  Railroad  Co.                       284,  384 
v.  Reagan  :'.");; 
o.  Walker  210 
Express   Companies   v.  Railway 

Companies  309 

Exter  v.  Sawyer  82 

Eyerman  v.  Kriekhaus  702 

Eyre's  Case  586,  747 


F. 


Factors,    etc.,    Ins.    Co.    v.  New 

Harbor  Protection  Co.  145 

Fagan  v.  Boyle  Ice  Machine  Co.  137 
Fair  Assoc,  v.  Walker  96,  109 

Fairchild  r.  Masonic   Hall  Asso- 
ciation 430 
Fairfax's    Devisee    v.    Hunter's 

Lessee  303 

Fairfield  Savings  Rank  v.  Chase  210 
Fallon  v.  Railroad  Co.  790 

Fall    River   Iron    Works    Co.    v. 
Old  Colony,  etc.,  R.  R.   Co. 

162,  162a 
Fall  River  Union  Bank  v.  Sturte- 

vant  240 

Falmouth  Nat.  Bank  v.  Canal  Co.  663 
Family  Endowment  Soc,  In  re  665 
Faneuil  Hall    Bank  v.  Bank    of 

Brighton  298 

Fanning  v.  Gregoire  453 


TABLE    OF    CASES. 


SECTION 

Fanning  v.  Insurance  Co.  511 

v.  Osborn  304 

Fargo  v.  Michigan  485 

Fariow  v.  Kelly  374 

Farmers'  Bank  v.  McKee  237 

Farmers',   etc.,   Bank    v.  Butch- 
ers', etc.,  Bank  203,  208,  244 
Farmers',    etc.,  Bank   v.    Cham- 
plain  Trans.  Co.  353 
v.  Colby  753 
v.  Detroit,  etc.,  R.  R.  Co.  281 
v.  Downey                               629,  693 
v.  Harrison                                      298 
v.  Jenks                                            738 
v.  Little                                            435 
v.  Wasson                              600,  601 
Farmers',  etc.,  Nat.  Bank  v.  Dear- 

ing  483 

Farmers'  L.  and  T.  Co.  v.  Clowes  204 
v.  Curtis  204 

v.   Louisville,  N.  A.  &  C.  Ry. 

Co.  816a 

v.  McKinney  384 

v.  Minneapolis,  etc.,  Works        814 
v.  Missouri  Ry.  Co.  822 

v.  New  York,  etc.,  R.  R.  Co.    559a 
v.  Perry  204 

v.  Telegraph  Co.  823 

Farmers'     Mutual    Ins.    Co.    v. 

Chase  233,  234 

Farmers'  Nat.  Bank  v.  Wilson  796 
Farmington  Savings  Bank  v.  Fall  301 
Farnham    v.    Camden  and   Am- 

boy  R.  R.  Co.  359 

v.  Delaware  &  Hudson  Canal 

Co.  155 

Farnsworth  y.  Dewey  721 

v.  Lime  Rock  R.  R.  Co.       449,  460 

v.  Minn,  and  Pac.  R.  R.  Co.        458 

v.  Robbins  701 

Farnum  v.  Ballard  Vale  Machine 

Shop  737 

v.  Blackstone  Canal  Co.  406 

v.  Patch  739 

Farr  v.  Brings'  Estate  393,  767 

Farrar  v.  Walker  523 

Farrell  v.  Oregon  Gold  Co.  395 

v.  Union  Trust  Co.  417 

Farrell  Foundry  v.  Dart  210 

Farrier  v.    New  England  Mort- 
gage Co.  401 
Farrington  v.  Rut.  R.  R.  Co.  368 
v.  South  Boston  R.  R.  Co.  598 
v.  Tennessee                477a.  488,  489 
Farwell  v.   Boston  and  W.  R.  R. 

Co.  366 

v.  Houghton  Copper  Works 

260,  261 
Fasnacht    v.    German    Literary 

Ass'n  650 

Faulds  v.  Yates,  580,  788,  790 

54 


SECTION 

Faure     Electric      Accumulator 

Co.,  In  re  623 

Faust  v.  Passenger  R'y  Co.  175 

Fawcett  v.  Laurie  565 

v.  New  Haven  Organ  Co.  200 

v.  Whitehouse  82 

Fay  v.  Noble     100,  148,  196,  198,  201 

v.  Minneapolis,  etc.,  R'y  Co.      365 

Fear  v.  Bartlett  523,  526 

Featherstouhaugh   v.    Lee  Moor 

Porcelain  Clay  Co.  130 

Fee  v.  New   Orleans  Gas   Light 

Co.  421 

Feital  v.  Middlesex  R.  R.  Co.         170 
Felker  v.  Standard  Yarn  Co.  773 

Fenner  v.    Buffalo.,  etc.,  R.    R. 

Co.  360 

Fennessy  v.  Ross  559a 

Fenton  v.   Wilson    Sewing  Ma- 
chine Co.  342 
Ferguson  v.  Sherman                       393 
Fairchild  v.  Brewing  Co.  415 
Ferguson  v.   Ann   Arbor   R.    R. 

Co.  816a 

Ferro  v.  Buffalo,  etc.,  R.  R.  Co.     368 
Ferris  v.  Thaw  148,  739 

Fertilizer  Co.  v.  Clute  449 

Fertilizing  Co.  v.  Hyde  Park 

122,  476 
Flaherty     v.    Atlantic    Lumber 

Co.  248 

Fibel  v.  Livingston  359 

Fidelity  Ins.  Co.'s  Appeal  816a 

Field   o.    Chicago   and   R.   I.  R. 

R.  Co.  359,  363 

v.  Investment  Co.  216,  229 

v.  N.  Y.  C.  R.  R.  Co.  368 

Fietsam  v.  Hay  132 

Fifth  Ave.    Bank  v.  Forty-Sec- 
ond St.  R.  R.  Co.  591 
Fifth   Nat.    Bank  v.  Phosphate 

Co.  237 

v.  Pierce  302 

Fifth    Ward    Savings    Bank    v. 

First  Nat.  Bk.  125,  202,  236 

Fillebrown   v.   Grand   Trunk  R. 

Co.  350 

Financial  Corporation,  Holmes1 

Case,  In  re  133 

Finch  v.  Riverside  Ry.  Co.  175 

Finch  Mfg.  Co.  v.  Sterling  759 

Finletter  v.  Appleton  587 

Finley  Shoe  and  Leather  Co.  v. 

Kurtz  228 

Finn  v.  Brown  740 

Finnev  ».  Bennett  663 

Fire  Department  v.  Noble  383 

Fire  Ins.  Co.  v.  Keeseville  335 

Fireman's  Ins.  Co.,  Ex  p arte         599 
r.  Thompson  395,  397 

First  Ave.  Land  Co.  v.  Parker       591 

849 


TABLE    OF    CASES. 


SECTION 

First  Nat.  Bank  i>.  Almy        148,  739 
v.  Anderson  818 

v.  Barnum  Iron  Works  '  670 

v.  Briggs  210 

v.  Christopher  258 

v.  County  Commissioners  680 

v.  Dovetail,  etc.,  Co.  655,  660 

v.  Drake  628,  647 

v.  First  Nat.  B'k  239,  672 

v.  Fricke  211 

v.  Gifford  587,  628 

v.  Graham  161 

v.  Green  709 

v.  Grosshaus  303 

v.  Hendrie  162 

15.  Hoch  161,  236 

v.  Hoean  201 

v.  Kiefer  Co.  264,  272,  273,  286 

15.  Kimberlands  236 

v.  Lam  son,  etc.,  Co.  563 

v.  Loyhed  210 

v.  Mason  672 

v.  Michigan  City  B'k  239 

u.  Mining  Co.  5226,  7026 

v.  Nat.  Exchange  Bank 

135,  137,  161,  223 
v.  Ocean  Nat.  Bank  161,  200,  241 
v.  Pierson  302 

v.  Plow  Co.  719 

v.  Price  764 

v.  Riggins  729 

v.  Reed       •  616,  618,  627 

v.  Rex  161 

v.  St.  Josephs  483 

v.  San  Francisco  483 

v.  Tisdale  236 

v.  Waters  484 

v.  Williams  342 

i).  Winchester  187,  276 

First  Nat.  Bank  of  Wellington  v. 

Chapman  484 

First  Nat.  Ins.  Co.  v.  Salisbury     682 
First  Parish  v.  Cole  137 

First  Presbyterian  Church,  In  re  158 
Fiser  v.  Mississippi,  etc.,  R.  R. 

Co.  516 

Fish  v.  Smith  263,  537,  541 

Fisher  v.  Boston  335 

v.  Bush  580 

v.  Chicago  and  Springfield  R. 

R.  Co.  164 

v.  Essex  Bank  796 

v.   New   York    Cent.,  etc.,    R. 

It.  Co.  424 

v.  Parr  687 

v.  Seligman  741 

Fishkill  Savings    Inst.    v.     Nat. 

Bank  335 

Fish  o.  Chicago,  etc.,  R.  R.  Co.     409 
v.   Union     Pacific    R.    R.   Co. 

435,  658,  664 
850 


SECTIOK 

Fister  v.  La  Rue  89 

Fitch  v.  Constantine   Hydraulic 

Co.  238 

v.  New  Haven,  etc.,  R.  R.  Co. 

308,  453 
v.  Pac.  R.  R.  Co.  368 

v.  Steam  Mill  Co.  125,  248 

Fitchburg,    etc.,    R.    R.    Co.    v. 
Grand  Junction    R.    R.   Co. 

475,  502 
Fitchburg  R.   R.  Co.  v.  Boston 

and  M.  R.  R.  Co.  174 

v.  Gage  309 

Fitts  v.  Cream  City  R.  R.  Co.         371 
Fitzgerald  v.  Fitzgerald,  etc.,  Co. 

633,  640,  644 
u.  St.  Paul,  etc.,  R'y  Co.  375 

Fitzgerald   Construction   Co.    v. 

Fitzgerald  237,  595 

Fitzhugh  v.  Land  Co.  195,  237 

Fitzwater  v.  Bank  138 

Flagg  v.  Manhattan  R'y  Co.    224,  563 
Flagstaff     Silver     M'g     Co.     v. 

Patrick  195,  225 

Flash  v.  Conn  384,  393,  714, 

724,  725,  741 
Flackner  v.  Bank  of  U.  S. 

211,  233,  248 
Fleming  v.  Chicago,  D.  and  M. 

R.  Co.  178 

Fletcher  v.  N.  Y.  Life  Ins.  Co.       193 

v.  Peck  453,  456 

Flike  v.  Boston  and  A.  R.  R.  Co.  365 

Flinn  v.  Phila.  W.  &  B.  R.  R.  Co.  353 

15.  Columbus  Club  647 

Flint  v.  Board  of  Aldermen  483 

15.  Clinton  Co.  204 

v.  Norwich  and  N.  Y.  Trans. 

Co.  347 

Flint  and  P.  M.  Ry.  Co.  15.  Dewey  627 

Flint,   etc.,   Plank   Road    Co.   v. 

Woodhull  438,  458,  503 

Florida   Central,  etc.,  R.  R.  Co. 

v.  State  162 

Florida    Midland    R.    R.    Co.  v. 

Varnedoe  210 

Florida  Sav.  Bank  v.  Rivers  614 

Florsheim  v.  Lester  400 

Floyd  v.  Nat.  Loan  Co.  384 

Fluker  v.  Railway  Co.  553 

Flynn  v.  San  Francisco,   etc.,  R. 

R.  Co.  373 

Fobes  0.  Rome,  etc.,  R.  R.  Co. 

175,  175rt 
Fogg  15.  Blair  5226,  702a 

Folger  t5.  Chase  436 

Foil's  Appeal  788,  790 

Follit  v.  Edistone   Granite  Quar- 
ries 816a 
Forbes  15.  Boston  and  L.  R.  R. 

Co.  360 


TABLE    OF    CASES. 


Ford  v.  Bank  668 

v.    Chicago     Milk     Shippers' 

Ass'n  309c 

v.  Easthampton  Thread  Co.        568 
v.  Fitchburg  R.  R.  Co.  365 

v.  Hill  668 

v.  Land  Co.  489 

v.  Santa  Cruz  R.  R.  Co.  344 

Foreman  v.  Bigelow  522c,  702 

Forrester  v.  B.  &  M.  Mining  Co. 

229,  268,  608,  688 
Forstall  v.  Consolidated  Ass'n  495, 507 
Fort  Edward,  etc.,  Plauk  Road 

Co.  v.  Payne  97 

Fortier  v.  New  Orleans  Nat.  B'k  302 
Fort  Madison  Bank  v.  Alden  702,  711 
Fort  Madison  Lumber  Co.  v.  Ba- 

tavian  Bank  796 

Fort  Payne  Rolling  Mill  v.  Hill      627 

Forth  Worth  C.  Co.  v.  Bridge  Co.  121 

Fort  Worth  Pub.  Co.  v.  Hitson      657 

Fosdick  v.  Car  Co.  822 

v.  Schall  507,  821,  824a 

v.  Sturges  541,  792 

Foss  v.  Harbottle     142,  554,  555,  686 

Foster  v.  Essex  Bank       161,  240,  337 

v.  Lumber  Co.  402 

v.  Mansfield,  etc.,  R.  R.  Co.         693 

v.  Master  of  New  Orleans  4746 

v.  Moulton  739 

v.  Mullanphy  Planing  Mill  Co. 

668,  759 
v.  Oxford,  Worcester,  etc.,  R. 

R.   Co.  642 

v.  Seymour  612 

v.  Sugar  634 

v.  White  585 

Fouche  o.  Brown  130 

v.  Merchants'  Nat.  Bk.         210,  211, 

587,  702a,  706,  741,  744 

Foulke  v.  San  Diego,  etc.,  R.  Co. 

249,  313 
Fountain    v.    Carmarthen    Rail- 
way Co.  195 
Fountain    Ferry   T.    R.     Co.    v. 

Jewell  517,  611 

Four  Mile  Valley  R.   R.    Co.   t>. 

Bailey  527 

Fourth  National  Bank  v.  Frank- 

lyn  724 

Fowle   v.    Common    Council    of 

Alexandria  315 

Fowler  v.   Baltimore   and   Ohio 

R.  R.  Co.  376 

v.  Bell  388 

v.  Great  So.  T.  &  T.  Co.  195 

v.  Lamson  393 

v.  Ludwig  748 

Fowler's  Case  614 

Fox  i\  Allensville,  etc.,  T.  P.  Co.  263 

v.  Clifton  96 


SECTION 

Fox  v.  Horah  437 

v.  Seal  813,  817 

Fox's  Appeal  477 

Francis  v.  Dubuque,  etc.,  R.  R. 

Co.  360 

Franco-Texan  Land  Co.  v.  Laigle 

381,  382 

v.  McCormick  267,  312 

Frank  v.  Chemical  Nat.  Bank        672 

v.  Lanier  246 

v.  Morrison  582 

Frank's  Oil  Co.  v.  McCleary  587 

Frankford,  etc.,  Turnpike  Co.  v. 

Churchill  97 

v.   Philadelphia   and    Reading 
R.  R.  Co.  368 

Frankford  and  P.  Pass'r  R'y  Co. 

v.  Philadelphia  489 

Frankfort  Bank  v.  Johnson  338 

Franklin  Ave.   German  Savings 

Ins.  v.  Board  of  Education      276 
Franklin    Bank    v.    Commercial 

Bank  298 

Franklin  Branch  Bank  v.  Ohio      488 
Franklin  Bridge  Co.  v.  Wood  12 

Franklin  Co.  v.  Lewiston  Insti- 
tution for  Savings  267 
Franklin  Glass  Co.  v.  Alexander  546 
Franklin  Ins.  Co.  v.  Jenkins  626 
Franklin  Nat.  Bk.  y.  Whitehead  283 
Franz  v.  Teutonia  Building  Ass'n  146 
Fraser  v.  Ritchie  135 
Fiazier  v.  Railway  Co.  125 
Freeh  v.  Phila.,  W.  and  B.  R.  R.  Co.  376 
Freedle  i\  North  Car.  R.  R.  Co.  179 
Freehold,    etc.,     Association    v. 

Brown  504 

Freeland    v.   Pennsylvania    Cen- 
tral Ins.  Co.  147,  153,  537 
Freeman  v.  Alderson  394 
».  Machias  Water  Power  Co.       382 
v.   Minneapolis  and  St.  Louis 

R'y  Co.  170 

v.  Stine  702 

v.  Winchester  546 

Fremont  and  R'y  Co.  v.  Whalen    179 

French  v.  Andrews  668 

v.  Donohue  130,  146 

v.  Teschemacher  735 

Freon  v.  Carriage  Co.  599 

Freeport  Water  Co.  v.  Freeport  4766 

Frick  Coke  Co.  v.  Painter  178 

Fridley  v.  Bowen  302 

Friedlander  v.  Slaughter  House 

Co.  595 

v.  Texas,  etc.,  Ry.  Co.  201 

Frink  v.  Potter  375 

Fritts  v.  Palmer  302 

Fritee  r.  Equitable,  etc.,  Society  283 
Frost   v.  Domestic   Sewing   Ma- 
chine Co.  202 

851 


TABLE    OF    CASES. 


SECTION 

Frost  v.  Frosburg  Coal  Co.  146 

v.  Heslet  668 

Frost  Manufacturing  Co.  v.  Fos- 
ter 758 
Frothingham  v.  Barney  608 
Fry's  Ex'rs   v.   Lexington,  etc., 

R.  R.  Co.  513,  530,  531,  532 

Frye  v.  Tucker  125 

Fnl gam  v.  Macon,  etc.,  R.  R.  Co.  520 
Fuller  o.  Dame  162 

v.  Jewctt  365 

Fulton  Bank  v.  N.  Y.  and  Sha- 
ron Canal  Co.  236 
Fulton  B.  &  L.  Ass'n  v.  Greenlea  192 
Fuqua  v.  Brewing  Co.  309c 
Fur  man  v.  Nichol  507 
Fusz  v.  Spaunhorst  756 
Fyfe's  Case                                589,  748 


G. 


G.  C.  and  S.  F.  R'y  Co.  v.  Don- 

ahoo  173 

v.  Eddins  175a 

Gadsden  v.  Woodward  764 

Gaff  v.  Flesher  703,  749 

Gaffney  o.  Colville  690 

Gage  v.  Fisher  788,  790 

Gahogan  v.  B.  &  M.  R.  R.  Co.         374 
Gaines  v.  Union  Trans.  Co.  359 

Gainey  v.  Wilson  542 

Gains  v.  Coates  122 

Galbraith  v.  Building  Ass'n  599 

Galena,    etc.,    R.   R.   Co.  v.  En- 

nor  97,  121 

v.  Fay  376 

v.  Loomis  475 

v.  Rae  361 

Galigher  v.  Jones  599 

Gallagher  v.  Brewing  Co.  187 

Gallery   v.    National    Exchange 

Bank  640 

Galpin   v.    Chicago    and    N.    W. 

R'y  Co.  369 

Galvanized  Iron  Co.  v.  Westoby  110 
Galveston  City  Co.  v.  Sibley  595 

Galveston,    etc.,   R'y  Co.   v.   Al- 
lison 354 
v.  Gonzales  412 
Galveston  R.  R.  Co.  v.  Cowdrey  285, 
380,  381,  676,  815,  818 
v.  Texas  502 
Gamble  v.  Water  Co.     125,  522a,  558, 
5596,  628,  632 
Gandy  v.    Chicago    and    N.    W. 

R'y  Co.  368 

Gano  o.  Chicago,  etc.,  R'y  Co.        204 
Gans  r.  Switzer  768,770 

Garden     Gully    Mining    Co.     v. 

Mc  Taster"  190,547 

bo2 


SECTION 

Gardiner  v.  Butler  646,  647 

v.  Hamilton  Mut.  Ins.  Co.  536 

v.  London,  Chatham,  etc.,  R'y 

Co.  308 

v.  Minn.  &  St.  L.  Ry.  Co.  738 

v.  Pollard  690 

Garling  v.  Baechtel  738 

Garnett  v.  Richardson  100,  148,  739 
Garrat  Ford  Co.  v.  W.  M'f'g  Co.  401 
Garrett  v.  Burlington  Plow  Co. 

205,  759 
v.  Chicago  and  N.  W.  Railway 

Co.  368 

v.  Dillsburg,  etc.,  R.  R.  Co.  516,  517 

v.  Kansas  City  C.  M.  Co.  522a 

Garrison  v.  City  of  New  York       473 

v.  Howe  725,  728 

Garvey  v.  Long  Island  R.  R.  Co. 

165,  172 
Garwood  v.  Ede  104 

Gas  Co.  v.  Reis  627 

v.  Dairy  Co.  303 

v.  Downington  460 

Gashwiler  v.  Willis  181,  258 

Gaskell  v.  Chambers  629,  631 

Gaslight    Improvement    Co.    v. 

Terrell  750 

Gass  v.  Citizens'  Building  Ass'n   249 

v.  Hampton  795 

v.  New  York,  etc.,  R.  R.  Co.      364 

Gaston  v.  American  Exch.  Nat. 

Bank  797 

Gasway    v.    Atlantic,    etc.,    R'y 

Co.  377 

Gates  v.  Boston,  etc.,  R.  R.  Co.     454 
v.  Hooper  309c 

Gates,  Adm'r,  v.  Tippecanoe  Stone 

Co.  522c 

Gauch  v.  Harrison  728 

Gaylord    v.   Fort    Wayne,    etc., 

R.  R.  Co.  664 

Gear  v.  C.  C.  and  D.  R.  Co.  178 

v.   Dubuque   and  S.   C.   R.   R. 
Co.  162a 

Gearns  v.  Bowery  Sav.  Bank  199 

Gelpe  v.  Blake    '  746 

v.  City  or  Dubuque  318,  325, 

326,  328,  468 
Gem m ell  v.  Davis  600,  602 

General   Exchange  Bank  v.  Ear- 
ner 626,  629 
Genessee    S'v'gs    B'k  v.   Michi- 
gan Barge  Co.  285,  636 
Gennarr.  v.  Ives  767 
Gent  v.  Insurance  Co.                   86,  87 
George  v.  (iinning  Co.  395 
v.  St.  Louis,  etc.,  R'y  Co.  349 
v.  Somerville  303 
Georgia  Banking  Co.  v.  Smith      4766 
Georgia,  etc.,  R.  R.  Co.  v.  Stol- 

lenwerck  409 


TABLE    OF    CASES. 


SECTION 

Georgia  Co.  ».  Castleberry  667 

Georgia  Ice  Co.  v.  Porter  146 

Georgia  K.  R.  Co   v.  Gann  353 

v.  Smith  4766 

Georgia     Northern    R'y     Co.    v. 

Tifton,  etc.,  Ry.  Co.  460 

Georgia  Southern   R.   R.   Co.   v. 

Bigelow  395 

Gerhard  v.  Bates  103 

Germain  Fruit  Co.  ».  Cal.  So.  R. 

R.  Co.  362 

German,   etc.,  Building  Ass'n  v. 

Lindmeyer  598,  599 

German    Evangelical    Congrega- 
tion v.  Pressler  258 
German   Ins.    Co.    v.    First    Na- 
tional Bank                                  395 
German  Ins.  Co.  v.  Strahl  146 
German  Nat.  Bank  v.  Butchers', 

etc.,  Co.  311 

v.  First  Nat.  Bank        211,  668,  759 
v.  Farmers'  &  Merchants'  Bank  704 
German     Reformed     Church    v. 

Van  Puechelstein  137 

German   Security   Bank   v.    Jef- 
ferson 605 
Germania    Fire    Ins.    Co.    u.    M. 

and  C.  R.  R.  Co.  359 

Germantown,   etc.,   R.  R.    Co.  v. 

Fitler  547,  661 

Germantown  Farmers'  Mut.  Ins. 

Co.  v.  Dheim  276,  286 

Germantown    Pass'r   R'y    Co.  v. 

Brophy  374 

Gerry  v.  Bismarck  Bank  688 

Getty  u.  Devlin  82,  105 

Geyser  v.  Ins.  Co.  601 

Giavella  v.  Bigelow  725 

Gibbons  v.  Mahon  801 

v.  Ogden  4696  474a 

Gibbs  v.  Baltimore  Gas  Co.     298,  476 

v.  Davis  725 

v.  Queens  Ins.  Co.         392,  397,  398 

Gibb's  Estate  61 

Gibson  v.  American  Merchants' 

Un.  Exp.  Co.  354 

v.  Erie  R'y  Co.  366 

v.  Goldthwaite  225 

v.  Thornton  611 

v.  Trowbridge  Furn.  Co.  759 

Giesey  v.  Cincinnati  W.  and   C. 

R.  R.  Co.  163,  179 

Gifford  v.  New  Jersey  R.  R.  Co. 

547,  553,  555 

v.  Thompson  799 

Gilbert's  Case  586 

Gilbert  v.  Erie  Bldg.  Ass'n  795 

Gilbert  v.  Savannah,  etc.,   R.  R. 

Co.  167 

v.  Washington   City,  etc.,     R. 
R.  Co.  680 


SECTION 

Giles  v.  Hutt  546 

Gilnllan  v.  Union  Canal  Co.         816a 
Gilkey  v.  Paine  801 

Gilkie,  etc.,  Co.  ».  Gas  Co.  522c 

Gill  v.  Balis  228,  745,  780 

Gillen  v.  Sawyer  522c,  702 

Gilleuwater  ».  Madison,  etc.,  R. 

R.  Co.  350 

Gillett  v.  Bank  of  Missouri  342 

v.  Missouri  Valley  R.  R.  Co.       342 

Gillis  v.  Bailey  233 

Gill's  Adm'x  v.  Kentucky,  etc., 

Gold  M'g  Co.  383,  513 

Gilman,   etc.,   R.   R.   Co.  v.  Kel- 

ley  214,  638 

v.  Spencer  309 

Gilman  k.  City  of  Sheboygan         477 

o.  Gross  7026 

o.  Illinois,  etc.,  Tel.  Co.  820 

v.  Ketcham  690 

v.  Philadelphia  474c 

v.  Sheboygan,  etc.,  R.  R.  Co,      415 

Gil  more  v.  Mittineague  Co.  210 

Gilpin  v.  Howell  794 

Gilson  v.  Jackson  County  Horse 

R'y  Co.  350 

Ginn  u.  New  England  Mortgage 

Co.  400 

Ginrich  v.  Patrons'  Mill  Co.  540 

Girvin  v.  N.  Y.  C.  &  H.  R.  R.  Co.  338 
Gladson  v.  Minnesota  474cZ 

Glass  Co.  v.  Vary  724 

Gleason  v.  Goodrich  Trans.  Co.     355 
Gleaves  v.  Brick  Church  Turn- 
pike Co.  108 
Glen  o.  Saxton                                  709 
v.  Williams                             661,  737 
Glen  Iron  Works,  In  re            701,  703 
Glenn  v.  Garth                                   700 
Glenn  v.  Liggett                                 709 
v.  Marbury                                       709 
Glenwood  Mfg.  Co.  v.  Syme           634 
Gloucester    Ferry   Co.    v.  Penn- 
sylvania                                   4746 
Glover  v.  Lee                            238,  668 
Godbold  v.  Branch  Bank  of  Mo- 
bile                                             620 
Goddard  v.  Crefeld  Mills                 401 
v.  Grand  Trunk  Railway     347,  378 
v.  Merchants'  Exchange               683 
Godfrey  v.  Terry                               7:56 
Goff  v.  Great  Northern  R'y  Co.      344 
v.  Hawkeye  Pump  Co.                  701 
Gogebic  Inv.  Co.  v.  Iron,  etc.,  Co.  702 
Gold    Mining    Co.    v.    National 

Bank  216,  301 

Golden   Gate    M'g   Co.    ».  Supe- 
rior Court  143 
Golden  Rule  v.  People                      547 
Goldey  v.  Morning  News                 398 
v.  Pennsylvania  R.  R.  Co.            353 

853 


TABLE    OF    CASES. 


SECTION 

Gooch  v.  McGee  105 

Goodin  v.  Cincinnati,  etc.,  Canal 

Co.  276,  559,  613,  027,  640 

v.  Evans  270 

Goodlett   v.  Louisville,  etc.,   K. 

R.  409 

Goodnow  v.  Oakley  204,  238 

Goodrich  v.  Reynolds  146,  163 

v.  Thompson  363 

Goodspeed      v.     East     Had  den 

Bank  338,  342 

Goodwin  v.  Colorado  Mortgage 

Co.  401 

v.  Hardy  561 

v.  McGehee  656,  701 

v.  Union  Screw  Co.  249 

Goodyear  Dental  Vulcanite  Co. 

v.  Caduc  616 

Goodyear  Rubber  Co.  v.  George 

D.  Scott  Co.  759 

Goold  «.  Chapiu  360 

Gordon  v.  Lea  Fire  Ins.  Co.  205 

v.  Manchester,  etc.,  R.  R.  361 

v.  Muchler  196,  583 

v.  Preston  260 

v.  Richmond,  etc.,  R.  R.  Co. 

562,  565,  571 

v.  Swan  187 

v.  Tax  Court  488 

v.  Winchester  Building  Ass'n    461 

Gores  v.  Day  616 

Gorman     v.     Guardian     S'v'gs 

Bank  546 

v.  Pacific  Railroad  475 

Goshen  Nat.  Bnnk  v.  Bingham  244 
Goshen,  etc.,    Turnpike  Co.    v. 

Hurtin  516,  546 

Gottfried  v.  Miller  567 

Gottschalk  v.  C.    B.  and    Q.  R. 

R.  Co.  175a 

Gottlieb  v.  Miller  759 

Gould  v.  Town  of  Oneonta  519 

Gouldie  v.  Northampton  Water 

Co.  276,  303 

Goulding  v.  Clark  575,  667 

Gover's  Case  83 

Govick  v.  Atl.  Coast  Line  R.  R. 

Co.  342 

Gowen  Marble  Co.  v.  Tarrant  249 
Gowen  v.  Penobscot  R.  R.  Co.  495 
Gower's  Case  548 

Grace  v.  Adams  351,  359 

Gradin  v.  St.  Paul,  etc.,  R'y  Co.  372 
Graff  v.  Pittsburg  and  Steuben- 

ville  R.  R.  Co.   101,  521,  587,  779 
Graylin  Co.  v.  Woodside  601 

Grafton  and  G.   R.   Co.  v.  Fore- 
men 179 
Graham  v.  Birkenhead  R'y  Co.      556 
v.  Boston,  etc.,  R.  Co.          405,  409 
630,  678 
854 


SECTION 

144 

302 

34,  651 

328 


Graham  v.  Mutual  Aid  Soc. 
r.   National  Bank 
v.  Railroad  Co. 
(.raud  Chute  p.  Wiuegar 
Grand  Gulf  Hank  v.  Archer 
Grand  Gulf  R.   R.    Co.  v.  State 

of  Mississippi 
Grand   Rapids  Booming    Co.    v. 

Jarvis 
Grand  Rapids  Bridge  v.  Prange 
Grand  Rapids,  etc.,  R.   R.  Co.  v. 
Cameron 
v.  Heisel  171,  171a 

Grand  Rapids    Savings    B'k    v. 

Warren  501,  715 

Grand  Tower  M'fg,   etc.,  Co.  v. 

Ullruan  170,  360 

Grand  Trunk  R'y  Co.  v.  Cum- 
in ings  366 
Granger  v.  Grubb  184,  578 
v.  Original  Empire  Mill  Co.  261 
Grangers'  Ins.  Co.  v.  Turner  523 
Grangers'  Life,  etc.,  Co.  v.  Kam- 


298 

503 

173 
156 

374 


fer 

Granite  Co.  v.  Mulliken 
Grant  v.  Attrill 

v.  Henry  Clay  Coal  Co. 

v.  So.  Contract  Co. 
Grant,  Assignee  v.  Ross 
Grape  Sugar  M'fg  Co.  i 


133,  541 

210 

697 

280,  303 

708 

108 

Small 

90,  214 

Gratz  v.  Redd  757 

Gravensteine's  Appeal  553 

Graves  v.  Adams  Exp.  Co.  356 

Graves  v.  Hartford,  etc.,  Steam- 
boat Co.  360 
v.  Lake  Shore,  etc.,  R.  R.  Co.     356 
v.  Mono  Lake  Mining  Co.  628 
v.  Saline  Co.  325 
Gray  v.  Chaplin  556 
501,  764,  783 
363 
142,  436 


v.  Coffin 
v.  Jackson 
v.  Lewis 


v.  National  Benefit  Assoc.  197 

v.  National  Steamship  Co.  657 

v.  Portland  Bank  569 

Grayville  and  Mattoon  R.  R.  Co. 

v.  Burns  258 

Great  Luxembourg    R'y  Co.  v. 

Magnay  631 

Great  Northern  R'y  Co.  v.  Ken- 
nedy 546 
Great    Western      Min.     Co.     v. 

Woodmas,  etc.,  Co.  143 

Great  Western  R'y  Co.  v.  Miller    193 

Great  Western  Tel.  Co.,  Re,  193 

v.  Gray  522,  522a,  542,  709 

v.  Loewenthal  521 

Greaves  v.  Gough  688,  690 

Greeley  v.  Nashua  S'v'gs  Bk.         161 

Greely  v.  Smith  435 


TABLE    OF    CASES. 


SEOTIOV 

Green  v.  Biddle  500 

v.  Kemp  300 

v.  Life  Assn.  397 

v.  London  Omnibus  Co.  338 

v.  Neal's  Lessee  468 

v.  St.  Alban's  Trust  Co.  460 

v.  Smith  800 

v.  Sprague  M'f'g  Co.  189 

v.  Walkill  Nat.  Bank  432 

v.  Williams  394 

v.  Woodland  Ave.  St.  R.  R.  Co.  425 
Green   Bay  and  Min.   R.   Co.  v. 

Union  Steamboat  Co.        120,  308 
Greenbriar    Industrial  Exp.     v. 

Oelieltree  518 

Green  County  t>.  Conness  318,  424 
Greenfield  Savings  Bank  v.  Si- 
mons 629,  630,  631 
Greenleaf  v.  B'd  of  Review  477a 
v.  Norfolk  Southern  R.  R.  Co.  211 
Green  Mountain,  etc.,   Turnpike 

Co.  v.  Bulla  599 

Greenpoint  Sugar  Co.  v.  Wbitin 

185,  300 
Greensboro,  etc.,T.  Co.  v.  Strat- 

ton  647 

Greensburg,    etc.,    Co.    v.    Mc- 

Cormick  238 

Greenville  Co.  v.  Planters'  Press  227 
Greenwood  v.  Freight  Co.  504,  505 
Greer  v.  Chartier's  R'y  Co.  551 

Gregg    v.    Granby     Mining     & 

Smelting  Co.  577 

Gregory  v.  German  Bank  764 

v.  Lamb  201 

Grenada  County   Supervisors  ». 

Brogden  325,  329 

Grennell  v.  Detroit  Gas  Co.  657 

Gresbam  Life  Assur.  Soc,  In  re  589 
Grew  v.  Breed  714,  724,  726 

Gridley  v.    Lafayette,    etc.,    R'y 

Co.  647 

Griffin  v.  Kentucky  Ins.  Co.  464 

Griffith  v.  Chicago,  etc.,  R'y  Co.  236 
v.  Man  gam  706 

v.  Griffin  Iron  Co.  649 

Grindle  v.  Stone  713 

Grinnell  v.  Western  Un.  Tel.  Co.  357 
Grisewood  &  Smith's  Case  720 

Grissell's  Case  731 

Griswold  v.  Haven  208 

v.  Peoria  University  108 

v.  Seligman  720,  741 

Groff's  Appeal  163a 

Gross  v.  United  States  Mort- 
gage Co.  325,  450 
Grosse  Isle  Hotel  Co.  v.  I'Anson  517 
Grosvenoru.  N.  Y.  C.  R.  R.Co.  360 
Grubb  v.  Mahoning  Nav.  Co.  511 
Gruber  v.  R.  R.  Co.  338 
Grund  v.  Tucker                      725,  737 


SECTION 

Guaga  Iron  Co.  v.  Dawson  384 

Guarantee  Co.  v.  East  Rome  Co.  798 


Guckert  v.  Hache 
Gue  v.  Tide  Water  Canal  Co 
Guerney  v.  Moore 
Guernsey  v.  Coal  Co. 

v.  Cook 
Gulf,  etc.,  R'y  Co.  v.  Ellis 

v.  Morris 
Guild  v.  Parker 
Guilford  v.  Western  Union  Tel. 

Co.  391,  392 

Guinavlt  v.   Louisville,  etc.,   R. 

R.  Co. 
Guinn  v.  Iowa  Cent.  R'y  Co. 
Gulf,  etc.,  R'y  Co.  v.  State 
Gulf  &  Ship  I.  R.  R.  Co.  v.  Hewes 


739 
671 

393,  737 
236 

580,  788 
475 
304 
628 


409 
412 
309 


489 
493 
130 

87 


Gunn  v.  Barry 

v.  Central  Railroad 

v.  London,  etc.,  Fire  Ins.  Co. 
Gunnison   Co.    Com.   v.    Rollins 

321,  330 
Gunster  v.  Scranton  Co.  210 

Gurner  v.  Mosher  696 

v.  Yates  696 

Guy  ».  Baltimore  474a,  474b,  480,  485 


H. 


Hacheny  v.  Leary  400 

Hackensack  Water  Co.  v.  De  Kay 

153,  189,  251,  253,  815 
Hackett  v.  Ottawa  330 

Hackney   v.    Allegheny    County 

Mut.  Ins.  Co.  201 

Hacock  v.  Sherman  734 

Hadd  v.  U.  S.  and  Canada  Exp. 

Co.  363 

Haddock  v.  Citizens'  Nat.  Bank  195 
Hadden  v.    Farmers',    etc.,    Fire 

Ass'n  264 

Iladen  v.  Linville  236,  392 

Iladly  v.  Freeman's  Savings  Co.    813 

v.  Russell  704,  783 

Hagar  v.  Reclamation  Dist. 

469a,  492a 
v.  Union  Nat.  Bank  602 

Hagerman  v.  Empire  Slate  Co.  402 
Ilagerstown  M'f'g  Co.  v.  Keedy  642 
Hahn  v.  Brewing  Co.  127 

Hahnemannian     Life    Ins.     Co. 

v.  Beebe  137 

Haigb  v.  Brooks  93 

Haldeman  v.  Ainslie  701 

Hale  v.  Frost  822 

v.  Lewis  400a 

v.  Republican  River  Bridge  Co.  692 

v.  Sanborn  518 

v.  Walker  714 

855 


TABLE    OF    CASKS. 


SECTION 

Hall  v.  Auburn  Turnpike  Co.  20'.),  231 
v.  Bank  204,  303 

v.  Cheney  353 

v.  DeCuir  474c 

v.  Goodnight  627 

v.  Henderson  552 

v.  Mayor,  etc.,  of  Swansea  311 

v.  Mobile,  etc.,  R'y  Co.        263,  818 
v.  Paris  672 

v.  Rose  Hill,  etc.,  Co.  589 

v.  Selma,  etc.,  R.  R.  Co.      522,  529 
v.  U.  S.  Ins.  Co.  587 

v.  Vermont,  etc.,  R.  R.  Co.  86,  647 
v.  Wisconsin  450 

Hall's  Case  105,  134,  549 

Hall  &  Co.  v.  Klinck  725 

Hall  &  Farley,  Trustees,  v.  Hen- 
derson 660 
Hall  M'f'g  Co.  v.  American,  etc., 

Supply  Co.  276 

Hallam  v.  Indianola  Hotel  Co.      634 
Halliday  v.  St.   Louis,    etc.,  R'y 

Co.  364 

Halsey  v.  McLean  764 

Halstead  v.  Mayor,  etc.,  of  New 

York  295 

Ham   v.    Wisconsin,    I.    and    N. 

R'y  Co.  178 

Hamilton  v.  Annapolis,  etc.,   R. 

R.  Co.  163,  164 

v.   Grangers'    Life,    etc.,    Ius. 

Co.  523 

v.  Keith  453 

».  New  Castle,  etc.,  R.  R.  Co.     125 

v.  Railroad  Co.  665 

v.  Vicksburg  S.  and    P.    R.  R. 

Co.  162a,  167,  174 

Hamilton  Co.  v.  Massachusetts     482 

Hamilton,  etc,,  Plank  Road  Co. 

v.  Rice  91 

Hamilton  Gas  Light  Co.  v.  Ham- 
ilton City  497 
Hamilton  Mut.  Ins.    Co.  v.  Ho- 

bait  536 

Hamilton  Tr.  Co.  v.  Clemes  676 

Hamlin  v.  European,    etc.,  R.  R. 

Co.  817 

Hamlin  o.  Jerrard  427,  676,  817 

v.  Brass  Co.  258 

Hammett  v.    Little   Rock,   etc., 

R.  R.  Co.  529 

Hammond  v.  Hastings  603 

v.  Port  Royal,  etc.,  R.  R.  Co.      415 
v.  Straus  738 

Hammond  Beef  Co.  v.  Best    395,  480 
Hampson  v.  Price's  Patent  Can- 
dle Co.  229 
Hancock  v.  Chicot  County  319 
Hancock  Compt  v.   Singer  Mfg. 

Co.  461,  477 

v.  Holbrook  130,  182,  009,  657 

856 


SECTION 

Hancock  Mut.  L.  I.  Co.  v.  War- 
ren 400a 
Hancock  Nat.  B'k  v.  Ellis  393 
v.  Fainum  393 
Hand   v.    Savannah,  etc.,    R.    R. 

Co.  818,  825 

Hand  Gold  M'g  Co.  v.  Parker        163 
Handley  v.  Stutz  184,  382,  5226, 

702a,  7026 
Handy  v.  Diaper  723,  724,  736 

Hanick  v.  Wardwell  718 

Hanlin  v.  Chicago,  etc.,  R'y  Co.    173 
Hanna    v.    Cincinnati,    etc.,    R. 

R.  Co.  536 

v.  International  Pet.  Co.  384 

Hanney  v.  Standard  Theatre  Co.  688 

Hannibal  and  St.  Jo.  R.  R.  Co. 

v.  Marion  Co.  325 

v.  Martin  210 

v.  Muder  163 

Hannibal,  etc.,  Plank  Road  Co. 

v.  Menefee  529 

Hannibal  R.  R.  Co.  v.  Swift  350 

Hanover  Bank  v.  Dock  Co.  216 

Hanover    Junction,   etc.,    R.    R. 

Co.  v.  Haldeman  529 

Hanson  v.  Davidson  726 

v.  Donkersley  715 

v.  European,  etc.,  K.  Co.  347 

v.  Hurd  240 

v.  Vernon  319 

Hardenburgh   v.  Farmers',  etc., 

Bank  574 

Harding  v.  Chicago,  etc.,  R.  R. 

Co.  395 

v.  Am.  Glucose  Co.  140,  309c 

Ilardon  v.  Newton  610 

Hards  v.  Plate  Valley  Imp.  Co.       96 

Hardware  Co.  v-  Manufacturing 

Co.  668 

v.  Milling  Co.  703 

Hardy  v.  Boom  Co.  237 

v.  Chesapeake  Bank  672 

v.  Merriweather  125 

v.  Metropolitan  Land  Co.  314,   656 

v.  Norfolk  M'f'g  Co.  729 

Hardy  v.  Sweigant  105 

Hare   v.    London  and  N.   W.  R. 

R.  Co.  308,  597 

Barger  v.  McCullough  715 

1 1  ai  proves  v.  Chambers  765 

Harkreader  v.  Turnpike  Co.  489 

Harman  v.  Page  703,  709 

Harmon  v.  Hunt  703 

Ilarpending  v.  Munson  633 

Harper  v.   Indianapolis,  etc.,  R. 

R.  Co.  365 

Harper  v.   Newport  News,  etc., 

Co.  170 

v.  Union  M'f'g  Co.  713,  725 

Harpold  v.  tttrobart  720 


TABLE    OF    CASES. 


SECTION 

Harrington  v.  Connor  187,  814 

v.   St.    Paul,  etc.,    R.  R.  Co.  175a 
Harris  v.  Am.  B  &  L.  Ass.      210,  240 
v.  First  Parish  721 

v.  Gateway  Land  Co.    145,  703,  709 
v.  McGregor  451 

v.  Mississippi  Valley,  etc.,  R. 

R.  Co.  432,  459 

v.  Muskingum  M'f'g  Co.  187 

v.  North  Devon  R'y  Co.  692 

v.  Roberts  162 

».  Runnels  297 

v.  Scott  788 

Harris1  Case  234 

Harrison  v.  Mexican  R'y  Co.  572 

v.  Missouri  Pac.  R.  R.  Co.  193 

v.  Timmins  58 

Harrison's  Case  101,  586,  749 

Harrell  v.  Blount  706 

Harrow  Co.  v.  Bement  309c 

Harshman  v.  Bates  County    323,  324 

Hart  v.  Boston,  etc.,  R.  R.  Co.       409 

v.  Direct  U.  S.  Cable  Co.  373 

v.  Frontino,  etc.,  Mining  Co.       597 

v.  Missouri  State  Ins.  Co.  204 

v.  Pennsylvania  R.  R.  Co.  356 

v.  Rensselear,  etc.,  R.  R.  Co.      364 

v.  St.  Charles  St.  R.  R.  Co.  569 

v.  Western  Un.  Tel.  Co.  357 

Hart's  Appeal  750 

Harter  v.  Eltzroth  793 

v.  Kernochan  324 

v.  Mechanics  Nat.  Bank  672 

Hartford   and   N.   H.   R.   R.  Co. 

v.  Boorman        586,  587,  719,  747 

v.  Croswell  531,  782 

v.   New  York  and  N.    II.    R. 

R.  Co.  308,  309 

Hartford  Bank  ».  Barry  239 

v.  Hart  187 

Hartford   Bridge   Co.    v.    Union 

Ferry  Co.  453 

Hartford    Fire   Ins.    Co.  v.  Ray- 
in  ons  401 
Hartford  Ins.  Co.  v.  Chicago  Ry. 

Co.  352 

Hartford  Ry.  Co.  v.  Wagner         162a 
Hartman  v.  Insurance  Co.  787 

Hartridge  v.  Rockwell  135 

Harts  v.  Brown  632,  634 

Hartshorne  v.  B.  C.  R.  and  N.  R. 

Co.  178 

Harvey  v.  Improvement  Co.  788 

v.  Terre    Haute,    etc.,    R.    R. 

Co.  356 

v.  Thomas  163 

v.  Lackawanna  R.  R.  Co.  178 

Har ward's  Case  614 

Hascnritter  v.  Kirchoffer  146 

Haskell  v.  Oak  701 

v.  Sells  •  94,  97 


SECTION 

Haskell  v.  Worthington  518,  523 

Haslet  v.  Wortherspoon  703 

Hasselman  v.  United  States  M'f'g 
Co.  813 

Hastings  v.  Brooklyn  L.  I.  Co.       201 
v.  Drew  737 

Hastings  and  G.  I.  R.  R.  Co.  v. 
Ingalls  175a 

Hastings    Malting    Co.  v.    Iron 

Range  Co.  522c,  702,  7026 

Hatch  v.  Attrill  774 

v.  Burroughs  713,  715 

v.  Coddington  192 

v.  Dana  703,  705,  706 

«.  Vermont  Central  R'y  Co.        178 
v.  Western  Union  Tel.  Co.  568 

Hatcher  v.  Toledo,  etc.,  R.  R.  Co.  415 

Hathaway  v.  Toledo,  etc.,  R.  R. 

Co.  376 

Hauley  v.  Upton  511,  587 

Hause  v.  Manuheimer  738 

Hauser  v.  Davison  714 

v.  Tate  755 

Havemeyer  v.  Havemeyer  580 

v.  Iowa  County  318,  325,  468 

v.  Superior  Court  504 

Haven  v.  Grand  Junction  R.  R. 

Co.  679 

Hawes  v.  Anglo-Saxon  Pet.  Co.     146 
v.  Oakland  139,  140,  141,  554 

Hawken  v.  Bourne  311 

Hawkins  v.  Furnace  Co.  736 

v.  Citizens  Ins.  Co.       518,  521,  701 
v.  Glenn  138,  709 

v.  Hoffman  355 

v.  Maltby  791 

Ilawley  v.  Hurd  480 

v.  Fairbanks  333 

Hawtayne  v.  Bourne  312 

Hawthorne  v.  Calef        450,  501,  665, 

714,  762 

Ilaxtun  v.  Bishop  668 

Hayden  v.  Davis  298 

v.  Middlesex  Turnpike  Co.  187,  249 

Hayes  v.  Beardsley  759 

Hayner    ».    American    Popular 

Life  Ins.  Co.  236 

Haynes  v.  Brown  511 

v.  Covington  286 

Hays  ».  Citizens'  Bank  759 

v.  Commonwealth  577 

v.  Holly  Springs  320 

v.  Houston,  etc.,  R.  R.  Co.  378 

v.  Michigan  Cent.  R.  R.  Co.         475 
v.  Miller  374 

v.  Ottawa,  etc.,  R.  R.  Co.    179,  529 

Hayward  v.  Davidson  128 

v.  Leeson  84a 

v.  Rogers  794 

Haywood    v.    Lincoln     Lumber 
'  Co.  756,  759 

857 


TABLE    OF    CASES. 


SECTION 

Ilaywood,  etc.,  Plank  Road  Co. 
o.  Bryan  516 

Hazard  i:  Durant  629,  688,  693 

Hazeltine  d.  Railroad  Co.  5ti4 

Eazen  v.  Boston  and  Maine  R.  R. 

Co.  162a,  344 

Hazelhurst    v.    Savannah,    etc., 

II.  l;.  Co.  214,  309,  571,  572 

Hazelton  Boiler  Co.  v.  llazelton 

T.  B.  Co.  137 

Head  u.  Providence  Ins.  Co.   114,  253 

Head  Money  Cases  4746 

Heald  V.  Owen  739 

Healey  v.  Story  753 

Heard  i:  Eldridge  799,  800 

v.  N.  Y.  C,  etc.,  Co.  657 

v.  Sibley  737 

Health  v.  Barmore  436,  437 

v.  Erie  R'y  Co.  560,  688 

v.  Missouri,  etc.,  R.  R.  Co.  170,  432 

v.  Silverthorn  Lead  M'g  Co.       189 

Hebbard    c.    So.    West   Land    & 

Cattle  Co.  636,  679,  7026 

Hebdy's  Case  720 

Hedges  v.  Hudson   River  R.   R. 

Co.  360 

v.  Paquett  687 

o.  Superior  Court  143 

Heffner  v.  Brownell  752 

Heggie  v.  Building  Assoc.  137 

Heims  Brewing  Co.  v.  Flannery    277 
Heine  v.  Pollak  193 

Heinigw.  Adams,  etc.,  M'f'g  Co.   146 
Heinze  v.   South  Green  Bay  L. 

Co.  189 

Helfrich  v.  Williams  336 

Heller  v.  Marine  Bank  786 

Helm  d.  Swigprett  589,  599 

Helwege  v.  Hibernia  Nat.  Bank    245 
Heman  ».  Britton  437 

Hemingway  v.  Hemingway  627 

Hemstad  v.  Hall  542 

Hendee  v.  Pinkerton  225 

Henderson,  Ex  parte  586,  747 

v.  Indiana  T.  Co.  668,  759 

v.  Louisville,  etc.,  R.  R.  Co.  355 
p.  Mayor  of  New  York  474a,  4746 
D.  Railroad  Co.  342,  523 

Henderson   Bridge  Co.   v.    Hen- 
derson City  485 
Henderson,    etc.,    R.    R.    Co.    v. 

Dickerson  178,  179 

Hendricks  v.  Sixth  Ave.   R.   R. 

Co.  347 

Hendrix  v.  Academy  of  Music 

518,  521 
Henkle  v.  Salem  M'f'g  Co.  741 

Hennessy,  Ex  parte  740 

Henning  r.   United   States   Ins. 

Co.  253 

Hennington  v.  Georgia  475 

858 


SECTION 

Henry  v.  Dubuque  and  P.  R.  R. 

Co.  178 

v.  Elder  138 

v.  Great  Northern  R'y  Co.  564 

v.  Jackson  619 

v.  Lake  Shore,  etc.,  R'y  Co.        366 
v.  Northern  Bank  210,  236 

v.  Rutland,  etc.,  R.  R.  Co.  647 

Henshaw    v.    Bank    of   Bellows 

Falls  676 

Hepburn  v.  Griswold  476 

v.  School  Directors  484 

Hercules  Iron   Works  v.   Elgin, 

etc.,  R'y  Co.  166 

Hereford  Wagon  Co.,  In  re  88 

Herrick  v.  Wardwell  748 

Herring   v.    N.     Y.,    etc.,    R.    R. 

Co.  430,  815 

Herron  v.  Vance  436 

Hersey  v.  Veazie  615,  655 

Hestonville,    etc.,    R.    R.   Co.    v. 

Philadelphia  162a 

Heuen  v.  Baltimore,  etc.,  R.  R. 

Co.  407 

Heuer  v.  Carmichael  739 

Hewett  v.  Swift  344,  752 

Hewett's  Case  614 

Hibbard  v.  N.  Y.  and  Erie  R.  R. 

Co.  348 

v.  West.  Un.  Tel.  Co.  357 

Hibernia  Fire   Engine   i\   Harri- 
son 583 
Hibernia  Ins.   Co.  v.  St.   Louis, 

etc.,  Trans.  Co.  657 

Hickens  v.  Congreve  82 

Hickling  ».  Wilson  701,  704,  738 

Hicks  v.  Hinde  753 

b.    International,     etc.,    R.    R. 
Co.  170 

Heironimus  v.  Sweeney  270 

Higgins    v.     Hannibal    and    St. 

Jo.  R.  R.  Co.  349 

v.  Hayden  672 

v.  Hopkins  76 

v.    Jeffersonville,    etc.,    R.    R. 

Co.  376 

v.  Lansingh  612,  627,  633 

v.   New   Orleans,    etc.,    R.    R. 

Co.  353 

v.   Three   Hundred    Casks    of 
Lime  480,  485 

Higgins  Co.  v.  Higgins  Soap  Co.    137 
Highland  Ave.,  etc.,  R.  R.  Co.  v. 

Robbins  371 

Hightower  v.  Mustian  668 

v.  Thornton  437,  703 

Hill,  Ex  parte  628 

v.  Beach  148 

v.  Boston  335 

v.  Frazier  627,  775 

v.  Jewett  Pub.  Co.  591 


TABLE    OF    CASES. 


SECTION 

Hill  c.  Lumber  Co.  759 

v.  Memphis  320 

v.  Merchants'  Ins.  Co.  703 

v.  Mining  Co.  260 

v.  Newichawanick  Co.  798 

v.  Nisbet  130,  629,  632 

v.  Pine  River  Bank  606 

v.  Rockingham  Bank  599 

v.  Standard  Tel.  Co.  759 

v.  Syracuse,  etc.,  R.  R.  Co.         359 
HilFs  Case  310,  716 

Hiller  v.  Burlington,  etc.,  R.  R. 

Co.  398 

Hilles  o.  Parish  381,  581 

Hilliard  v.  Goold  204,  216 

Hillier  v.  Allegheny  Mut.  Ins.  Co.  731 
Hill   M'f'g    Co.    v.    Boston    and 

L.  R.  R.  Co.  363 

Hills  v.  Exchange  Bank  484 

v.  Parish  688 

Hillyer  v.  Overman   Silver  M'g 

Co.  258 

Hinchman     v.    Paterson    Horse 

R'y  Co.  175 

Hinchley  v.  Cape  Cod  R.  R.  Co.     376 
v.  Chicago,  etc.,  R'y  Co.      377,  378 
Hincks  v.  Converse  145 

Hinds  v.  Barton  368 

Hines  v.  Wilmington,  etc.,  R.  R. 

Co.  387 

Hirschfeld  v.  Fitzgerald  720 

Hirschfield  v.  Central  Pac.  R.  R. 

Co.  360 

Hirshfield  v.  Bopp  724 

Hitch  v.  Hawley  431,  611 

Hitchcock's     Heirs     v.     IT.     S. 

Bank  298,  387,  388 

Hitchens  v.  Kilkenny  R'y  Co.  86,  724 
Hite  v.  Hite  800 

Hitte  v.    Republican   Valley   R. 

R.  Co.  170 

Hoadley  v.  Northern  Trans.  Co.    351 

Hoag  v.  Lamont  210,  248,  770 

Hoagland  v.  Bell  737,  740 

v.  Cincinnati,  etc.,  R.  R.  Co.       512 

v.  Hannibal  and  St.  Jo.  R.  R. 

Co.  308 

Hoard  v.  Chesapeake,  etc.,  R'y 

Co.  415 

v.  Wilcox  717 

Hoare's  Case  645 

Hobart  ».  Do  veil  625 

v.  Milwaukee  City  R.  R.  Co.        175 

Hoboken      Building     Ass'n      v. 

Martin  159 

Hockett  v.  State  357,  475 

Hodge  v.  First  Nat.  Bank        236,  241 
Hodges  v.   Baltimore  Passenger 

R'y  Co.  175 

v.  New  England  Screw  Co.        623, 

690,  691 


SECTION 

Hodges  v.   Rutland,  etc.,  R.  R. 

Co.  236,  647 

v.  Silver  Hill  M'g  Co.  722 

Hodges  Distillery  Co.,  In  re  787 

Hodgkinson  r.  Kelley  791 

v.  Nat.  Live  Stock  Ins.  Co.        622 

Hodgson  v.  Cheever  714 

v.  Duluth,  etc.,  R.  Co.  382 

v.  So.  Bldg.  Ass'n  392 

Hoey  v.  Henderson  531 

Hoff  v.  Jasper  Co.  321,  332 

v.  West  Jersey  R.  R.  Co.  366 

Hoffman  u.  Hancock  Mut.  Life 

Ins.  Co.  201 

Hoffman     Steam     Coal    Co.    v. 

Cumberland  Coal  Co.  210 

Hoge  v.  Railroad  Co.  489 

Holbert  v.  St.  L.   K.  C.  and  N. 

R.  Co.  386 

Holbrook      v.    Fauquier,     etc., 

Turnpike  Co.  253,  589 

v.  Ford  394 

v.  New  Jersey  Zinc  Co.        598,  795 

Holcomb's     Ex'r    v.     Managers 

N.  H.  D.  B.  Co.  260 

Holden   o.  Fitchburg  R.  R.  Co.  366 
v.  Hoyt  263 

Holder  v.    Lafayette,    etc.,    R'y 

Co.  647 

Holladay  u.  Kennard  350,  351 

».  Patterson  162,  309 

Holland  v.  Heyman  759 

v.  Iron  Co.  737 

v.  Lewiston  Falls  Bank  647 

Holland  Tr.  Co.  v.  Houston  Elec. 

Co.  680 

Hollingshead  v.  Woodward  432 

Hollins  15.  Biierfield  Coal  Co.  34,  62, 

651,  663 

Hollister  v.  Hollister  Bank  708 

v.  Nowlen  351,  359 

v.  Stewart  816a 

Hollister  Bank,  Matter  of  727 

Holly  v.   Atlanta    Street   R.    R. 

Co.  347 

Holman  v.  State  459,  518 

Holmes,  Ex  parte  135,  136,  578 

Holmes  v.  Board  of  Trade  202 

v.  Carolina  Cent.  R.  R.  Co.  377 

v.  Higgins  81 

v.  Holmes  M'f'g  Co.  137,  158 

v.  Sherwood  703,  704 

v.  Wakefield  344 

v.  Willard  622 

Holmes,     etc.,     M'f'g     Co.     v. 

Holmes,  etc.,  Metal  Co.  130,  434 

nolsnpple  v.  Rome,  etc.,  R.  R.  Co.  353 

Holt  ».  Bacon  241 

v.  Bennett  632 

Hoi  yoke  Bank  v.  Burnham  589, 

719,  741 

859 


TABLE    OF    CASES. 


SECTION   I 

ITolyoke  v.  Goodman  Paper  Co. 

737,  740 
Holyoke      Building     Assoc,    v. 

Lewis  583  ' 

Holyoke  Co.  v.  Lyman  502  j 

Home  Ins.  Co.  v.  City  Council       489  I 
v.  Davis  383,  400  ; 

Home  Mining  Co.  v.  McKibbin      140 
Home     of     tbe     Friendless     v. 

Rouse  488 

Home   Stock  Ins.    Co.    v.  Sher- 
wood 516,  537 
Homes  ».  Dana  92 
Hood  v.  New  York   and  N.   H. 

R.  R.  Co.  338,  362 

Hooper  v.  Rossiter  800 

v.  Savannah,  etc.,  R.  R.  Co.        178 

Hoosier  Co.  i\  McCain  365 

Hooven  Mercantile  Co.  v.  Evans 

Mining  Co.  759 

Hopcroft  y.  Parker  76 

Hope    v.  International    Financ- 
ial Societv  134,  608 
v.  Valley  City  Salt  Co.  633 
Hope    Mut.    Fire    Ins.      Co.     v. 

Beckman  227,  557 

Hope  Mut.   Life  Ins.  Co.  v.  Per- 
kins 125 
Hopkin  v.  Buffum                             578 
Hopkins  v.  Atlantic,  etc.,  R.  R. 

Co.  377 

v.  Gallatin  Turnpike  Co.  668 

v.  Mehaffy  753 

v.  Taylor  417 

v.  U.  S.  309a 

v.  Western  Pac.  R.  R.  Co.  344 

Hopkins  and  Johnson's  Appeal     759 

Hopkins  Trusts,  In  re  800 

Hopper  v.  Covington  329 

Hoppin  v.  Buffum  578 

Hopson     v.    .<Etna     Axle,    etc., 

Co.  225 

Horn  r.  Agricultural  Soc.  336 

v.  Chicago,  etc.,  R.  R.  Co.  475 

Horn  Silver   Mining  Co.  v.  New 

York  479 

v.  Ryau  624 

Hornblower  v.  Crandall  103 

Home  Nat.  Bank  v.  Waterman       1S7 
Hornor  v.  Henning  775 

Hornstein  v.  Atlantic,  etc.,  R.  R. 

Co.  178,  179 

Horton  v.  Wilder  577 

Hosher  v.   Kansas  City,  St.  Jo., 

etc.,  R.  R.  Co.  179 

Hospes   v.    Northwestern    M'f'g 

Co.  5226,  702a,  7026 

Hotchkiss  v.  Artisans'  Bank  103 

Hotel  Co.  v.  Schram  130,  518 

v.  Wade  815 

Hotham  v.  East  India  Co.  97 

860 


SECTION 

Hot  Springs  R.  R.  v.  Tripp  364 

v.  Williamson  175a 

Hough  v.  Railway  Co.  365,  366 

Houldsworth  v.  City  of  Glasgow 

Bank  523,  524 

v.  Evans  780 

Housatonic  R.  R.  Co.  v.  Lee         163a 
House  of  Mercy  v.  Davidson  391 

Houston  v.  Thornton  758 

Houston  and  T.  C.  R.  R.  Co.  v. 

Odurn  175  a 

Houston,  etc.,    R'y  Co.  v.   Bre- 

mond  606 

v.  Burte  356 

v.  Rust  309 

v.  Shirley        413,  425,  427,  665,  666 

v.  Smith  373 

v.  Texas  502 

v.  Van  Alstyne  597 

Hovey's  Estate  400 

Howard  v.  Glenn  137,  523,  530 

v.  Lombard  393 

v.  Turner  526 

Ilowbreach  Coal  Co.  v.  Teague 

190,  540,  574 

Howe  v.  Boston  Carpet  Co.  130 

v.  Deuel  611 

v.  Freeman  676 

v.  Robinson  664 

Howell  v.    Chicago,  etc.,  R.   R. 

Co.  133,  394,  561,  568 

v.  Western  R.  R.  Co.  677,  67S,  682 
Howe  Machine  Co.  v.  Souder  342 
Howland  v.  Milwaukee,  etc.,  R'y 

Co.  366 

Iloyle  v.  Plattsburgh   and   Mon- 
treal R.  R.  Co.  676 
Hoyt  v.  Sheldon                        389,  663 
v.  Thompson                           236,  389 
Hoyt  v.  Thompson's  Ex'r       195,  219 
223,  233,  234,  389 
Hubbard  v.  United  States  M't'ge 

Co.  402 

v.  Wen  re  696 

Hubbell  v.  Drexel  790,  794 

Huddersfield  Canal  Co.  v.  Buck- 
ley 587,  747 
lluddleston  v.  Gouldsbury  567 
Hudson  v.  Green  Hill  Seminary 

145.  146 
Hudson  v.  Inhabitants   of  Win- 
slow  251 
Hudson   and  Del.    Canal   Co.   v. 
New  York   and   Erie   R.    R. 
Co.  164 
Hudson  Real  Estate  Co.  v.  Tower  108 
Hudson   River   Tel.    Co.  v.    Wa- 
tervleit  Turnpike,  etc.,  Co. 

162a,  167 
Hu<ih  v.  McRae  432 

Hughes  o.  County  of  Monroe         335 


TABLE    OF    CASES. 


SECTION 

Hughes  o.  Bank  of  Somerset  738 

v.  Drover's  Bank  592 

v.  Macfie  372 

v.  M'f  g  Co.  96,  109,  513, 

518,  547,  549 
v.  Vermont  Copper  M'g  Co.       599 
Huguenot    Nat.    Bank  v.  Stud- 
well  770 
Huidekoper       v.        Locomotive 

Works  822 

Hull  i?.  Burtis  725 

v.  Glover  187 

Humble  v.  Langston  791 

Humboldt  Driving  Park  Assoc. 

v.  Stevens  569 

Humboldt    Township    v.    Long 

321,  326,  330 

Hume  v.  Commercial  Bank  755 

Humes  v.  Missouri  Pac.  R'y  Co.    475 

Humpbrey  v.  Jones  754 

v.  Patrons'  Mercantile  Ass.        146, 

286,  311,  632 

v.  Pegues  488,  490 

Humphreys  v.  Allen  824 

v.  McKissock  187 

v.  Mooney  148,  739 

v.  Perry  355 

Hun  v.  Cary  615,  617,  620 

Hunnewell  v.  Duxbury  752 

Hunt  v.  Bullock  676 

v.  Kansas,  etc.,  Bridge  Co.  537 

v.  Legrand  Skating  Co.  431 

Hunt,  Recr.,  v.  O'Shea,  Assignee 

568,  750 
Hunter  v.  Hudson  R.  Iron  Co.        342 
v.  Roberts  562 

Hunter  v.  Sun  Mutual  Ins.  Co.       649 
Huntington  v.  Attrill       393,  765,  774 
v.  Densmore  359 

Huntington,    etc.,   R.    R.   Co.   v. 

Decker  210,  365 

Huntsville,  etc.,  R'y  Co.  v.  Cor- 

peuing  210 

Hurd  v.  Hotcbkiss  263 

Hurlburt  v.  Marshall  756 

v.  Taylor  719 

Hurst  v.  Salisbury  76 

Hurtado  v.  California  492a 

Huse  v.  Ames  225 

Huss  v.  Central  R.  R.,  etc.,  Co.      402 
Hussey  v.  Norfolk  R.  R.  Co.  337 

Hussner  v.  Brooklyn  City  R.  R. 

Co.  175  ft 

v.  Bank  239 

Hutchins  v.  New  England  Coal 

M'g  Co.  380,  381 

Hutcbison  v.  Crutcher  432 

Hutchinson  v.  Bidwell  629 

v.  Green  225,  230 

v.  Surrey  Consumers'  Gas  Light 

Ass'n  87 


SECTION 

Hutchinson  v.  Western  and  At- 
lantic R.  R.  Co.  338 
Hutt  v.  Giles  96 
Huttig  Co.  v.  Hotel  Co.                  401 
Hutton     v.     Scarborough     Cliff 

Hotel  Co.  572 

Hutzler  v.  Lord  791 

Huyett  v.   Phila.    and    Reading 

R.  R.  Co.  368 

Hyam's  Case  586,  749 

Hyatt  v.  Allen  798 

Hygeia  Ice  Co.  v.  N.  Y.  Hygeia 

Ice  Co.  137 

Hyman  v.  Coleman  715,  736 

Hyslop  v.  Finch  166 

Ibbotson's  Case  459 


I. 


Illinois    and    M.    Canal  v.  Chi- 
cago and  R.  I.  R.  R.  Co.  454 
Illinois     Cent.     R.     R.     Co.     v. 

Adams  353 

v.  Ashmead  361 

v.  Chicago  502 

v.  Cobb  350,  361 

v.  Decatur  489 

v.  Dick  371 

v.  Downey  344 

v.  Friend  360 

v.  Frankenberg  363 

v.  Godfrey  371 

v.  Illinois  474d" 

v.  Johnson  363 

u.  Kanouse  362 

v.  McClellan  350,  366 

v.  Morrison  353 

v.  People  476a,  476b 

v.  Phelps  369 

v.  Reed  353 

Illinois  G.  T.  R.  R.  Co.  v.  Cook     536 
Illinois  Linen  Co.  v.  Hough  646 

Illinois  River  R.   R.   Co.  v.  Zim- 

mer  227,  449,  516,  536 

Illinois  Steel  Co.  v.  O'Donnell       634 
Illinois  W.  C.  Co.  v.  Pearson  158 

Imboden   v.    Etowah,  etc.,  M'g 

Co.  146,  189 

Imlay   v.  Union    Branch   R.    R. 

Co.  175a 

Imperial  Hydropathic  Hotel  Co. 

v.  Hampson  650 

Imperial  Land  Co.,  In  re  627,  633,  752 
Imperial    Merc.  Credit  Ass'n  v. 

Coleman  628 

Importing  and  Exporting  Co.  v. 

Locke  149 

Independent  Insurance  Co.,  Re     436 
India  and  London  L.   Ass.   Co., 

In  re  665 

861 


TABLE    OF   CASES. 


SECTION 

Indian    River    S.     Co.    v.    East 

Coast  Tr.  Co.  309 

Indianapolis,   B.   and   W.  R.  Co. 

v.  Beaver  350 

Indianapolis,    B.    and  W.  R.  R. 

Co.  v.  Smith  173,  175a 

Indianapolis,   B.    W.   and  R.   R. 

Co.  v.  Hartley  175a 

Indianapolis,  etc.,   R.  R.  Co.  v. 

Allen  353 

v.  Carr  375 

v.  Horst  350,  376 

v.  Jones  666 

v.  Passmore  368 

v.  Pugli  178 

v.  Ray  417,  432 

v.  Renard  348 

v.  Stout  374 

Indianapolis    Cable    R.    R.    Co. 

v.  Citizens'  R.  R.  Co.  122 

Indianapolis  Furnace,  etc.,   Co. 

v.  Herkimer  99,  538 

Indianapolis    P.    and   C.   R.    R. 

Co.  v.  Anthony  347 

Indianapolis    Rolling    Mills     v. 

St.  Louis,  etc.,  R.  R.  Co.         212, 
214,  238 
Indianola  v.  Gulf,  W.  T.  and  P. 

R'y  120 

Indianola  R.  R.  Co.  v.  Fryer         425, 

427,  665 
Ingalls  v.  Cole  825 

Ingledew  v.  Northern  R.  R.  361 

Inglehart   v.    Thousand    Islands 

Hotel  Co.  633 

Ingraham  v.  Terry  435 

Ingram  v.  C.  D.  and  M.  R.  R.  Co.  171 
Ingwerson  v.  Edgecomb  759 

Inhabitants  of  Springfield  v. 
Connecticut  River  R.  R. 
Co.  163a 

Inman  Steamship  Co.  v.  Tinker    480 
Innes  v.  Lansing  62,  658 

Insane  Hospital  v.  Higgins  138 

Instone  v.  Frankfort  Bridge  Co.    546 
Insurance  Commissioner  v.  U.  S. 

F.  I.  Co.  435 

Insurance  Co.  v.  Bruce  330 

v.  Colt  193,  254 

i\  Craig  400a 

v.  Francis  412,  413 

v.  Kennedy  401 

D.  McCain  189,  193,  198 

v.  Morse  400 

v.  Kailroad  Co.  363,  364 

v.  State  309c 

Insurance  Co.  v.  Tennessee  490 

r,  Wall  511 

Insurance  Oil  Tank  Co.  v.  Scott    120 

Inter  Ocean    Co.  v.   Associated 

Press  476a 

862 


SECTION 

International  &  G.  N.  R'y  Co.  v. 

State  504 

International,  etc.,  R.  R.  Co.  v. 

Bremoud  536,  620,  695 

v.  Graves  374 

v.  Kindred  365 

International,    etc.,    R'y    Co.    v. 

Townsend  368 

International    C.    S.    O.   Co.    v. 

Wheelock  400 

International  L.  Ass.  Soc,  Inre     125 
Int.  Tr.  Co.  v.  United  Coal  Co. 

277,  310,  663,  824 
v.  Davis  &  Farnum  Co.  678 

Interstate  Commerce  Commis.  v. 

Baltimore,  etc.,  R.  R.  Co.      474d 
v.  Railway  474d 

Iowa   and    Union   R.    R.  Co.  v. 

Perkins  518 

Iowa  Lumber  Co.  v.  Foster  135 

Ireland  v.  Globe  Milling  Co. 

87,  392,  582 
v.  Palestine  Co.  501 

Irish  v.  Milwaukee,  etc.,  R'y  Co. 

360,  363 

Iron  Co.  v.  Construction  Co.  397 

V.  Hays  522c 

Iron  City  Bank  v.  Pittsburg        477a 

Iron  R.  R.  Co.  v.  Fink  599 

v.  Irouton  163a 

v.  Mowery  349 

Irons    v.     Manufacturers'    Nat. 

Bank  658,  668 

Irrigation  Dist.  v.  Bradley  163 

Irvine  v.  Lowry  411 

u.  McKeon  764,  774 

Isaacs  v.  Third  Ave.  R.  R.  Co.       347 
Isaacson  v.  N.  Y.  C.  and  H.  R. 

R.  R.  Co.  193,  363 

Isabel   v.   Hannibal  and  St.  Jo. 

R.  R.  Co.  165 

Isham  v.  Bennington  Iron  Co.        187 
v.  Buckingbam  586,  589 

Island  City  S'v'gs  B'k  v.  Sach tie- 
ben  415 
Isom  v.  Miss.  Central  R.  R.  Co.     179 


J. 


Jackson  v.  Brown  125 

v.  Campbell  197 

c.  Crown  Point  Mining  Co.         538 
v.  Hampden  260 

v.  Indianapolis,  etc.,  R.  R.  Co.  376 
v.  Ludeling  760,  815 

v.  Meek  720 

v.  N.  &  W.  R.  R.  Co.  365 

r.  Xew  York  Central  R.  R.  Co.  647 
v.  St.  Stockbridge  523 

v.  Traer  522c,  702 


TABLE    OF    CASES. 


SECTION 

Jackson's     Admr's    v.    Newark 

Plank  Road  Co.  788 

Jackson  Ins.  Co.  v.  Cross  195,  346 
Jackson  Marine  Ins.  Co.,  Matter 

of  432 

Jackson  M'g  Co.  v.  Auditor  Gen- 
eral 485 
Jacksonville  and  S.  E.  R.  R.  Co. 

v.  Walsh  178 

Jacksonville,  etc.,   R.  R.  Co.  v. 

Hooper  305a 

v.  Town  of  Virden  328,330 

Jacobs  Pharmacy  Co.  v.  Trust  Co.  285 

Jacobus  v.  Allen  721 

v.  St.  Paul  and  Chic.  R'y  Co. 

352,  353 
Jagger  Iron  Co.  v.  Walker  715 

James  v.  Milwaukee  322 

».  Railroad  Co.  760 

v.  Rogers  125 

Jamieson  v.  Indiana  Nat.  Gas  Co.  476 
Janney  v.  Minn.  Industrial  Expo.  723 
Jarrolt  v.  Moberly  321 

Jarvis  v.  Manhattan  Beach  Co.  591 
Jasper  Land  Co.  v.  Wallas  687 

Javcox,  In  re  298 

Jeiferis  v.  Phila.,  etc.,  R.  R.  Co.  368 
Jefferson  v.  Hewitt  523 

Jefferson  Branch  Bank  v.  Skel- 

ley  468,  488 

Jefferson   County  Sav.  Bank  v. 

Eborn  377 

Jefferson  Co.  Savs.  Bank  y.  Fran- 
cis 687 
Jefferson  County  Savings  Bank 

v.  Hewitt  477a 

Jeffersonville  M.  and  I.  R.  R.  Co. 

v.  Esterle  175a 

Jeffersonville  R.  R.  Co.  v.  Cleve- 
land 360 
v.  Rogers  347,  348 
Jefferys  v.  York  75,  754 
Jellett  v.  St.  Paul,  etc.,  R'y  Co.  360 
Jellenik  p.  Huron  Copper  Mining 

Co.  796 

Jemison  v.  Citizens'  Sav.  Bank 

123,  276 
v.  Planters',  etc.,  Bank  453 

Jenkins  v.  Neff  484 

Jenkins  v.  Union  Turnp'kCo.  91,  516 
Jenner's  Case  614 

Jenneson  v.  Railroad  Co.  363 

Jermain  v.  Lake  Shore,  etc.,  R'y 

Co.  798,  799 

Jerman  i\  Benton  732,  735 

Jersey  City  and  Bergen  R.  R.  Co. 

v.  Jersev  City  and  Hoboken 

R.  R.  Co.  165 

Jessopp's  Case  101,  586,  749 

Jessup  b.  Bridge  820 

v.  Loucks  162a 


SECTION 

Jewell  v.  Rock  River  Paper  Co.     701 
Jewett  v.  Valley  R.  R.  Co.  779 

John  Hancock  Ins.  Co.  v.  Rail- 
road Co.  426 
Johnson  v.  Boston,  etc.,  R.  R.  Co.  371 
v.  Brooks  790 
v.  Bush  263 
v.  Church  well  775 
v.  Corser  739 
v.  Fisher  725 
v.  Goodyear  Mining  Co.  499 
v.  Hudson  River  R.  R.  Co.  376 
v.  Johnson  800 
v.  Laflin  780 
v.  Lullman  702,  745 
15.  National  V.  &  L.  Ass'n  687 
v.  Lyttle's  Iron  Agency  547 
v.  Okerstrom  145 
v.  Pensacola,  etc.,  R.  R.  Co.  309 
v.  Philadelphia  489 
v.  Shrewsbury,  etc.,  R'y  Co.  308 
o.  Somerville  Dyeing  Co.  719 
v.  St.  Louis  Despatch  Co.  342 
b.  Underbill  300,  589 
Johnson  City  v.  R.  R.  Co.  320 
Johnston  v.  Charlottesville  Nat. 

Bank  267 

v.  Elizabeth  B'ld'g  Ass'n  210 

v.  Ewing  Female  University       109 
v.  Jones  573,  578 

v.  Shortridge  210 

b.  Trade  Ins.  Co.  392 

Johnston,  Trustee,  v.  Allis  108 

Joint   Stock    Discount     Co.    v. 

Brown  622,  626 

Jones  v.   Arkansas    Mechanical 

Co.  656 

v.  Avery  734 

v.  Bank  of  Leadville  432,  433 

v.  Bank  of  Tennessee  146 

v.  Barlow  765 

v.  Bolles  '         138 

v.    Cincinnati    Type   Foundry 

Co.  146 

v.  Dunn  748 

v.  Fales  195 

v.    Guaranty    and    Indemnity 

Co.  125 

v.  Hale  146,  632,  634 

v.  Harrison  104 

v.  Jarman  703,  725 

v.  Johnson  6t-8 

v.  Kokomo      Building     Asso- 
ciation 146 
v.  Milton,  etc.,  Turnpike  Co.      574 
v.  Morrison            133,  135,  229,  558, 
569,  646 
v.  Pearl  M.  Co.                               382 
v.  Planters'  Bank                           293 
v.  Terre    Haute,    etc.,    R.     R. 
Co.                                               788 

863 


TABLE  OF  CA8ES. 


320 

342 

672 
211 
577 
504 
553 


SECTION 

Jones  v.  Trustees  Florence  Uni- 
versity 263 
D.  White  worth                              522  c 
v.  White  Valley  R.  R.  Co.  179 
r.  Wilterberger                    728,  825 
Jonesboro   City    v.   Cairo,   etc., 

It.  R.  Co. 
Jordan   b.   Alabama  G.  N.  R'y 
Co. 
v.    Nat.    Shoe     and     Leather 
Bank 
Jordan  &  Co.  r.  Collins 
Jordy  v.  Hebraid 
Joslyn  v.  Distilling  Co. 

v.  Pacific  Mail  S.  S.  Co. 
Joy    v.    Jackson,     etc.,     Plank 

Road  Co.  227 

Judd  b.  Harrington  309c 

Judson  ii.  Rossie  Galena  Co.  718 

v.  Western  R.  R.  Co.  359,  360 

Juke  v.  Commonwealth  576 

Junction  R.  R.  Co.  v.  Reeve  258 


K. 


Kadish  v.  Loan  Ass'n  280 

Kacppler  v.    Redfield    Creamery 

Co.  S6 

Kalil    b.   Memphis,    etc.,    R.    R. 

Co.  405,  408 

Kahu  v.  Bank  of  St.  Joseph  604 

Kaiser  v.  Lawrence  Savings 

Bank  148,  739 

Kalamazoo    Novelty  M'f'g    Co. 

v.  McAlister  210 

Kampman  v.  Tarver  541 

Kanawha    Coal    Co.    v.    Ballard 

Coal  Co.  138 

v.  Kanawha  and  Ohio  Coal  Co. 

157,  460 
Kane  b.  New  York  El.  Co.  176 

Kansas   and  E.  R.   R.   Cons.  Co. 

v.  Topeka,  etc.,  R.  R.  Co.        392 
Kansas    &    Texas    Coal    R'y  v. 

North-Western  C.  &  M.  Co.  163 

Kansas  City  Hotel  Co.  b.  Harris   541 

v.  Hunt  541 

v.  Sauer  432,  435 

Kansas    City   L.    and   S.   R.    R. 

Co.  v.  Phillibert  376 

Kansas  City,  St.   Jo.,  etc.,  R.  R. 

Co.  v.  Alderman  520 

v.  Campbell  166 

v.  Simpson  359 

Kansas    Lumber   Co.    v.  Central 

Bank  342 

Kansas,      O.,   etc.,    R'y     Co.    v. 

Smith  421 

Kansas  Pac.    R.    R.  Co.  r.  Atchi- 
son T.  and  S.  F.  R.  R.  Co.  23,  413 
864 


SECTION 

Kansas  Pac.  R.  R.  Co.  v.  Butts      368 
v.  Miller  350 

v.  Mower  475 

v.  Peavey  365,  366,  373 

v.  Reynolds  351,  353 

Kansas  Pac.  R'y  Co.  v.  Pointer     376 
Karnes  v.  Rochester,  etc.,  R.  R. 

Co.  561 

Kaiuth's  Case  614 

Katama  Land  Co.  v.  Jernegan      518 
Katzenberger  b.  Aberdeen  325 

Kayser  v.  Trustees  of  Bremen        147 
Kean  v.  Johnson  268,  608 

v.  Union  Water  Co.  581 

Kearney  v.  Buttles  269 

Kearns  v.  Leaf  659 

Keetjan  v.  Western  R.  R.  Co.  365,  366 
Keen  v.  Van  Reuth  146,  153 

Keffe  v.  Milwaukee,  etc.,  R.  R. 

Co.  371,  372 

Keith  b.  Globe  Ins.  Co.  210 

Keithsburg  v.  Frick  325 

Kelley  v.  Newburyport  Horse  R. 

R.  Co.  146,  270,  630 

v.  Milan  320 

v.  Norcross  366 

v.  People's  Trans.  Co.  276,  303 

Kellinger  v.  Forty-second  Street, 

etc.,  R.  R.  Co.  175 

Kellogg  Bridge  Co.  v.  Hamilton    249 
Kelly  v.  Alabama  and  Cincinnati 

R.  R.  Co.  125,  264 

v.  Board  of  Public  Works  248 

r.  (lark  651,  702,702a 

B.  Fletcher  522c 

v.  Mariposa  Land,  etc.,  Co.        667 

v.  Pittsburg  492 

Kellner».  Baxter  76,87 

Kelsey  v.  National  Bank  211 

v.  Northern  Light  Oil  Co.  520 

v.  Sargent  647,  689 

Kempson  v.  Saunders  102 

Kendall  v.  Bishop  668 

Kenicottu.  Supervisors  319,  328,  330 

Kennebec   Co.    v.    Augusta   Ins. 

Co.  384 

Kennebec,    etc.,    R.    R.    Co.    v. 

Jarvis  515 

o.  Kendall  513 

b.  Palmer  92,  108 

v.  Portland,  etc.,  R.  R.  Co.         125 

Kennedy  v.  Gibson  140,  727 

0.  Panama,  etc.,  Mail  Co.  103 

v.  Savings  Bank  284 

Kenosha,  etc.,  R.  R.  Co.  v.  Marsh  530 

Kent  v.  Freehold  Land  Co.  103 

v.  Jackson  98 

v.  Quicksilver  Mining  Co.  125,  126, 

269,  288,  572,  583,  584 

Kent     Benefit     Building     Soc, 

In  re  312 


TABLE    OF    CASES. 


SECTION 

Kenton  County  Court  v.  Bank 

Lick  Turnpike  Co.  164,  454 

Kenton  Ins.  Co.  v.  Bowman  603 

Kentucky  Bank  Tax  Cases  497 

Kentucky  Central  R.   K.   Co.   v. 

Thomas  350 

Kentucky  R.  R.  Tax  Cases  492 

Keokuk  Bridge  Co.  v.  People  406,  479 
Keokuk,  etc.,   R.  R.  Co.  v.  Mis- 
souri 421,  491 
Keokuk  &  Hamilton  Bridge  Co. 

v.  111.  482 

Keokuk  Packet  Co.  v.  Davidson   629 
Kerclmer  v.  Gettys  381 

Kern  v.  Day  796 

Kernochan  v.  Manhattan  R'y  Co.  176 
Kerr  v.  Eurie  741,  795 

Kersey  Oil  Co.  v.  Oil  Creek,  etc., 

R.  R.  Co.     229,  260,  261,  637,  641 
Kersteter's  Appeal  759 

Ketcham  v.  Madison,  etc.,  R.  R. 

Co.  664,  666 

Ketchum  o.   Amer.   Merchants' 

Union  Exp.  Co.  353 

v.  Duncan  680 

v.  Pacific  R.  R.  Co.  675 

v.  St.  Louis  817 

Key  City,  The  665 

Keyser  v.  Hitz  223,  567,  738 

Keystone  Bridge  v.  Barstow  701 

v.  McCluney  702 

Kidd  v.  Pearson  476 

Kidwelly  Canal  Co.  v.  Raby       91,  98 

Kiffrer  v.  Elder  327 

Kilbretli  v.  Bates  298 

Kiley  v.  Western  Union  Tel.  Co.  359 

Kilgore  v.  Bulkeley  253 

Kilpatrick     v.     Penrose     Ferry 

Bridge  Co.  647 

Kilton  Warren  Co.  v.  Prov.  Tool 

Co.  736 

Kimball  v.  Goodburn  432 

v.  Grate  Co.  124 

v.  N.  Y.  C.  &  H.  R.  R.  Co.  363 

v.  Norton  199 

Kimmish  v.  Ball  474tZ 

Kincaid  v   Dwinelle         144,  432,  724 

Kindred  v.  New  Eng.,  etc.,  Co.     401 

Kinealy  i\  St.  Louis,  K.   C.   and 

C.  R.  R.  Co.  162,  174 

King  ».  Armstrong  732 

v.  Bank  of  England  599 

v.  Barnes  219,  559a 

v.  Bedford  Level  188 

v.  Housatonic  R.  R.  Co.       820,  822 

v.  Howell  459 

v.  National  M.  and  E.  Co.  402 

c.  Paterson,  etc.,  R.  R.  Co.         568 

v.  Theodorick  573 

v.  Woohidge  759 

King's  Case  586,  749 

55 


SECTION 

Kingsley  u.  First  National  B'k 

668,  759 
v.  New  England  Ins.  Co.  196 

Kinkier  v.  Juuica  752 

Kinney  v.  Central  R.  R.  Co.  353 

Kinsley  v.  Rice  775 

Kinsman  St.  R'y  Co.  v.  Broad- 
way R.  R.  Co.  163a 
Kintrea,  Ex  parte  586,  749 
Kirk  v.  Bell  234,  262 
Kirkbride  v.  Lafayette  County  319 
Kirkland  v.  Dinsmore  358 
v.  Kille  770 
Kirkpatrick  v.  N.  Y.  C.  and  H. 

R.  R.  Co.  365 

Kirtland  b.  Hotchkiss  469 

Kishacoquillas,    etc.,    Turnpike 

Co.  v.  McConaby  147 

Kissam  v.  Anderson  216 

Kisterbock's  Appeal  598 

Kitchen     v.     Cape     Girardeau, 

etc.,  R.  R.  Co.  114,  233 

v.  St.    Louis,   K.  C,  etc.,   R'y 

Co.  627,  693,  812 

Klaus,  In  re  583 

Kleckner  v.  Turk  739 

Klein  v.  Alton,  etc.,  R.  R.  Co.        548 

v.  Jewett  417 

Kline  o.  Central  Pac.  R.  R.  Co.      373 

Knapp  ».  Grant  325 

o.  Publishers',  etc.,  Co.  569 

Knoblauch  v.  German  Sav.  Bk.      210 

Knecht  v.  United    States  S'v'gs 

Inst.  672 

Kneeland     v.     American     Loan 

Co.  824a 

v.      Foundry      and      Machine 

Works  824 

v.  Lawrence  679 

Knell  v.  U.  S.  and  Brazil  S.    S. 

Co.  353,  359 

Knickerbocker  Life   Ins.   Co.   c. 

Ecclesine  137 

Knight  v.  Corporation  de  Wells 

158,  188 
v.     Flatrock,    etc.,    Turnpike 

Co.  538 

v.  Long  197 

v.   New   Orleans,    etc.,    R.  R. 

Co.  369 

Knight's  Case  547 

Knights  of  Pythias  v.  Weller         430 

Kuowles  v.  Sandercock  733 

Knowlton  v.  Ackley  432 

v.  Congress  Spring  Co.  133 

Knox  v.  Baldwin  772 

v.  Childersburg  Land  Co.  110 

v.  Eden  Musee  591 

B.  Havman  523 

Knox  Co.  r.  Aspinwall  330,  331 

v.  Ninth  Nat.  Bank  318,  328 

865 


TABLE    OF    CASES. 


SKOTION 

Knox   County   Court  v.  United 

States  333 

Knoxville  t\  Knoxville,   etc.,  R. 

R.  Co.  265 

Knoxville  Iron  Co.  v.  Harbison 

400a,  475 
Koehler  v.    Black    River    Falls 

Iron  Co.  236,  693 

v.  Dodge  210 

Koemel    v.  New    Orleans,    etc., 

R.  R.  Co.  175a 

Kohl  v.  United  States  470 

Kohler  v.  Agassiz  703 

Kolff    v.    St.     Paul     Fuel    Ex- 
change 583 
Koons  ii.  St.  Louis,  etc.,  R.  R. 

Co.  37-2 

v.  West  Un.  Tel.  Co.  357 

Kortright  v.  Buffalo  Commer- 
cial Bank  598,  599 
Koshkonong  v.  Burton  326 
Kraft  d.  Freeman  Printing  As- 
sociation 203 
Kraft  County  Bank  v.  Bank  593 
Kraniger  v.  Building  Soc.  264 
Kreissl  v.  Distilling  Co.  580 
Krizer  v.  Woodson  764 
Kroenert  v.  Johnston  702 
Krouse  v.  Woodward  794 
Krumbhaar  v.  Griffiths  698 
Krutz  v.  Paola  Town  Co.  150 
Kucheman   v.  C.  C.  and  D.    R'y 

Co.  175a 

Kuhn  v.  McAllister  789 

Kuser  v.  Wright  189 

Kyle  v.  Laurens  R.  R.  Co.       362,  363 

v.  Wagner  225 


L.  L.  &  G.  R.  R.  Co.  v.  Maris  360 
L.  &  N.  R.  R.  Co.  v.  Kentucky  4766 
Labette     County      Com'rs      v. 

Moulton  333 

Lackawanna    Iron,    etc.,  Co.  v. 

County  of  Lucerne  477a 

LaCrosse  City  R'y  Co.  v.  Ilighie  175 
Laclede  Gas  Light  Co.  v.  Murphy  465 
La  Fayette    Bank  v.  St.    Louis 

Stoneware  Co.  205 

Lafayette,     etc.,     R'y     Co.     v. 

Cheeney  646 

Lafayette      Insurance     Co.     v. 

French  383,  397,  398,  400,  413 
Lafayette     Plankroad      Co.     v. 

New    Albany,    etc.,    R.    R. 

Co.  163a,  453 

Laflin,   etc.,  Powder  Co.  v.  Sin- 

sheimer  739 

Lagarde  v.  Anniston  L.  &  S.  Co.  612 

866 


SECTION 

La  Grange,   etc.,  Plankroad  Co. 

B.  Mays  521 

La   Grange,    etc.,    R.    R.  Co.  v. 

Rainey  153,  432,  433 

Lahr   v.   Metropolitan   Elevated 

R.  R.  Co.  176 

Lake  County  v.  Graham  332 

Lake   Erie   and   W.    R'y   Co.  v. 

Griffin  415 

Lake   Ontario,   etc.,  R.    R.    Co. 

v.  Mason  511,  513,  516 

Lake   Ontario  Shore   R.  R.  Co. 

v.  Curtiss  109,  515 

Lake  Roland  R.  R.  Co.  v.  Frick     179 
Lake  Shore  and  M.  S.  R'y  Co.  v. 

Chicago  and  W.  I.  R.  R.  Co.  163a 
v.    Cincinnati   S.   and    C.    R'y 

Co.  163a 

v.  Ohio  474a" 

Lake  Shore,   etc.,  R.   R.   Co.  v. 

Miller  374,  376 

v.  Prentice  378 

v.  U.  S.  467 

Lake  Superior  Iron  Co.  v.  Drexel  723 
Lake  v.  Argyl  77 

v.  Virginia,  etc.,  R.  R.  Co.  453 

Lake  View  v.  Rose  Hill  Ceme- 
tery Co.  474,  476 
Lakin  v.  Railroad  Co.  170 
Lallande  i\  Ingram  794 
Lamar  ».  Lanier  House  Co.  554 
Lamar  Ins.  Co.  v.  Hildreth  707 
Lamb   v.    Camden    and   Amboy 

R.  R.  Co.  351 

v.  Cecil  241,  668 

v.  Lamb  401 

Lamb  Knit  Goods  Co.  v.  Lamb 

Glove  &  Mitten  Co.  137 

Lambert  v.  Staten  Island  R.  R. 

Co.  374 

Lamm  v.   Port  Deposit  Home- 
stead Ass'n  342 
Lampkin  v.  Railroad  Co.  347 
Lancaster  v.    Amsterdam    Imp. 

Co.  384 

Lancaster  County  Nat.  Bank  v. 

Smith  337,  353 

Land  Co.  v.  Haupt  103,  111 

».  Obenchain  82 

v.  Railroad  Co.  303 

Land  Credit  Co.  v.  Fermoy  626 

Land  Grant  R'y  Co.  v.  Commis- 
sioners 384 
Landman  ».  Entwistle  76 
Lane  r.  Brainard                                261 
v.  Boston  and  A.  R.  R.  Co.         210 
v.  Harris                                          724 
r.  Morris                                  721,  724 
v.  Nickerson                                    707 
ii.  Railroad  Co.                               348 
Lane's  Appeal                  655,  703,  704 


TABLE    OF    CASES. 


SECTION 

Lane's  Case  699 

Lang  v.  Dougherty  668 

v.  Lang's  Executor  799 

Langan  v.  Iowa,  etc.,  Construc- 
tion Co.  338,  342 
Langdon  v.  Patterson  573 
v.  Railroad  Co.  823 
r.  Vermont,  etc.,  E.  R.  Co.         824 
Langhorne  v.  Railway  Co.               666 
Langley   v.   Boston  and    Maine 

R.  R.  Co.  170 

Langton  v.  Waite  794 

Lantry  v.  Wallace  738,  744 

Lanier  o.  Gayoso  Sav.  Inst.    670,  810 

Lanier  Lumber  Co.  v.  Rees  130 

Laning  v.  N.  Y.  Cent.  R.  R.  365 

Laredor  Bridge  Co.  309c 

Larned  v.  Beal  739 

Larrabee  v.  Baldwin        718,  733,  734 

v.  Franklin  Bank  759 

v.  Sewall  375 

Larson  v.  Dayton  783 

v.  James  768,  770 

Larwell     i\     Hanover     Savings 

Fund  Society  298 

Lassiter  v.  West.  Un.  Tel.  Co.       357 

Lathrop  o.  Commercial  Bank        384 

v.  Union  Pacific  R'y  Co.  395 

Latimer  v.  Union  Pacific  R'y 

396,  399 
Lauman  r.  Lebanon  Vallev  R.  R. 

Co.  536,  608,  610 

Lauraglenn  Mills  v.  Ruff         731,  732 

Law  o.  Rich  430,  432 

Lawler  v.  Androscoggin  R.  R.  Co.  365 

Lawless  d.  Anglo-Egyptian  Co.      342 

Lawrence  v.  Gebbard  225 

c.  Nelson  729,  731 

v.  New  York,  etc.,  R.  R.  Co.      363 

v.  Winona,  etc.,  R.  R.  Co.  363 

Lawrence's  Case  110 

Layden  b.  Knights  of  Pythias        400 

Lazure  v.  Graniteville  M'f'g  Co.    365 

Lea  o.  American,  etc.,  Canal  Co.  432 

v.  Iron  Belt  Mercantile  Co.  660,  702 

Leach  v.  Forbes  790 

Leasure     v.    Union    Mut.    Life 

Ass'n  384 

Leathers  i\  Janney  642 

Leavenworth  County  v.  Miller      319 
Leavenworth,   etc.,  R.  R.  Co.  v. 

Douglass  Co.  319 

Leavitt  v.  Fisher  598 

v.  Oxford  and  M.  Co.  219,  234 

260,  261 

v.  Palmer  298 

v.  Pell  276 

v.  Stanton  672 

Leazure  v.  Hillegas  276,  303 

Lebanon  Savings   Bank   r.   Hol- 

lenbeck  384 


SECTION 

Leber  v.  Minneapolis,  etc.,  R'y 

Co.  178 

Le  Blanc,  Matter  of  568,  750 

Le  Blanch   v.  London,   etc.,   R'y 

Co.  361 

Lee  County  v.  Rodgers  325 

Lee  v.  Imbrie  519,  655,  701 

v.  Marsh  353,  359 

v.  Neufchatel  Asphalt  Co.  565 

v.  Pittsburg  Coal  Co.  193,  238 

v.  Smith  241 

Leed's  Blacking  Co.,  In  re,  How- 
ard's Case  234 
Leeke's  Case                                     614 
Leekins   v.  The   Nordyke,    etc., 

Co.  248 

Legal  Tender  Cases  476 

Legendie  v.  Brewing  Ass'n  585 

Leggett  v.  Bank  of  Sing  Sing         604 
Lehigh  Bridge  Co.  v.  Lehigh  Coal 

Co.  137,  432 

Lehigh  Vallev  Coal  Co.  v.  Agri- 
cultural Works  125,  284 
Lehigh  Valley  R.  R.  Co.  v.  Penn- 
sylvania 485 
Lehman  v.  Glenn  263 
v.  Knapp  739 
o.  Warner  740 
Leighton  v.  Campbell  773 
Leisy  v.  Hardin                                414(1 
Leitch  ».  Wells                  327,  587,  795 
Leland  y.  Hayden                              800 
Leloup  o.  Port  of  Mobile                486 
Lennox  b.  Roberts                           437 
Leo  v.  Union  Pac.  R'y  Co.               555 
Leominster  Canal  Co.  v.  Shrews- 
bury, etc.,  R.  Co.  88 
Leonard  b.  Ameri.  Ins.  Co.     253,  264 
v.  Burlington  Mut.  Loan  Ass'n  263 
v.  N.  Y.,  etc.,  Tel.  Co.                 357 
Le  Roy  v.  Globe  Ins.  Co.                  750 
Leslie  b.  Lorillard                             688 
Lester  v.  Howard  Bank          299.  301, 
338,  622.  634 
B.  Webb                                    193,  212 
Levering  v.  Bernel                             759 
Levisee  v.   Shreveport  City  R'y 

Co.  647 

Lewevs  Island,  etc.,  Co.  v.  Bol- 
ton 518,  547 
Lewis  ».  Albemarle,  etc.,   R.  R. 

Co.  212 

B.  Brainerd  585 

».  City  of  Shreveport  320.  321 

v.  Commissioners  330,  332 

/■.  Jeffries  185 

r.  Land  Co.  523 

»-.  Meier  342 

B.  Montgomerv  625.  755,  765 

r.  X.  Y.  S.  C.  Co.  347 

v.  St.  Charles  County  723 

867 


TABLE    OF    CASES. 


SECTION 

Lewis  v.  St.  Louis,  etc.,  R.  Co.      365 
v.  Tilton  148 

Lexington,    etc.,   R.   R.    Co.    v. 

Chandler  54G 

v.  Staples  547 

Lexington  Life,  etc.,  Ins.  Co.  v. 

Page  566,  708 

Lexington  R.  R.  Co.  v.  Bridges  757 
L.  Herbette  v.  National  Bank  240 
Libby  o.  Hodgson  392,  396 

r.  Land  Co.  211,  212 

r.  Tobey  717 

Liberty  Female  College  Ass'n  v. 

Watkins  721 

Library  Hall  Co.  v.     Pittsburg 

Ass'n  229 

License  Tax  Cases  289,  456,  461 

Lichtenstein  v.  Mayor  335 

Liebke  v.  Knapp  522c 

Life  and  Fire  Ins.  Co.  v.  Mechanic 

Fire  Ins.  Co.  236,  299,  338 

Life  Association  v.  Goode  435 

».  Levy  384,  561 

Life  Ass'n  of  America  v.  Fas- 
sett  436,  437 
Life  Ins.  Co.  ».  Overholt  384 
Light  &  Heat  Co.  v.  Elk  County  477a 
Lightner  r.  Boston,  etc.,  R.  R.  Co.  424 
Limburger    v.    Broadway  SVgs 

Bank  542,  668 

r.  House  484 

r.  Westcott  359 

Limer  v.  Traders'  Co.  258 

Lincoln  v.  Express  Co.  541 

Lincoln,  etc.,  Bank  v.  Page  195 

Lincoln  M'f'g  Co.  v.  Sheldon  518 

Lincoln  Street  R.  R.  Co.  v.  Lin- 
coln 425,  488,  499 
Lindell  v.  Benton  435 
Lindsav  ».  Hyatt  736 
v.  Winona,  etc.,  R.  R.  Co.  368,  374 
Link  ».  McLeod  626 
Linkauf  v.  Lombard  275,  276 
Linton  o.  Childs  483 
Linville  ».  Hadden  392 
Lippett  v.  American  Wood  Paper 

Co.  599 

Lippitt  o.  Paper  Co.  796 

Lissard  v.  B.  &  M.  R.  R.  Co.  363 

Litchfield  v.  Preston  303 

Litchfield  Bank  v.  Church  105 

Litchfield  Iron  Co.  v.  Bennett       188 
Little  o.  Boston  &  Me.  R.  R.  Co.   356 
v.  Dusenbury  417 

Little  Miami  R.   R.  Co.  v.  Nay- 

lor  162a 

v.  Stevens  365 

o.  United  States  565 

Little  Rock  v.  National  Bank         326 

Little  Rock  &  Fort  Smith  R.  R. 

Co.  v.  Daniels  170 

868 


SECTION 

Little  Rock  and  Fort  Smith  K.  R. 

Co.  v.  Perry  90 

Little  Rock  and  N.  R.  R.  Co.  v. 

Little  Rock,  etc.,  R.  Co.  210 

Little  Rock,  etc.,  R'y  Co.  v.  Chap- 
man 173 
v.  Glide  well                                   360 
v.  Page                                     630,  676 
v.  Talbot                                351,  353 
Littleton  M'f'g  Co.  v.  Parker         518 
Liverpool      Household      Stores 

Assoc,  In  re  261,  623 

Liverpool  Ins.  Co.  v.  Massachu- 
setts 58, 383 
Livezey  v.  Pacific  R.  R.  Co.  592 
Livingston     County     v.    Ports- 
mouth Bank  324 
Lloyd  v.  Preston                            702a 
v.  West  Branch  Bank           161,  239 
Loan  Ass'n  v.  Stonemetz  646 
v.  Topeka                       319,  456,  477 
Loan  and  Trust  Co.  v.  Bank           606 
Lock?;.  Columbia,  etc.,  Trustees  318 
v.  Turnpike  Co.  417 
Lockhardt  v.  Van  Alstyne      572,  773 
Lockwood    v.    Mechanics'    Nat. 

Bank  260,  601 

Lockwood     v.      Thunder      Bay 

River  Boom  Co.  258 

Lodge     v.    Phila.,    Wilm.     and 

Balto.  R.  R.  Co.  163 

Loewenthal  v.  Rubber  Co.  577 

Logan    v.    Vernon,   etc.,    R.    R. 

Co.  153,  168 

v.  Western  Un.  Tel.  Co.  361 

Logan    County    Nat.    Bank     v. 

Townsend  311 

Logan  County  v.  U.  S.  477a 

Lohman  v.  New  York  and  Erie 

R.  R.  Co.  569 

London,  Brighton,  etc.,  R.  R. 
Co.  v.  London  and  S.  W.  R'y 
Co.  305 

London,  etc.,  Ass.  Co.,  In  re         586 
London,  etc.,  Ass.  Soc.  v.  Red- 
grave 110 
London  India  Rubber  Co.,  In  re   786 
Long  v.  Bank  of  Yanceyville  736 
v.  Citizens'  Bank  87 
V.  Georgia  Pac.  R'y  Co.                303 
Long  Island  R.  R.  Co.,   Matter 
of              546,  547,  574,  576,  577a 
v.  Garvev                                165,  172 
Longley  v.  Little              501,  719,  736 
Longmont  v.  Ditch  Co.                    259 
Looker  v.  Maynard                   502,  577 
Lopez  v.  Campbell                            668 
Lord  v.  Yonkers  Fuel  Gas  Co.       125 
Lorenz  v.  Jacob                                 163 
Loring  i\  Brodie               210,  240,  797 
v.  Salisbury  Mills                          593 


TABLE    OF    CASES. 


SECTION 

Los  Angeles  Holiness   Band   v. 

Spires  148 

Los  Angeles  v.  Los  Angeles  City- 
Water  Co.  4766 

Losee  v.  Bullard  770 

Lothrop  v.  S ted  man 

140,  436,  658,  662,  665 

Loudenslager  v.  Benton  817 

v.  Woodbury  Heights  Land  Co.  83 

Lou.,  Cin.  and  Lex.  R.  R.  Co.  v. 

Commonwealth  167 

Louis  v.  Brown  Township      327,  333 

Louisiana  Nat.  Bank  v.  Citizens' 

Nat.  Bank  245 

Louisiana  Savings  Bank,  In  re       151 


Louisiana  v.  Jumel 

462 

467 

v.  New  Orleans 

333,  493 

498 

v.  Pillsbury 

469a 

v.  Wood 

321 

Louisville  and  N.   R. 

R.  Co.  v. 

Brownlee 

359 

v.  Palmes 

490 

v.  State 

163a 

Louisville   and   P.  R. 

R.  Co.  v. 

City  R.  R.  Co. 

152 

Louisville  Banking  Co 

v.  Eisen- 

mann 

429 

Louisville      City      R'y 

Co.     v. 

Weams 

350 

Louisville,    etc.,    R.    R.    Co.    v. 

Behlma 

474t7 

v.  Brownlee 

353 

359 

v.  Campbell 

360 

v.  Carson 

629 

v.  Kelly 

377 

».  Kentucky 

419 

502 

v.  Letson 

21, 

411 

v.  Mahan 

360 

v.  McVay 

193 

v.  Neal,  Adm. 

140 

V.  OlT 

365 

v.  Shanks 

377 

v.  Weaver 

363 

Louisville,  etc.,  Turnpike  Co.  v. 

Ballard 

495 

Louisville,  N.  A.,   etc. 

,  R'y  Co. 

v.  Boney 

425, 

671 

v.  Eubank 

174d 

v.  Louisville 

204 

v.  Louisville  Tr.  Co. 

284, 

409 

Louisville  Gas  Co.   v. 

Citizens' 

Gas  Co. 

474 

Louisville  Trust  Co.  v. 

Railway 

Co. 

316a 

Louisville  Water  Co.  v. 

Clark 

497 

v.  Kentucky 

497 

Love  MTg  Co.  v.  Manufacturing 

Co. 

759 

Lovell  v.  St.  Louis  Mutual   Ins. 

Co. 

210 

Loverin  v.  McLaughlin 

739 

SECTION 

Lovett  c.  Steam  Saw  Mill  Ass'n    204 

Low  v.  Buchanan  775 

v.  California  Pac.  R.  R.  Co.         127 

v.  Connecticut  and  P.  R.  R.  Co.  86 

Lowe  v.  E.  and  K.  R.  R.  Co. 

309,  467,  515,  551 

v.  Ring  647 

Lower  r.  C.  B.  and  Q.  R.  R.  Co.    163 

Lowry  v.  Commercial  Bank  592,  598 

v.  Farmers'  L.  &  T.  Co.  800 

v.  Inman  393,  714 

v.  Parsons  737 

Lowry  Banking  Co.  v.  Empire, 

etc.,  Co.  216,  759 

Lucas  v.  Pitney  125 

v.  White  Line  Transfer  Co. 

265,  267 
Lum  i\  Robertson  437,  750 

Lumbard  v.  Aldrich  384 

Lumber  Co.  v.  Thomas  401 

Lumsden's  Case  95 

Lund  ».  Mill  Co.  796 

Longrell  v.  Pennell  83 

Lupe  v.  Atlantic,  etc.,  R.  R.  Co.  353 
Lure  v.  Isthmus  Transit  Co.  238 

Lurk's  Appeal  632 

Luttrell  (■.  Martin  284 

Lycoming      Fire    Ins.      Co.     v. 

Langley  384 

Lycoming  Gas   and  Water  Co. 

v.  Mayer  174,  178 

Lyde   b.     Eastern     Bengal     R'y 

Co.  268,  556 

Lyman  v.  Bonney  756 

Lynch     d.      Metropolitan      Ele- 
vated R.  R.  Co.  342,  348 
o.  Nurd  in  372 
Lyde  v.  The  County                 319,  331 
Lydenborough     Glass      Co.      v. 

Mass.  Glass  Co.  211,  212 

Lyndon     Mill     Co.     ».    Lyndon 

Ins'n  236 

Lynn  ».  Polk  464 

Lyon  o.  American  Screw  Co.  585 

Lyons  v.  Orange,  etc.,  R.  R.  Co.     449 
Lytle  o.  Lansing  327 


M. 

Maas   o.    Missouri,    K.    and     T. 

R'y  Co.  204,  679 

Mabey  ».  Adams  094,  696 

Macdougall   t\    Jersey  Imperial 

Hotel  Co.  565 

Machine  Co.  v.  Gage  485 

Machinists'     National    Bank     v. 

Field  593 

Macfarland  v.  West   Side   Imp't 

Co.  96,  519 

Mack  v.  Coal  Co.  140,  558 

869 


TABLE    OF    CASES. 


SECTION 

Mackall    v.    Chesapeake,     etc., 

Canal  Co.  153 

Mackay  v.  Commercial  Hank         342 
r.  Western  Union  Tel.  Co.  361 

Macnaughton  r.  Osgood  080 

Macon,  etc.,  R.    R.    Co.   v.  Gib- 
son 503 
v.  Maves  363 
v.  Va'son                        263,  517,  529 
Mad  an  r.  Sherard                    358,  359 
Madden  v.  Electric  Light  Co.         392 
Maddick  v.  Marshall  77 
Madison   and     Indianapolis     R. 
R.    Co.    v.   Norwich     Sav'gs 
Soc.                                         203,  205 
Madison         Avenue         Baptist 
Church       v.      Oliver       St. 
Baptist  Church                  303,  314 
Madison,     etc.,      Plank      Road 
Co.      v.    Watertown,      etc., 
Plank  Road  Co.                          123 
Madrid     Bank,     In   re,    Wilkin- 
son's Case                                  523 
Madrid  Bank  v.  Pelly              629,  031 
Magee  v.  Pacific  Imp.  Co.               275 
Maghee    v.    Camden,     etc.,     R. 

R.  Co.  364 

Magnin  e.  Dinsmore         353,  356,  359 
Magowan  v.  Gronewcg  193 

Magruder  v.  Colson  741,  749 

Maguire  o.  Board  of  Revenue        483 
Magwood  u.  Railroad  Bank  592 

Mahady  v.  Bushwick  R.  R.  Co.      175 
Mahaska   County  R.    R.    Co.    v. 
Des      Moines      Vallev       R. 
R.  Co.  102a 

Mahew's  Case  719 

Mahony    v.  East   Holyford  Min- 
ing Co.  251 
v.  Spring  Valley  Water  Co.         106 
Mahony     Mining     Co.    r.     Ben- 
nett 637 
Main  v.  Casserly                       280,  284 
Maine  v.  Grand   Trunk    R'y   Co. 

479,  485 
Maisch  r.  Saving  Fund  758 

Malecek    o.  Tower   Grove    R.  R. 

Co.  210,  377 

Mallett  o.  Simpson  128,  303 

Mallory  v.  Mallory  Wheeler  Co.     640 

v.  Oil  Works  130 

r.  Tioga  R.  R.  Co.  302,  402 

Malone  v.  Boston,  etc.,  Railroad 

Co.  359 

v.  Haw  ley  365 

Maltz  c.  American  Express  Co.     412 
Manchester  and  Lawrence  R.  R. 

Co.  v.  Fisk  233 

Manchester     and      London      L. 

Ass.  Co.,  In  re  665 

Mandel  ».  Swan  Land  Co.  546 


SECTION 

Mangan  v.  Atterton  372 

Manhattan  Co.  v.  Kaldenberg        767 
v.  Lydig  199 

Manhattan     Hardware     Co.     v. 

Phalen  187,  212 

v.  Roland  287 

Manhattan     Life    Ins.    Co.      c. 

Forty-Second  St.  R.  R.  Co.      591 
Manhattan    Oil    Co.    v.    Camden 

and  Amboy  R.  R.  Co.  364 

Manheim,  etc,    Turnpike  Co.  v. 

Arndt  531 

Mann  v.  Birchard  353 

».  Cooke  546,  549,  745 

v.  Currie  586,  719 

v.  Pentz  707,  725 

v.  Williams  789 

Manney   v.  High    Shoals    M'f'g 

Co.  138 

Manning  p.  Quicksilver  M'g  Co.      799 
Mansfield,    etc.,    R.    R.    Co.    «. 

Brown  513,  517,  536,  539 

v.  Drinker  150,  154,  539 

v.  Stout  536,  539 

v.  Swan  413 

Manufacturers'     Sav.     Bank     ». 

Iron  Co.  642 

Manufacturing    Co.     v.     Bradley 

713,  722,  737 
v.  Founce  577 

r.  Peabody  012 

Manville  v.   Belden   M'g    Co.         310 
v.  Karst  728 

0.  Western  Un.  Tel.  Co.  357 

Manx    Ferry   Gravel    Road    Co. 

v.  Branegan  610 

Mapes  v.  Second  Nat.  Bk.        240,  241 

v.  Scott  101,  303 

Marande  i\  Texas  &  Pac.  Ky.  Co.  360 

March    v.    Eastern    R.     R.      Co. 

229,  556,  798 
Marchand  v.  Loan,  etc.,  Co.  85,  86 
Marcusse  v.  Gullet  Gin  Co.  088 

Marcy  v.  Clark  101,  586,  720,  749 

v.  Township  of  Oswego  321, 

330,  332 
Marietta,    etc.,    R.     R.     Co.    v. 

Elliott  531 

Marine  Bank  v.  Clements  236 

V.  Ogden  130 

Marine   Nat.    B'k   v.    Nat.    City 

Bank  245 

Marine  Ins.  Co.  v.  Young  248 

Mariners'  Bank  v.  Sewall  436 

Marion   o.   C.     R.    I.    and  P.   R. 

R.  Co.  344 

Market  Co.  v.  Railroad  Co.  163a 

Market   St.    R'y   Co.    r.    Central 

R'y  Co.  152 

Marlborough  M'f'g  Co.  v.  Smith 

227,  530 


TABLE    OF    CASES. 


SECTION 

Marquette    H.    and     O.    R.     R. 

Co.  ».  Langton  426 

Man-  v.  Bank  of  West   Tennes- 
see       500,  (356,  668,  705,  749,  813 
Marseilles    Extension    R'y   etc., 

Co.,  In  re  134,  232,  641 

Marsh  c.  Burrows  703,  705 

v.  Fairbury,  etc.,  R.  R.  Co.  162 

v.  Fulton  Co.  323 

v.  Mathias  146 

v.  Oneida  Central  Bank  672 

v.  Railroad  556 

Marshall   v.    Baltimore    &   Ohio 

R.  R.  Co.  293,  412,  413 

v.  Harris  148,  793 

v.  Sherman  393 

v.  Western  N.  C.  R.  R.  Co.  507 

Marshall    Foundry   Co.    v.    Kil- 

lian  655, 702 

Marston  v.  Deither  661 

Martin     v.     Continental      Pass. 

R'y  Co.  229 

v.  Fewell  739 

v.  Mobile,  etc.,  R.  R.  Co.  384 

v.  Nashville.  Building  Ass.  582,  583 
v.  Niagara  Paper  Co.  185,  197,  213 
v.  Pensacola,  etc.,  R.  R.  Co.  97,  521 
v.  Railroad  412 

Martin  v.  South  Salem  Land  Co. 

210,  522,  641,  660,  703,  705 
B.  Webb  215,  216,  241 

Marti ndale   v.    Kansas   City,   St. 

Jo.  and  C.  B.  R.  R.  Co.  162 

o.  Wilson  Cass  Co.  646 

Marvin  v.  Anderson  651 

v.  Universal  Life  Ins.  Co.  198 

Marvine  v.  Hyiners  225 

Maryland     v.      Baltimore      and 

Ohio  R.  R.  Co.  507 

Maryland   Tube  Works   v.  West 

End  Imp.  Co.  154,  401 

Mary  Lee  Coal,  etc.,  Co.  o.  Knox  759 
Marysville     Investment     Co.    v. 

Munson  430 

Marysville,  etc.,   Co.   v.  Johnson 

92,  109,  110 
Maslin  v.  Bait,  and  Ohio  R.  R.  Co.  353 
Mason  v.  Alexander  718 

v.  Brooklyn   City,   etc.,    R.   R. 

Co.  164 

v.  Frick  679 

v.  Haile  493 

v.  Henry  615 

v.  Missouri  Pac.  R'y  Co.  371 

«.  Pewabic  M'g  Co.  608 

Masonic      Templar      Assoc,      v. 

Channell  521 

Masonic,    etc.,    Life     Assoc,    v. 

Sharpe  612,  623 

Massachusetts    v.    Western   Un. 

Tel.  Co.  479 


SECTION 

Master's  Case  586,  749 

v.  Interstate  Ass'n  583 

Masters  v.  Electric  L.  Ins.  Co         610 

v.  Rossie  Lead  Mining  C  783 

Matter  of  La  Societe,  etc.,  158 

Mather  v.  Mower  Co.  646 

Mathez  v.  Neidig  725,  732 

Mathias  v.  White  Sulphur  Springs  238 

Mathis  v.  Morgan  429 

v.  Bank  687 

v.  Southern  Ry.  Co.  400 

Matteseu  v.  Dent  741,  747,  748 

Matthews  v.  Albert  731,  783 

v.  Associated  Press  583 

v.  Mass.  Nat.  Bank  240 

v.  Trustees  383 

Maupin    v.  Virginia    Lead    M'g 

Co.  202 

Maxmilian  v.  Mayor  335 

Maxwell's  Case  742 

May  v.  Memphis  Branch  R.   R. 

Co.  519 

v.  State  Bank  435 

Maynard     v.     Fireman's     Fund 

Ins.  Co.  219,  342 

Mayor,  etc.,  of  Atlanta  v.  Cen- 
tral R'y  Co.  179 
Mayor,    etc.,    of    Baltimore     v. 

B.  and  O.  R.  R.  Co.  554 
Mayor,    etc.,    of   Colchester     v. 

Seaber  667 

Mayor,    etc.,    of    Worcester   v. 

Norwich,  etc.,  R.  R.  Co.  166,  502 
c.  Railroad  Com'rs  162 

Mayor    of    Baltimore    v.    Pitts- 
burgh, etc.,  R.  R.  Co.  503 
Mayor  of  Griffin  i\  Inman  642 
Mayor  of  Lynn  r.  Turner  169 
McAlester  M'f'g  Co.  v.  Florence 

C.  &  I.  Co.  130 
McAllen  «.  Woodcock  627 
McAllister  v.  Plant  125 
McAlpin  v.  Powell  372 
McAndrew  v.  Electric  Tel.  Co.  357 
McArthur  v.  Times  Printing  Co.  87 
McAuley  v.  Columbus,  Chi- 
cago, etc.,  R'y  Co.             155,  420 

McAvity  v.  Pulp  Co.  647 

McCabe  v.  Goodfellow  57 

McCalet  v.  Goodwin  187 

McCall  v.  Byram  M'f'g  Co.  381 

McCartee  p.  Orphan  Asylum  127 

McCarthy  v.  Lavashe       537,  538,  738 

».  Mt.  Tecarte,  etc.,  Co.  647 
McCellan  v.  Detroit  File  Works  206 
McClanahan  o.  Ivanhoe  Land  Co.  523 
McClellan  v.  Scott  342 
McClelland  v.  Norfolk  South- 
ern R.  R.  Co.  679 

15.  Whitley  515 

McCleod  v.  Ginther  210 

871 


TABLE    OF    CASES. 


SECTION 

McCluer  v.  Manchester,  etc.,  R. 

K.  Co.  170 

McClure  v.  Central  Trust  Co.        792 

v.  Law  029 

v.  Livermore  753 

o.  Phila.,  etc.,  K.  R.  Co.  201 

v.  Township  of  Oxford  320 

McCormack  v.  Salem  R'y  Co.        824 

McCormick  v.  Kansas  City,  etc., 

R.  R.  Co.  173 

v.  National  Bank  298 

v.  Stockton  R.  R.  Co.  753 

McCoy  v.  Briant  319 

v.  Farmer  437 

McCracken  v.  Hayward  450,  493 

v.  Mclntyre  522c 

McCray  v.  Junction  R.    R.   Co. 

531,  536 

McC ready  v.  Railroad  Co.  368 

v.  Rumsey  603 

McCulloch  i\  Maryland  481,  483 

v.  Norwood  435 

McCullough  v.  Moss         181,  205,  718 

v.  Talladega  Ins.  Co.  146,  263 

McCully    v.   Pittsburg,    etc.,  R. 

R.  Co.  517 

McCummons    v.     Chicago    and 

N.  W.  R'y  Co.  368 

McCurdy  v.  Myers  608 

McCurdy's  Appeal  225 

McOurrie  v.  So.  Pac.  R.  R.  Co.       350 
McDaniel    v.    Chicago    and    W. 

R'y  Co.  364 

McDaniels  v.  Flower  Brook  M. 

Co.  574 

McDermott  v.  Evening  Journal     342 

McDonald  v.  Chisholm  193,  204. 

McDonald  v,  Mass.  Gen.  Hospital  335 

v.  Railroad  170 

v.  N.  &  W.  R.  Co.  365,  366 

v.  Williams  708 

v.  Thompson  736 

McDonnell    v.    Alabama     Gold 

L.  I.  Co.  738 

McDonough  v.  Bank  of  Houston    86 

MacDougal  v.  Central  R.  R.  Co.    376 

».  Gardner  687 

v.  Jersey  Imperial   Hotel  Co. 

96,  518 
McDowall  v.  Shehan  722 

Mcllhenny's  Appeal  84 

McElroy  v.  Minims  P.  H.  Co.         237 
McElroy  v.  Nashua  and  Lowell 

R.  R.  Co.  350 

McFadden    v.    County    of     Los 

Angeles  582 

McFarlan  v.  Triton  Ins.  Co.  738 

McGinty  o.  Athol  Reservoir  Co.    429 
McGomkey   v.  Toledo,    etc.,   R. 

R.  Co.  639 

McGowan  v.  McDonald  501 

872 


SECTION 

McGowan  v.    Wilmington,   etc., 

R.  R.  Co.  475 

McGregor,  qui  tarn  v.  Erie  R'y 

Co.  407 

McGregor  v.    Dover     and    Deal 

R'y  Co.  305,  387 

v.  Home  Ins.  Co.  786 

v.  Kilgore  361 

McHenry  v.  Jewett  578,  794 

McHose  v.  Wheeler         537,  738,  740 
Mclntire  v.  Preston  137,  204 

McKeag  v.  Collins  236 

McKee  v.   Grand    Rapids,    etc., 

R'y  Co.  636 

McKeen  v.  Northampton  County  479 
McKelvey  v.  Brockett  703 

McKiernan  v.  Lenzen  202 

McKim  v.  Glenn  512,  741 

McKinley  v.  Wheeler  120 

McKinney  v.  Jewett  360 

McLaren  v.  Franciscus  720,  749 

McLaughlin  v.  Detroit,   etc.,   R. 

R.  Co.  510,  572 

v.  O'Neil  726 

McLean  v.  Eastman  708 

v.  Plate  Glass  Co.  563 

McLellon  v.  Detroit  File  Works 

415,  665 
McLendon  v.  Commissioners  326 
McLouth  D.  Hunt  800 

McMahon  v.  Macy  737,  741 

v.  Morrison  421 

McMannus   o.    Phila.,     etc.,    R. 

R.  Co.  578 

McMillen  v.  Boyles  325 

McMillen  v.  Judge  of  Lee  Co'y      325 
v.  Michigan  So.  R.  R.  Co.    170,  359 
McMurtrv  o.  Temple  Co.  634 

McNeely  «.  Woodruff       575,  577,  578 
McNeil     v.    Chamber    of    Com- 

niGrcc  261 

v.  Tenth  Nat.  Bank  578,  795 

McNichol  v.  United  States,  etc., 

Agency  395,  472 

McNulta  r.  Corn  Belt  Bank   228,  583 
McQueen   v.    Middletown   M'f'g 

Co.  396 

McQuilken  v.   Cent.  Pac.   R.  R. 

Co.  376 

McRae   v.    Wilmington,   etc.,  R. 

R.  Co.  348 

McReynolds  v.   Burlington  and 

O.  R'y  Co.  178 

Meacham  v.  Fitchburg  R.  R.  Co.  179 

Mead  v.  Keeler  537 

v.     N.    Y.    Housatonic,    etc., 

R.  R.  Co.  409,  424 

Meads  v.  Merchants'  Bank  244 

r.  Walker  515 

Means  v.  Imp't  Co.  130 

Meaus's  Appeal  713 


TABLE    OF    CASES. 


SECTION 

Mearshon  v.  Pottsville  Lumber 

Co.  400 

Mechanics'      Banking     Ass.     v. 

White  Lead  Co.  205,  244 

Mechanics'     Bank    v.    Bank    of 

Columbia  254 

v.  Heard  433 

v.  N.  Y.  and  N.  H.   R.  R.  Co. 

572,  599 
v.  Seton  210 

Mechanics'    Building    Ass'n    v. 

Stevens  529 

Mechanics',   etc.,    Bank    v.   De- 
bolt  453,  483 
v.  Smith  196,  197 
Mechanics'    Foundry,    etc.,   Co. 

v.  Hall  513 

Mechanics'   Nat.    Bank   v.    Bur- 
net M'f'g  Co.  188,  189,  581 
v.  Baker,  Rec'r  484 
Medbury  v.  New  York  and  Erie 

R.  R.  Co.  252 

Medomak  Bank  o.  Curtis  214 

Med  way   Cotton    M'f'g    Co.    v. 

Adams  159 

Meeker  v.  Winthrop  Iron  Co.         608 
Meier  v.  Pennsylvania  R.  R.  Co. 

349,  350 
Meints    v.   East  St.  Louis,  etc., 

Mill  Co.  660 

Melhado  v.  Hamilton  572 

v.  Porto  Allegre  R.  Co.  87 

Melledge  v.  Boston  Iron  Co.  159 

Melvin  v.  Lamar  Ins.  Co.  779 

v.  Lisenby  253 

Memphis     and     L.    R.     R.    Co. 

v.  Commissioners  816 

v.  Dow  815,  816a 

v.      Railroad      Commissioners 

131,  132,  489,  490 
Memphis   Branch  R.    R.    Co.  v. 

Sullivan  518 

Memphis  City  v.  Dean  139,  140 

Memphis  City  Bank  v.  Tennes- 
see 490 
Memphis,  etc.,  R.  R.  Co.  v.  Ala- 
bama                                          412 
v.  Grayson                                     305 
v.  Parson's  Town  Co.                    642 
v.  United  States  477 
v.  Woods                         558,  559,  644 
Memphis    Gas     Co.    v.    Shelby 

County  488,  489 

v.  Williamson  140 

Memphis  Packet  Co.  v.  Nagel        377 

Memphis  Water  Co.  v.  Magens      415 

Menier   v.    Hooper's   Telegraph 

Co.  558,  788 

Mercantile  Bank  v.  New  York       484 

v.  Tennessee  490 


SECTION 

Mercantile    Co.  v.   Co-operative 

Ins.  Co.  759 

Mercantile  Ins.  Co.  v.  Jaynes  144 
Mercantile  Nat.  Bank  b.  Parsons  187 
Mercantile  Trust  Co.  v.  Mellon  477a 
Mercer  Co.  v.  Hackett  326,  330,  331 
Mercer  Co.   Ins.   Co.    v.  Strana- 

han  233 

Merchants'    and  Planters'    Line 

v.  Waganer         146,  560,  610,  689 
Merchants'      Bank      r.      Bergen 

County  329 

v.  Gas  Light  Co.  210 

v.  Shouse  600 

v.  State  Bank  193,  204,  243 

335,  337 
v.  Stevenson  775 

Merchants',  etc.,   Bank  v.  Stone 

148,  739 
v.  Trustees  663 

Merchants'  Despatch  Trans.  Co. 

v.  Bolles  364 

v.  Joesting  359 

v.  Leysor  210,  359 

v.  Moore  363 

v.  Theilbar  357,  359 

Merchants'  Nat.   Bank  v.  Bailey 

M'f'g  Co.  725 

v.  Hansom  302 

v.  Lovitt  210 

v.  Richards  796 

Merchants'    Union    Barb    Wire 

Co.  v.  Rice  216 

Mercier  v.  Canonge  210 

Meredith  b.  N.  J.  Zinc  Co.  502 

Meredith  b.  Zinc  &  Iron  Co.  569 

Merrick    b.    Bank    of    the    Me- 
tropolis 225,  233 
v.  Peru  Coal  Co.  647 
v.  Reynolds  Engine,  etc.,  Co.      146 
o.  Santvoord                   380,  381,  384 
Merrill  v.  Consumers'  Coal  Co.      212 
v.  Grinnell  355 
v.  Monticello  320 
v.  Reaver                                 529,  541 
v.  Shaw  737 
v.  Suffolk  Bank  435 
Merrimack  M'g  Co.  v.  Bagley         587 
Merritt  v.  Earle  350 
v.  Lambert  195 
v.  Porchester  163 
Merriweather  v.  Garrett                   334 
Mersey  Docks  v.  Gibbs                    169 
Messenger  v.  Penna.  R.  R.  Co.       309 
Messersmith  v.   Sharon  Savings 

Bank  587 

Methodist      Episcopal      Church 

v.  Kendall  92,  93 

Methodist  E.  Church  r.  Pickett 

145,  148 


873 


TABLE   OF    CASES. 


Metropolitan    City    R'y   Co.    v. 

Chicago,  etc.,  R'y  Co.  470 

Metropolitan    Coal    Consumers1 

Assoc,  In  re  104 

Metropolitan  El.  R'y  Co  v.  Knee- 
land  616 
v.   Manhattan  Elevated  R.  R. 
Co.                        559,  612,  642,  644 
Metropolitan     Nat.     Bank     v. 

Claggett  416 

Metropolitan     Omnibus     Co.    v. 

Hawkins  137 

Metropolitan  R.  R.  Co.  v.  High- 
land St.  R.  R.  Co.  163a 
Metropolitan    Savings    Bank  v. 

Baltimore  597 

Metropolitan   Telephone    Co.   v. 

Domestic  Tel.  Co.  233,  644 

Metropolitan  Trust  Co.  v.  Tona- 

wanda  R.  R.  Co.  822 

Metz  v.  Buffalo,  etc.,  R.  R.  Co.  170 
Mexican,  etc.,  Co.,  In  re  586 

Mexican     Central     R'y     Co.     v. 

Pinkuey  397 

Meyer  v.  Bristol  Hotel  Co.  138 

Meyer  v.  City  of  Muscatine     328,  330 

v.  Hornbv  817 

v.  Johnson  131,  421,  676,  822 

Meyers  u.  C.  R.  I.  and  P.  R.  Co.     475 

Miami  Exporting  Co.  v.  Clark        298 

v.  Gano  435 

Michaels  v.  N.  Y.  Central  R.  R. 

Co.  350 

Michener  o.  Payson  523 

Michigan   Central   R.    R.  Co.  v. 

Boyd  864 

v.  Burrows  361 

v.  Cairo w  210,  355 

v.  Chicago,  etc.,  R.  R.  Co.  676 

v.  Coleman  210 

v.  Hale  351 

Michigan  Ins.  Bank  v.  Eldred  416 
Michigan    Southern    and   N.    J. 

R.  R.  Co.  v.  Caster  361 

v.  Day  193 

Michigan  Southern,  etc.,    R.   R. 

Co.  v.  Heaton  353 

Mickey  v.  Stratton  204 

Mickles  v.  Rochester  City  Bank  432 
Micon  »'.  Tallassee  Bridge  Co.  453 
Middle  Bridge  Co.  v.  Marks  380,  385 
Middlebrook  b.  Merchants'  Bank  578 
Middlesex    Husbandmen   Co.    v. 

Davis  263 

Middlesex  R.  R.  Co.  v.  Boston, 

etc.,  R.  R.  Co.  305 

Middlesex      Turnpike     Co.     v. 

Locke  530,  531 

v.  Swan  530 

Middleton  v.  McCartie  806 

MiddMon  Bank  v.  Magill  720 

874 


SECTION 

Middletown   Ferry  Co.   v.   Mid- 

dletown  479 

Midland,    etc.,   R'y   Co.   v.   Gor- 
don 110 
Midland   R'y  Co.  v.  Great  West- 
ern R'y  Co.                                 308 
v.  Taylor                                          593 
Mihill's  M'f'g  Co.  v.  Camp  210 
Milan  Milling  Co.  v.  Gorten  400 
Mill  mi  n  v.  City  of  Cedar  Rapids  175a 
v.  Codd                                           784 
Milford,   etc.,   Turnpike   Co.    v. 

Brush  159 

Military  I.   Ass'n  v.  S.   P.  &  I. 

R'y  Co.  130 

Mill  Co.  v.  Felt  108 

Miller  v.    American,    etc.,    Ins. 

Co.  310 

v.  Burlington,  etc.,  R.  R.  Co.     336 
v.  English  574,  667 

v.  Ewer  380,  382 

v.  Great  Republic,  etc.,  Ins.  Co.  749 
v.  Guerrard  799,  800 

v.     Hanover    Junction,     etc., 

R.  R.  Co.  521,  779,  780 

v.  Howard  752,  758 

v.  Iowa  Land  Co.  629 

v.  Lancaster  424,  666 

v.  Murray  554 

v.  Porter  128 

v.  Prairie  du  Chien  R'y  Co.      162a 

v.  Ratterman  565 

v.  Rutland,  etc.,  R.  R.  Co.  185,  213, 

675,  814,  816a 

v.  State  498 

v.  United  States  479 

v.  White  737,  764,  770 

v.  Wild  Cat  Gravel  Road  Co.      513 

v.  Williams  401 

Miller's  Case  614 

Milliken  v.  Steiner  189 

v.  Whitehouse  737 

Mills  v.  Boyle  Mining  Co.  204 

Mills  v.  Britton  801 

v.  Central  R.  R.  Co.  229,  556 

v.  Michigan  Central  R.  R.  Co.    360 

v.  Northern  R'y  Co.  565,  658 

v.  Scott  726 

v.  St.  Clair  County  453 

v.  Stewart  548 

v.  Western  Bank  298 

Milnor    v.    N.    Y.    and    N.    H. 

R.  R.  Co.  364,  385 

Milroy  v.   Spur  Mountain  Iron 

M'g  Co.  715 

Miltenberger  v.  Logansport  R'y 

823,  824 
Milwaukee  v.   N.  Y.  and  N.  H. 

R.  R.  Co.  383 

Milhvaukee,  etc.,  R.    R.   Co.   v. 

Armes  377 


TABLE    OF    CASES. 


SECTION 

Mims  v.  Macon,  etc.,  R.  R.  Co.      163 
Miner  v.  Ice  Co.  611 

Mineral  Springs  Co.  v.  De  Bautte  213 
Miners'  Bank  v.  Iowa  410 

v.  United  States  503 

Miners'  Ditch  Co.  ».  Zellerbach     264 
Mining  v.  N.    Y.   C.  &  St.  L.  R. 

R.  Co.  175a 

Mining   Co.  v.  Anglo-California 

Bank  193 

v.  Iron  Co.  127 

Minneapolis   B.    B.    Co.   v.  City 

Bank  717 

Minneapolis  Harvester,  etc.,  Co. 

v.  Libby  544 

Minneapolis    R'y    Co.    v.    Beck- 

with  378,  480 

Minneapolis   Threshing    M.   Co. 

v.  Davis  105,  109 

Minneapolis  &   St.    L.    R'y  Co. 

v.  Emmons  475 

v.  Gardiner  424 

Minnesota   Co.   v.   St.  Paul  Co. 

676,  819 
Minnesota    Gas     Light    Co.    v. 

Denslow  538 

Minor  v.  Mechanic's  Bank  193, 

231,  781 
Minot  v.  Curtis  158 

v.  Paine  561,  800 

Minton  v.  Stahlman  756 

Missano  y.  Mayor  335 

Mississippi    and   M.  R.  R.  Co.  v. 

Cromwell  790 

Mississippi     and    Tenn.    R.    R. 

Co.  v.  Devancy  164 

Mississippi,  etc.,    Boom    Co.   v. 

Prince  449 

Mississippi  Bridge  Co.  v.  Ring      178 
Mississippi    Central    R.    R.    Co. 

c  Caruth  173 

Mississippi,   etc.,    R.    R.    Co.    v. 

Cross     97,  137,  521,  528,  529,  532 
v.  Gaster  225,  532 

Mississippi  R'y  Co.  v.  McDonald 

179,  495 
Mississippi  Valley  Co.  v.  Chi- 
cago, etc.,  R.  R.  Co.  427,  676 
Missouri  C.  &  M.  Co.  v.  Ladd  400 
Missouri  K.  &  Tex.  v.  Haber  474d 
Missouri    Lead    Mining    Co.    v. 

Reinhard  381,  382 

Missouri     Pac.     R.     R.    Co.     v. 

Lyde  365 

Missouri  Pac.  R'y  Co.  v.  Hays       178 
c.  Humes  475 

u.  Meek  406 

v.  Nebraska  163,  163a 

v.  Stults  193 

v.  Tygard  518 

v.  Watts  170 


SECTION 

Missouri   River,  etc.,  R.   R.  Co. 

v.  Shirley  145 

Missouri    River    R.    R.     Co.    v. 

Richards  647 

Mitchell  v.  Beekman  511,  736 

Mitchell  v.  B.  &  M.  R.  R.  Co.         372 
v.  Deeds  234,  238 

v.  Holman  647 

v.  Hotchkiss  764,  771 

v.  Illinois  and  St.  L.  R.  R.  Co.    166 
v.  Rome  R.  R.  Co.  204,  516 

v.  Vermont  Miniug  Co.  547 

Mittler  v.  Fidelity  Mut.  L.  I.  Co.  400a 

Mobile    and    Girard   R.    R.    Co. 

v.  Copeland  363 

Mobile   and   Montgomery   R.  R. 


Co.  v.  Steiner 

352,  476a 

Mobile  and   Ohio 

R. 

R. 

Co.  v. 

Davis 

822 

v.  Hopkins 

353 

v.  Moseley 

488 

v.  Nicholas 

715,  788 

v.  People 

162 

o.  Postal  Tel 

C. 

Co. 

163a 

v.  State 

458,  475 

v.  Thomas 

365 

v.  Weiner 

353 

v.  Yandall 

515 

Mobile   and  S. 

H. 

R. 

R. 

Co.  v. 

Kennedy 

488 

Mobile    Mutual    Ins.  Co.  v.  Cul- 

lom  600,  601.  604 

Mobile  R.  R.  Co.  v.  State  664 

Mobile,  etc.,  R.  R.  Co.  v.  McLel- 

land  344 

v.  Prewitt  360 

v.  Tennessee  565 

Mobley  v.  Breed  166 

Mohr  b.  C.  N.  W.  R.  R.  Co.  360 

v.  Elevator  Co.  715 

Mokelumne  Hill  Mining  Co.   v. 

Woodbury  451,  718 

Monadnock  R.  R.  ».  Felt  518 

Monell  r.  Northern  Central  R.  R. 

Co.  364 

Monroe  v.  Ft.  Wayne,  etc.,  R.  R. 

Co.  263,  537 

Monroe  Merc.  Ass'n  v.  Arnold       258 
Monroe  Savings  Bank  v.    Roch- 
ester 477a 
Mousseaux  v.  Urquhart           136,  578 
Moutclair  v.  Ramsdell  326 
Montgomery  j>.  Merrill  153 
v.  Phillips                                        759 
Montgomery     County    Agricul- 
tural Soc.  v.  Francis                  682 
Montgomery  Light  Co.  v.  Lahev 

688,  689 
Montgomery,   etc.,   R.  R.  Co.    r. 

Boring  416 

v.  Branch  656.  657,  674 

875 


TABLE    OF    CASES. 


SECTION 

Montgomery,  etc.,  R.  R.  Co.   v. 

Moore  363 

Montgomery   Southern   R'y  Co. 

v.  Matthews  523 

Montgomery  AVeb  Co.  v.  Dienelt 

657,  667 
Montpelier,   etc.,   R.    R.    Co.  v. 

Langdon  537 

Montrotier  Asphalt.  Co.,  lie  626 

Monument,   Nat.   Bank  v.  Globe 

Works  205 

Moore    o.    Bank   of    Commerce 

583,  601 
v.  Fitchburg  R.  R.  Co.  347 

u.  Garwood  104 

v.  Hanover  June.  R.  R.  Co.  530 
v.  N.  Y.,  N.  H.  &  H.  R.  R.  Co.  365 
v.  Opera  House  Co.  796 

15.  Schoppect  432 

v.  Silver  Valley  Mining  Co.  141 
v.  Wayne  Circuit  Judge  395 

Moore,   etc.,    Hardware    Co.    v. 

Towers  Hardware  Co.  90 

Moores  v.  Citizens1  Nat.  Bank       598 
Moorhead  v.   Little  Miami  R.  R. 

Co.  163,  164 

Moian   v.  Com  miss' is  of  Miami 

County  330 

v.  New  Orleans  485 

Moreland  v.  State  Bank  257 

Morford  v.  Farmers1  Bank  244 

Morgan,  Ex  parte  780 

Morgan  v.  Bank  of  North  Amer- 
ica 600 
Morgan  o.  Bank  of  the  State  of 
New  York  672 
v.  Donovan  282 
v.  Hech strom                         767,  770 
v.  Howland  702 
15.  King                             140,  612,  630 
15.  Lewis  135 
15.  Louisiana                            489,  490 
15.  New  York  &  A.  R.  R.  Co.       700 
15.  Nat.  Bl'd'g  Ass'n                      435 
15.  Railroad  Co.  140 
u.  Skidd                                    696,  755 
15.  Strutliers  105 
Morgan's  Case                                    747 
Morgan  County  v.  Thomas     236,  415 
Morgan's    Co.    d.    Texas    Cent. 

R'y  Co.  824a 

Morgan's  Steamship  Co.  v.  Lou- 
isiana Board  of  Health  474a 
Morisette  v.  Howard  211 
Morrill  v.  Boston  &  Maine  R.  R. 

Co.  556 

i).  Little  Falls  M'fg  Co.  138 

15.  Manufacturing  Co.  574,  577,  578 
15.  Smith  Co.  420 

Morris  15.  Cheney  123,  543 

15.  Ely  ton  Land  Co.  130,  608 

87G 


309 
372 

173 

45 


SECTION 

Morris  v.  Ga.  L.  S.  <fc  B.  Co.  210 

15.  Hall  389 

Morris  and  Essex  R.  R.  Co.  15. 

Central  R.  R.  Co.    163a,  164,  166 
15.  Land  Co.  547,  556 

v.  Newark  175a 

15.  State  368 

15.  Sussex  204,  295 

Morris  Canal,  etc.,  Co.  i>.  Fisher  679 
v.  Nathans  518 

15.  Van  Vorst  199,  240 

Morris  Run  Coal  Co.  15.   Barclay 
Coal  Co. 

Morrisey  v.  Easton  R.  R.  Co. 

Morrison  15.  Buckport,  etc.,  R.  R. 
Co. 
15.  Savage 
15.  Wilder  Gas  Co.  204,  258 

Morrison  Jewell  Co.  15.  Lingami    137 

Morrow  v.  Edwards  611 

15.  Iron  Co.  522a 

15.  Superior  Court  722,  725 

Morse  15.  Beale  204,  238 

15.  Minneapolis,  etc.,  R'y  Co.      366 

Morse  Arms  M'fg  Co.  v.  U.  S.       137 

Morton    15.   New    Orleans,   etc., 
R'y  Co. 
15.  Hamilton  College 

Morton  County  Bank  v.  Day 

Morton     Gravel     Road     Co. 
Wysong 

Moseby  15.  Burrow 

Moses  0.  Ocoee  Bank  719,  757 

15.  Pittsburgh,  F.  W.  and  C.  R. 

R.  Co.  175a 

15.  Scott  788,  790 

15.  Tompkins  547 

Moshannon  Land  Co.  ».  Sloan        201 

Mosher  v.  Southern  Exp.  Co.  363 

Moss  v.  Averill  715 

Moss  v.  Oakley  718 

v.  Rossie  Lead  Mining  Co.  204,  826 

Moss's  Appeal  799 

Mott  15.  Consumers'  Ice  Co.    339,  344 
15.  Danville  Seminary  437 

r.  Hicks  159 

i).  Pennsylvania  R.  R.  Co.  488 

Moulin  v.  Insurance  Co.  396 

Moulton  v.  Connell  Co.  765 

Mount     Holly  Paper   Co.'s  Ap- 
peal 

Mount    Holly  Turnpike   Co.    v 
Ferree 

Mount  Pleasant  15 

Mount     Sterling 
Little 

Mt.    Washington 
Marsh 

Mower  i).  Staples 

Mowrey   15.    Indianapolis,     etc., 

R.  R.  Co.  536,  557 


680 

86 

137 

582 
432 


Beckwith 
Coal   Co. 

Hotel   Co.   15. 


603 

596 
316 

513 

211 

557 


TABLE    OF    CASES. 


SECTION 

Moyerr.  N.   Y.    C.    and   H.    R. 

R.  R.  Co.  173 

Moyle  v.  Lander's  Admrs.  560 

Mozly  v.  Alston  142,  554 

Mudgett  v.  Howell  740 

Mueller  v.  Fire  Clay  Co.  759 

Mugler  v.  Kansas  476 

Mullan  v.  Phila.,  etc.,  S.  S.  Co.  365 
Mullanphy  Sav.  Bank  v.  Schott  632 
Mullarkey  v.   P.    W.   and  B.   R. 

R.  Co.  363 

Muller   v.  Dowes     408,  412,  413,  420 

Mulligan  v.  111.  Cent.  R.  R.  Co.       363 

v.  New  York,  etc.,  R.  R.  Co.      347 

Mullins    v.     South    and     North 

R.  R.  Co.  449a 

Mulloy   v.    Nashville     and    De- 
catur R.  R.  Co.  449 
Mumford  v.   American   L.   Ins., 

etc.,  Co.  381 

Mum  ma  v.  Harrisburg,    etc.,    R. 

R.  Co.  175a 

v.  Potomac  Co.  435,  664 

Muncy  Co.  v.  Green  91 

Munger  v.  Tonawauda  R.  R.  Co.  369 

Munhall     v.     Pennsylvania      R. 

R.  Co.  308,  309 

Munn  v.  Illinois  450,  475,  476a,  497 
Munson  v.  Magee  628 

v.    Syracuse,    etc.,    R.    R.    Co. 

76,  87,  630 
M unt's  Case  747 

Murphy,  Application  of,  Exparte 

796 
Murphy   v.    Boston    and   A.   R. 

365,  371 
v.  City  of  Louisville  312 

v.  C.  R.  I.  and  P.  R.  R.  Co.         371 
v.  Deane  373,  376 

v.  Union  R'y  Co.  348 

Murray  v.  Lardner  679 

u.  Nelson  Lumber  Co.  214 

v.  Vanderbilt  628 

Murray's     Lessee     v.     Hoboken 

Land  Co.  471 

Muscatine  Turn  Verein  v.  Funck 

435,  436 
Muschamp  v,  Lancaster  R'y  Co.  363 
Musgrave  v.  Morrison  518 

Mussey  v.  Eagle  Bank  244 

Mussina  v.  Goldthwaite  688 

Mutual     Benefit  Life     Ins.   Co. 

v.  Davis  276,  384 

v.  Wiune  401 

Mutual  Fire  Ins.  Co.  v.  Stokes      449 

v.  Farquar  573 

Mutual     Loan,    etc.,     Ass'n    v. 

Price  249 

Mutual   Savings   Bank   v.    Meri- 
den  Agency  Co.  267 


Myer  v.  Car  Company 

v.  Liverpool,  etc.,  Ins.  Co. 

Myers  v.  Bank 
v.  Campbell 

Mynard  v.  Syracuse,   etc.,  R, 
Co. 


SECTION 
818 

392 
672 
302 
R. 
353 


Myrick  u.  Mich.  Cent.  R.  R.  Co.   363 


y.  Petway 
R.     R.     Co.    v. 
362, 
Biowu 

130,  131,  161, 


101,  586,  749, 
Exchange 


N. 


Nabring  v.  Bank  of  Mobile    789, 
Nagel  v.  Missouri  Pac.  R'y  Co. 
Naglee  v.  Pacific  Wharf  Co.    588, 
Nash  p.  Minn.  Title,  etc.,  Co. 
Nashua  Lock  Co.  v.  Worcester, 

etc.,  R.    R.  Co. 
Nashua    R.     R.     Co.    v.   Lowell 

R.  R.  Co. 
Nashville   and   C.    R.    R.  Co.  v. 
Cowardin 

v.  Jones 

v.  Starnes 
Nashville  Bank 
Nashville,    etc., 

Carroll 
Nassau  Bank  r. 

v.  Jones 
Nathan   v.  Lee 

v.  Whitlock 
National       Albany 
Bank  u.  Wells 
National  Bank  v.  Anderson 

v.  Baker,  Rec'r 

v.  Berry 

v.  Case 

v.  Colby 

«.  Commonwealth 

v.  Deposit  Co. 

v.  Dillingham 

v.  Graham 

v.  Insurance   Co. 

v.  Kimball 

v.  Kirby 

v.  Knitting  Works 

v.  Lake  Shore,  etc.,  R.  R.  Co. 

v.  London 

v.  Mallan 

v.  Matthews  161,  302, 

v.  Paige's  Executor 

v.  Phoenix  Warehousing  Co. 

v.  Texas  Investment  Co. 

v.  United  States 

0.  Watsontown  Bank 

v.  Whitney 

v.  Young 
National   Bank  of  Commerce  v 
Nat.  Mechanics'  B'k'g  Asso- 
ciation 
National  Building  Soc'y,  In  re 


587,  741, 
435, 
482, 


161,  337, 
301,  432, 


240, 
276, 
205, 


794 
371 

796 
237 

364 

408 

163 
518 
344 
432 

365 
764 
276 

388 
780 

484 
187 
484 
236 
747 
669 
484 
432 
765 
346 
673 
492 
680 
236 
595 
751 
210 
303 
774 
149 
657 
478 
607 
302 
285 


245 
645 


I  i 


TABLE    OF    CASES. 


SECTION 

National  Carriage  MTg   Co.  v. 

Story,  etc.,  Co.  749 

National    Commercial    Bank    v. 

McDonnell  501,  738,  741 

National    Condensed    Milk    Co. 

v.  Brandenburg  396 

National  Docks  K.  R.  Co.  v.  Cen- 
tral K.  K.  Co.  155,  103 
National  Exchange  Co.  v.  Drew 

232,  523 
National  Home  B'l'd'g  Ass'n  v. 

Bank  2(54,  281,  284 

National  Loan  Ass'n  v.  Lichten- 

walner  715 

National  Park  Bank  v.  Warehous- 
ing Co.  244 
National  Patent  Fuel  Co.,  In  re    645 
National     Pemberton     Bank    v. 

Porter  264,  293,  302 

National  Permanent  B'ld'g  Soc, 
In  re,  Ex  parte  Williamson 

265,  305,  311 
National  Security  Bank  v.  Cush- 

man  210,  240 

National  Shoe  and  Leather  Bank 

v.  Mechanics'  National  Bank  495 
National    State    Bank    v.    Vigo 

Bank  236 

National   Tel.,    etc.,    Co.   v.   Du 

Bois  392 

National  Trust  Co.  v.  Gray  795 

».  Miller  273 

v.  Murphy  384 

National  Tube  Works  Co.  v.  Bal- 

lou  703 

v.  Gilfillan  723 

v.  Machine  Co.  651 

Nation's  Case  589,  748 

Natoma  Water  M'g  Co.  v.  Clarkin  286 
Natusch  v.  Irving  112,  268,  556 

Naugatuck  R.  R.  Co.  v.  Water- 
bury  Button  Co.  308 
Naugatuck  Water  Co.  v.  Nichols  529 
Nauvoov.  Better  330 
Neal  v.  Coburn  672 
v.  Moultrie  765 
Neal's  Appeal  632 
Neall  r.  Hill  611,  688 
Nebraska  Nat.  B'k  v.  Clark  759 
Neff  o.  Wolf  River  Boom  Co.  415 
Neiler  v.  Kelley  794 
Neilson   v.   Chicago  M.   and   N. 

R'y  Co.  179 

v.  Crawford  737 

v.  Nelson  Blakey  518 

v.  Eaton  125 

v.  Hubbard  125,  133,  184,  436 

v.  St.  Martin's  Parish  333 

v.  Woodruff  351 

Nesbit  r.  Riverside  Ind.  Dist.         321 
Nesmit.hu.  Washington  Bank         601 

878 


SECTION 

Neuchatel  Asphalte  Co.  v.  Mayor  401 
Neustadt  v.  III.  Cent.  R.  R.  Co.  488 
New  Albany  v.  Burke  746 

New  Albany,  etc.,   R.  R.  Co.  v. 

Fields  521 

v.  Tilton  475 

New  Bedford  R.  R.  Co.  v.  Old 

Colony  R.  R.  Co.  415 

New  Boston  Fire  Insurance  Co. 

v.  I'pton  258 

New  Buffalo  v.  Iron  Co.  324 

Newburg      Petroleum     Co.      o. 

Weare  384 

Newburger  v.    Howard  &  Co.'s 

Express  359 

Newbury  v.  Detroit,  etc.,   M'f'g 

Co.  588,  796 

Newby    v.    Colt's    Patent    Fire 

Arms  Co.  392 

v.  Oregon  Central  R.  Co. 

137,  158,  662 

Newcastle  Marine  Ins.  Co.,  In  re    586 

Newell  v.  Great  Western  R'y  Co.  396 

v.  Minneapolis,  etc.,  R'y  Co.       168 

v.  Smith  363,  417 

v.  Willston  796 

New  Boston  Ins.  Co.  v.  Saunders  203 

New  England   Ex.   Co.  v.  Maine 

Central  R.  R.  Co.  309 

New    England    F.    Ins.    Co.    v. 

De  Wolf  254 

New   England   Fire   Ins.    Co.  v. 

Robinson  249 

New  England  Iron  Co.  v.  Gilbert 

El.  R.  R.  Co.  204 

New  England  Mutual  Ins.  Co.  v. 

Phillips  581 

New  England  Mut.  Life  Ins.  Co. 

v.  Woodworth  395 

New  England  R.  R.  Co.  v.  Cen- 
tral R'y  Co.  281 
N.  E.  R.  R.  Co.  v.  Conroy  365,  366 
New  England  T.  Co.  v.  Abbott  583 
Newhall  v.  Galena,  etc.,  R.  R.  Co.  553 
New     Hampshire,     etc.,     R.     R. 

Co.  v.  Johnson  513,  514,  546 

New   Haven   and    Northampton 

Co.  v.  Hayden        162a,  225,  3056 
New   Haven,   etc.,   R.   R.  Co.  v. 

Chapman  530 

New   Haven   Horse   Nail   Co.  v. 

Linden  Spring  Co.  393 

New  Haven  Trust  Co.  v.  Gaffney  522a 
u.  Nelson  746 

New  Hope  and  Del.   B'dge  Co. 

v.  Poughkeepsie  Silk  Co.  299 

New   Hope,   etc..   Bridge   Co.   v. 

Phoenix  Bank  215,  240 

New  Jersey  v.  Yard  461 

New    Jersey   Steam    Nav'n   Co. 

D.  Merchants'  Bank  351,  357 


TABLE    OF    CASES. 


SECTION 

New  Jersey  Southern  R.  R.  Co. 
v.    Long     Branch     Commis- 
sioners 153 
New  Lihdell  Hotel  Co.  v.  Smith     92 
New  Memphis  Gas  Lt.  Co.  Cases  632 
New  Orleans  v.  Citizens'  Bank      489 
v.  Houston                                   477a 
New    Orleans,    etc.,    R.    R.    Co. 

v.  Delaware  305 

v.  Jones  179 

v.  Jopes  347 

v.  McDonald  319 

v.  Southern,  etc.,  Tel.  Co.  163,  163a 
New   Orleans    City,    etc.,    R.   R. 

Co.  v.  New  Orleans  489 

New     Orleans     Debenture     Re- 
demption Co.  v.  Louisiana      460 
New   Orleans  Gas    Light  Co.   v. 
Louisiana    Light,    etc.,    Co. 

154,  474 
New   Orleans   J.  and   G.    N.    R. 

R.  Co.  v.  Allbritton  349 

v.  Jones  179 

o.  Mitchell  374 

v.  Moyl  179 

New  Orleans  Nat.  Bank  v.  Ray- 
mond 167 
New    Orleans    Pacific    R'y    Co. 

».  Parker  815 

New    Orleans,    St.    Louis,   etc., 

R.  R.  Co.  v.  Burke  347,  378 

v.  Harris  553,  557 

New    Orleans    M.    and    T.    R'y 

Co.  v.  Mississippi  454 

New  Orleans  Water  Works  Co. 

v.  Rivers  474 

Newport  v.  Mudgett  484 

Newport  and   Cincinnati  Bridge 

Co.  v.  Wooley  407 

Newport,     etc.,     Bridge     Co.    v. 

Douglass  668,  822 

Newport  Cotton  Mill  Co.  v.  Mims 

97,  518 
Newry,  etc.,  R'y  Co.  v.  Coombe  515 
v.  Edmunds  511 

New    Sombrero    Phosphate   Co. 

v.  Erlanger  82 

Newton  v.  Commissioners  316 

Newton  M'f'g  Co.  v.  White  150, 

189,  429 
New  York  v.  Squire  474d 

New   York    and    Canada    R.    R. 

Co.  v.  Gunnison  163 

New  York  and  Erie   R.   R.    Co. 

v.  Ketchum  86 

v.  Shepard  412,  413 

New   York    and   Harlem   R.    R. 

Co.  v.  Kip  163 

New  York  and  L.   I.  R.  R.  Co., 

In  re  458 

New   Fork  and  N.  E.  R.  R.  Co. 


SECTION 

v.  New  York,  etc.,  R.  R.  Co.  193, 
210,  305.  420 
New  York  and  N.  H.  R.  R.  Co. 

v.  Schuyler         133,  208,  329,  338, 
342,  541,  590,  591 
New  York  Cable  Co.   v.  Mayor, 

etc.,  of  N.  Y.  168 

New     York     Central,     etc.,     R. 

R.  Co.,  Matter  of  163 

New   York    Central   and   H.    R. 

R.     R.    Co.      v.     Metropoli- 
tan Gas  Light  Co.  163 
New  York  Dry  Dock  v.  Hicks        384 
New  York  Elevated  R.  R.  Co., 

Matter  of  460 

New  York,  etc.,  Bank  r.  Ciowell  739 
New    York    Firemen's    Ins.   Co. 

v.  Sturges  120,  204 

New     York      Floating     Derrick 

Co.  v.  New  Jersey  Oil  Co.        381 
New   York    Guaranty,   etc.,   Co. 

v.  Memphis  Water  Co.  815 

New    York,     H.    and    N.    R.    R. 

Co.    v.    Boston    H.    and   E. 

R.  R.  Co.  162 

New  York,  Housatonic,etc,  R.  R. 

Co.  v.  Boston,  Hartford  and 

Erie  R.  R.  Co.  163a,  164,  166 

New   York    Iron   Mine   v.    First 

Nat.  Bank  148,  201,  739 

New  York  L.  and  W.  R'y  Co., 

In  re  162a, 166 

New   York,    L.    E.    and    W.   R'y 

Co.  v.  Haring  338 

v.  Nickals  564 

New  York  L.  Ins.  Co.  u.  Cravens  400a 
New  York  Security  Co.   v.  Sara- 
toga G.  &  E.  Lt.  Co.  820 
New  York  Marbled  Iron  Works 

v.  Smith  432 

New  York,  N.  H.  &  H.  R.  R.  Co. 

v.  Long  153 

New    York,    etc.,    R.    R.    Co.    v. 

Cromwell  350 

New    York    P.,  etc.,    R.    R.   Co. 

v.  Dixon  193 

New  York  State  v.  Roberts     400,  480 
New  York  State  Loan  and  Trust 

Co.  V.  Helmer  298 

New   Zealand   Banking   Co.,    In 

re,  Se well's  Case  211 

Niagara   Falls,    etc.,    R.   R.  Co., 

In  re  163 

Niantic  Savings   Rank  v.  Town 

of  Douglas  324 

Nicholas    v.    N.    Y.    Cent,    and 

H.  R.  R.  R.  Co.  353 

Nichols  v.  Bridgeport  166 

)•.  Mase  257 

v.  New  Haven  and  N.  Co.  490 

v.  Stevens  737 

879 


TABLE    OF    CASES. 


SECTION 

Nichols's  Case  110 

Nicli olson    v.    New    York    and 

N.  II.  R.  R.  Co.  179 

v,  Randle  202 

Nickels  u.  Building  Ass'n  400 

Nickerson  v.  Wheeler  764,  805 

Nicoll  v.  N.  Y.  and  E.  R.  R.  Co.    128 
Nicrosi  v.  Calera  Land  Co.  187 

Niemeyer  v.   Little    Rock,   etc., 

R.  R.  Co.  155 

Nieto  v.  Clark  347 

Nirnick  v.  Mingo  Iron  Works        393 
Nimmons  v.  Toppau  432 

Niraes  v.   Mt.    Hermon    School 

335,  33(3 
Nippenoze  M'f'g  Co.  i\  Stadon  521 
Nitro-glycerine  Case  3(39 

Nix  v.  Miller  616,  051 

Nixon  v.  Brownlow  110 

v.  Green  720 

Noble  ».  Callender  701 

v.  Turner  794 

Noblesville  Gas  Co.  v.  Loehr         258 
Nockles  v.  Crosby  104 

Noesen  v.  Town  of  Port  Wash- 
ington 319,  531 
Nolman  v.  Mitchell  110 
Nolton  v.  Western  R.  R.  Co.           352 
Norfolk,  etc.,    R,  R.  Co.  v.  Hou- 

chins  366 

Norfolk,     etc.,     R.     R.     Co.     v. 

Pennsylvania  486 

N.    O.    J.  and  G.   N.    R.    Co.  ». 

Wallace  392 

Norris  v.  Crocker  764 

v.  Johnson  725 

l>.  Mayor,  etc.,  of  Smithville      433 
v.  Trustees  of  Abington  Acad- 
emy 453 
v.  Wrenshall                                    714 
North  v.  Forrest  789 
v.  State  151 
North  American  Building  Ass'n 

».  Sutton  599 

Northampton  Bank  v.  Pepoon 

233,  235 
North  Australian  Territory  Co., 

In  re  629 

North    Branch    Pass'r    R'y    Co. 

v.  City  Pass'r  R'y  Co.  163a 

North  Carolina,  etc.,  R.  R.  Co. 
v.  Carolina  Central  R'y 
Co.  163,*  163a 

North    Carolina    R.    R.    Co.    v. 

Commissioners  479 

v.  Leach  521 

Nortli  East  and  S.   W.    Ala.   R. 

R.  Co.,  Ex  parte  495 

North   Hudson  Building  Assoc. 

v.  Bank  232 

v.  Childs  619 

880 


SECTION 

North    Missouri    R.     R.    Co.   v. 

Akers  392,  306 

v.  Maguire  488 

North   Penn.   R.   R.   Co.   0.  Reh- 

man  369 

North    River    Ins.    Co.    v.  Law- 
rence 276 

North  Shore,  etc.,  Ferry  Co.,  Be  578 

North  Stafford    Steel,    etc.,  Co. 

v.  Ward  96 

North   State   Copper,    etc.,    Co. 

v.  Field  392,  394 

North  Street  R.   R.  Co.  v.  Spul- 

lock  517 

Northern   Bank  v.  Porter  Town- 
ship 332 

Northern    Central  R.  R.  Co.  v. 

Bastian  238 

v.  Eslow  515 

v.  Mayor,  etc.,  of  Baltimore      163a 
v.  State  372 

Northern    Pacific    R.  R.    Co.  v. 

Doherty  162a 

Northern   Pacific   R.    R.    Co.    v. 

Dustin  454 

Northern  Pac.  R.  R.  Co.  v.  Free- 
man 374 
p.  Peterson                                      365 

Northern   R.   R.  ».   Concord  and 

C.  R.  R.  163a 

Northern     Transportation      Co. 

v.  Chicago  384 

o.  Derby  Nat.  Bank  241 

v.  McClary  361 

North rup   v.  Mississippi  Valley 

Ins.  Co.  210 

Northside  R'y  Co.  v.  Worthing- 

ton  127 

Northwest  Trans.  Co.  v.  Beatty  5596 

Northwestern  T.  E.  Co.  v.  Chi- 
cago, M.  &  St.  P.  R'y  Co.      163a 

Northwestern    Distilling  Co.    v. 

Brant  159 

Northwood  Union   Shoe   Co.    v. 

Pray  598 

Norton   v.  Alabama  Nat.    Bank 

211,  236 
v.  Bridge  Co.  396 

v.  Dyersburg  320 

v.  Norton  796 

v.  Shelby  Co.  321 

Norway    Plains    Co.    v.    Boston 

and  M.  R.  R.  Co.  360 

Norwich,  etc.,  Nav.  Co.  v.  Theo- 
bald 96 

Norwich  Lock  Mfg.  Co.  v.  Hock- 

aday  96 

Norwich  Yarn  Co..  Re  045 

Nottingham    v.     Baltimore    and 

P.  R.  R.  Co.  175a 

Nourse  v.  Prime  794 


TABLE    OF    CASES. 


SECTION 

Noyes  t>.  Smith  365 

v.  Spaulding  792,  795 

Nugent  v.  Railroad  Co.  170 

v.  Supervisors        320,  324,  420,  530 


Nulton  v. 

Clayton 

513 

Nunnally 

v.  Strauss 

663 

Nutter  v. 

Lexiugton, 

etc., 

R. 

R. 

Co. 

518 

Nutting 

v.    Connecticut 

River 

R.  R. 

Co. 

363 

v.  Thomasin 

797 

Nye  v.  Storer 

5596 

o. 

Oakdale  Mfg.  Co.  v.  Garst    309c,  385 
Oakes  v.  Turquand  523 

u.  Water  Co.  237 

Oakland  Bank  v.  Wilcox  616 

Oakland  R.   R.  Co.  13.  Oakland, 

Brooklyn,  etc.,  R.  R.  Co.         458 
Oates  v.  National  Bank  318 

O'Bear  Jewelry  Co.  13.  Volfer  655,  759 
O'  Brian  v.  Knivan  188 

O'Brien  v.  Cummings  748 

Occidental  Ins.  Co.  13.  Ganzhorn 

523,  537 
Oclielree  v.  Railroad  Co.  735 

O'Connell  v.  B.  and  O.  R.  R.  Co.  365 
O'Conuor   v.    Chicago,  etc.,   R'y 

Co.  210 

13.  Fou  du  Lac,  etc.,  R'y  Co.       173 

0.  Hotel  Co.  610 

13.  North  Truckee  Ditch  Co.       561 

O'Connor   Mining  Co.   13.  Coosa 

Furnace  Co.  644 

Odd  Fellows'  Hall  Co.  v.  Glazier  513 
Odell  u.  Odell  128 

Ogden  v.  City  of  St.  Joseph         477a 
13.  County  of  Daviess  320 

Ogilvie  13.  Knox  Ins.  Co.        661,  705, 

706,  744 
Ogle  v.  Knipe  567 

Oglesby  13.  Attrill  554 

O'Hara  v.  Lexington  and  O.  R. 

R.  Co.  163 

Ohio  13.  Frank  326,  680 

Ohio  and  M.  R.  R.  Co.  13.  Dick- 

erson  350 

13.  Dunbar  170 

v.  Indianapolis,  etc.,  R.  R.  Co.  308 

13.  McClelland  475 

Ohio  and  Mississippi  R.  R.   Co. 

13.  McPherson  381 

i).  Russell  170 

13.  Selby  353 

13.  Weber  479,  485 

13.  Wheeler  408,  412 

Ohio  and  Mississippi  R'y  Co.  13. 

People  409 

Ohio,  etc.,  R.  R.  Co.  0.  Yohe         350 
56 


SECTION 

Ohio   Insurance   Co.   13.    Munne- 

m acker  21 

Ohio  Life  Ins.  Co.  v.  Merchants' 

Ins.  Co.  391 

Ohio  Nat.  Bank  13.  Construction 

Co.  458 

Oil   Creek,   etc.,    R.    R.    Co.    v. 

Perm.  Transp.  Co.  276,  280 

Olcott  13.  Supervisors  319,  468 

13.  Tioga  R.  R.  Co.  204,  308 

Old   Colony,  etc.,   R.    R.  Co.   v. 

Plymouth  163a 

Oldham  13.  First  National  Bank 

161,  302 

13.  Mt.  Sterling  Imp't  Co.  87, 

529,  611 

Oldtown  R.  R.  Co.  0.  Veazie  133,  499 

Oler  13.  Baltimore,  etc.,  R.  R.  529,  541 

Oli  phant  13.  Wood  burn  Coal   and 

M'g  Co.  124,  690 

Olyphant  Sewage   Co.     v.    Oly- 

phant  Borough  460 

Oluey  v.  Conanicut  Land  Co.  759 

Olson  13.  Cook  719,  720 

Omaha,  etc.,  R.  R.   Co.  13.  Mar- 
tin 371 
Oneida  Bank  v.  Ontario  Bank  313,  734 
O'Neill  13.  New  York,  C.   and  H. 

R.  R.  Co.  360 

Opinion  of  the  Justices   (66  N. 

H.  629)  470 

Opsahl  13.  Judd  372 

Orange  County  Bank  v.  Brown     355 
Orchard  13.  Hughes  293 

Oregon  v.  Jennings  330 

13.  Smith  577 

Oregon   Central   R.     R.     Co.    13. 

Scroggin  537 

Oregon   R'y   Co.     v.    Oregonian 

R'y  Co.  120,  128,  283,  305 

13.  Portland  163a 

Oregonian  R'y  Co.  v.  Hill  166 

Orient  Ins.  Co.  13.  Daggs       383,  400a 

O'Reilly  13.  Bard  783 

Ormsby  13.  Vermont,  etc.,  Co.        381 

Orndoff  13.  Adams  Express  Co.       353 

Orr  13.  Bracken  County  502 

13.  Lacey  298 

13.  Quimby  470 

Osborn  v.  Crosby  92 

13.  People  153 

Osborne  13.  County  of  Adams         319 

v.  Knox,  etc.,  R.  R.  Co.  366 

v.  Mobile  485 

».  Osborne  801 

13.  Tunis  204,  248 

Osborne    &    Cheeseman   Co.    13. 

Crooney  769 

Osgood  v.  King  702 

13.  Laytin  705,  708 

13.  Ogden  730 

881 


TABLE    OF    CASES. 


SECTION 

Ossippee  H.  and  W.  Co.  v.  Can- 

ney  127,  205,  286,  537,  738 

Oswald  v.  Times  Co.  733,  737 

Oswego  Starch  Factory  v.  Dol- 

lovvay  477a,  479 

Otis  v.  Gardner  794,  795 

Otoe  Couuty  v.  Baldwin         319,  325 
Ottawa  v.  Carey  321 

v.  National  Bank  326 

Ottawa,  etc.,  R.  R.  Co.  v.  Black    529 
v.  Hill  521 

Otten  v.  Richmond,  etc.,  R.  R. 

Co.  376 

v.  Smith  436,  437 

v.  Whi taker  581 

Otter  v.  Brevoort  Petroleum  Co. 

522c,  599 
Ouachita  Packet  Co.  v.  Aiken  474c 
Oubre  v.  Donaldsonville  326 

Overend  v.  Gurney  620,  695 

Overend  &  Gurney  Co.  v.  Gibbs 

620,  695 
Overmeyer  v.  Cannon  725 

Overton  Bridge  Co.  v.  Means         671 
Owensboro  Nat.  Bank  v.  Owens- 

boro  483 

Owesley   v.   Montgomery   R.   R. 

Co.  342 

Oxford  Iron  Co.  v.  Spradley         125, 

204,  286 


Pace  v.  Burgess  480 

Pacific  Bank  v.  Stone  236 

Pacific  Nat.  Bank  v.  Eaton  511 

Pacific   Coast  Sav.   Soc.  v.  San 

Francisco  672 

v.  Pierce  Co.  484 

Pacific  Railroad  v.  Chrystal  179 

v.  Ketcham  627,  630 

Pacific  R.  R.  Co.  v.  Hughes  530 

v.  Maguire  488 

v.  Missouri  Pac.  R.  R.  Co.  140 

v.  Seeley  162 

v.  Thomas  193,  212 

Pacific  It.  R.  Removal  Cases  413 

Pacific  R.  R.  of  Mo.  v.  Missouri 

Pac.  Ry.  Co.  630 

Packard  v.  Taylor  350 

Packer  v.   Sunbury  and  Erie   R. 

R.  Co.  122 

Packet  Co.  v.  Catlettsburg  474?> 

v.  Keokuk  414b 

v.  St.  Louis  4746 

Paddock  v.  Fletcher  103,  696 

Paducah,  etc.,  R.  R.  Co.  v.  Com- 
monwealth 167 
v.  Hoehl                                           376 
Page   v.    Chicago   M.,   etc.,    R'y 
Co.                                               178 

882 


SECTION 

Page  v.  Heinburg  128 

Paige  v.  Smith  395 

Pain  v.  Societe  St.  Jean  Baptiste 

583 
Paine  v.  Hutchinson  791 

v.  Lake  Erie,  etc.,  R.  R.  Co. 

424,  627 
v.  Stewart  724,  749 

Pairpoint,     etc.,    M'f'g    Co.     v. 

Watch  Co.  388,  389,  391 

Palairet's  Appeal  163 

Palestine  Co.  v.  Wooden  501 

Palfrey  v.  Paulding  449 

Palmer  v.  Bank  702a 

v.  Forbes  125,  676 

v.  Maine  Cent.  R.  R.  Co.  344 

v.  Missouri  Pac.  R'y  Co.  368 

v.  Nassau  Bank  628 

v.  Ridge  Mining  Co.  587 

v.  Van  Santvoord  734 

v.  Woods  706 

v.  Yates  234 

Palmeri  v.  Manhattan  R'y  Co.       347 
Paua  o.  Bowler  318,  330,  331 

Panama,  etc.,  Telegraph  Co.  v. 
India    Rubber,    etc.,     Tele- 
graph Works  Co.  637 
Pangborn  v.  Citizens'    Building 

Ass'n  618 

Panhandle  Nat.  Bank  v.  Emery 

310,  664 
Pardee  v.  Drew  355 

Parish  v.    N.   Y.    Produce    Ex- 
change 583,  584 
v.  Wheeler             276,  277,  303,  308 
Park  v.  Grant  Locomotive  Works 

563 

v.  Petroleum  Co.  138 

Park  Co.  v.  Roberts  82 

Parke  v.  Commonwealth  Ins.  Co.  396 

Parke's  Appeal  162 

Parker  v.  Bank  225,  721 

Parker  v.  Boston  and  M.  R.  R.       178 

v.  Hotel  Co.  187,  429,  432 

v.  Kett  188 

v.  McKenna  629,  631 

v.  Metropolitan  R.  R.  Co.  502 

v.  Nickerson  263,  629,  631,  647 

v.  Northern  Central,    etc.,    R. 

R.  Co.  515,  516 

v.  Washoe  Manuf.  Co.  204 

Parkersburg  v.  Brown    319,  456,  477 
Parkin  v.  Fry  81 

Parks  v.  Tel.  Co.  357 

Parr  v.  Railroad  Co.  305 

Parrott  v.  Byers  589 

v.  Colby  715 

Parsons  v.   New  York  Central, 

etc.,  R.  R.  Co.  368 

Parsons  v.  Spooner  85 

v.  Winchell  752 


TABLE    OF    CASES. 


SECTION 

Passenger  Cases  4746,  485 

Passenger  R.  R.  Co.  v.  Young  347 
Passenger  R'y  Co.  i>.  Boudron  378 
Passmore     v.     Western    Union 

Tel.  Co.  357 

Patoo  v.  Nor.  Pac.  R.  R.  Co.  816a 
Patrick  v.  Boonville  Gas  Light 

Co.  633 

v.  Reynolds  77 

Patterson  v.  Clyde  359 

u.  B.  and  M.  R.  R.  Co.  376 

i>.  Kentucky  4696 

v.  Lynde  703,  704 

v.  Portland  Smelting  Works       632 
v.  Robinson  238 

Pattison     v.    Albany     Building 

Ass'n  147 

v.  Svracuse  Nat.  Bank  161 

Pattou  v.  T.  &  P.  R.  Co.  365 

Paul  v.  Virginia  383 

Paulding   v.    Chrome   Steel   Co. 

185,  300,  668 
Paulman  v.  Erie  R.  R.  Co.  365 

Pauly  i>.  Loan,  etc.,  Co.,  741 

i>.  Pauly  260,  642,  643 

Paup  v.  Drew  507 

Paxton  Cattle  Co.  i>.  First  Nat. 

Bank  90 

Payne  v.  Bullard  709 

v.  Commercial  Bank  241 

v.  New  South  Wales  Coal  Co.      87 

Payne's  Case  586 

Payson  ».  Stoever  211,  213 

v.  Withers  527 

Peabody  v.  Flint  559,  688 

Pearce  v.  Madison,   etc.,   R.   R. 

Co.  195,  264,  305,  418 

Pearsall  v.  Railway  453,  502 

Pearson  v.    Concord   R.    R.  Co. 

309,  630,  644 

v.  Duane  348 

v.  Tower  688 

v.  Wheeler  417 

Peavy  v.  Calais  R.  R.  Co.  166 

Peck  u.  Coalfield  Coal  Co. 

522c,  702,  717 
13.  Cooper  755 

u.  Gurney  755 

13.  Miller  734 

v.  N.  Y.  C.  and  H.   R.    R.  R. 

Co.  348 

13.  Providence  Gas  Co.  592 

13.  Schenectady  Ry.  Co.  175 

Peckham  13.  Hendren  210 

13.  North  Parish  396 

v.  Van  Wagenen  798 

Peebles  13.  Patapsco,  etc.,  Co.         342 

Peek  13.  Detroit  Novelty  Works    210 

Peel  13.  Phillips  775 

Peet  v.  Chicago  and  N.  W.  R'y 

Co.  362,  363 


SECTION 

Peete  13.  Morgan  480 

Pegram  13.  Charlotte,  etc.,  R.  R. 

Co.  630 

Peik  13.    Chicago,   etc.,  R'y  Co. 

474c,  476a 
Pierce  13.  Jersey  Water  Works  518 
Pell's  Case  522c,  702 

Pelton  13.  National  Bank  484 

i).  Rensselaer,  etc.,  R.  R.  Co.  360 
Pemberton  13.  N.  Y.  C.  R.  R.  Co.  359 
Pembina  Mining  Co.  13.  Penn- 
sylvania 383,  480 
Pendergast  13.  Bank  of  Stockton  601 
Pendleton  v.  Kinsley  347 
Pendleton  Hardware  Co.,  In  re  283 
Penfield  v.  Dawson  T.  &  G.  Co.  702 
Peninsular  R'y  Co.  13.  Duncan  109 
Penn  Bank  13.  Hopkins  756,  758 
Penn  Match  Co.  13.  Hapgood  86,  87 
Penniman's  Case  493,  494 
Pennison  13.  Railroad  Co.  131,  415 
Pennock  v.  Coe  815 
Pennoyer  v.  Neff  395,  472 
Pennsylvania  v.  Quicksilver  Co.  413 
Penna.  Canal  Co.  13.  Bentley  376 
Pennsylvania  Co.  13.  Roy  350 
13.  Wentz  475 
Pennsylvania,   etc.,  Nav.   Co.  13. 

Dandridge  283 

Pennsylvania   Co.    13.   Insurance 

Co.  593 

13.  Toomey  344 

i).  Woodsworth  350 

Pennsylvania  R.   R.    Co.   13.  Bal- 
timore and  C.  R.  R.  Co.         163a 
13.  Berry  363 

13.  Bowers  489 

13.  Butler  353 

i).  Henderson  353 

13.  Jones  362 

13.  Milk  Exchange  309c 

v.  Miller  496 

13.    New   York  and    L.   B.   R. 

R.  Co.  171 

v.  Richter  373,  374 

i).  Schwarzenberger  363 

13.  Sheldon  309c 

v.  Sly  416 

i).  St.  Louis,  etc.,  R.  R.  Co.         284, 
305,  409 
i).  Vandiver  348 

13.  Weber  376 

Pennsylvania    R.    R.    Co.'s   Ap- 
peal 122,  163a,  470,  592,  641 
Pennsylvania        Transportation 

Co.'s  Appeal  415,  711 

Penobscot,    etc.,    R.    R.    Co.    v. 

Bartlett  96 

v.  Dummer  96,  108,  263 

v.  Dunn  229,  513 

Penrose  v.  Chaffraix  489 

883 


TABLE    OF   CASES. 


SECTION 

Pensacola  Tel.    Co.    v.   Western 

Union  Tel.  Co.  383,  474a 

Pentz  v.  Citizens'  Fire  Ins.  Co.      583 
People  o.  Albany,  etc.,  R.  R.  Co. 

454,  460,  574,  577 
v.  American     Bell    Telephone 

Co.  400 

v.  Assessors  481 

v.  Atlantic  Ave.  R.  R.  Co.  459 

u.  Ballard  608 

v.  Barker  477 

o.  Batchelor  573,574 

v.  Board  of  Governors  575 

v.  Bogart  459 

v.  Boston   and   Albany   R.    R. 

Co.  457,  475 

v.  Broadway  R.  R.  Co.  122 

v.  Buffalo  Stone  Co.  459 

v.  Chicago  Gas  Trust  Co.  130,  309c 
v.  Chicago,  etc.,  R.  R.  Co.  162 

v.  Coleman  57,  477a 

v.  Commissioners  484,  489 

v.  Compagnie  Generale  Trans- 

atlantique  4746,  480 

v.  Crockett  601 

v.  Crossley  576,  579 

v.  Cummiugs  688 

v.  Dashaway  Assoc.  459 

v.  Draper  464 

v.  Empire  Mut.  Life  Ins.  Co. 

659,  665 
v.  Equitable  Trust  Co.  477a,  479 
v.  Fidelity,  etc.,  Co.  388 

v.  Fire  Association        383,  400,  480 
v.  Fishkill  Plank  Road  Co.  459 

v.  Flint  437 

v.  Formose  401 

v.  Glann  320 

v.  Globe  Mut,  Ins.  Co.  649 

v.  Granite  State  Prov.  Ass'n       394 
v.  Hektograph  Co.  140,  611 

v.  Holden  320 

v.  Home  Ins.  Co.  484 

v.  Horn  Silver  M'g  Co.  479 

v.  Howard  386 

v.  Humphrey  470 

v.  Improvement  Co.  460 

v.  Kenney  577 

v.  Kerr  171,  175,  175a 

v.  Kingston    and    Middletown 

Turnpike  Co.  459 

v.  Lake  Shore,  etc.,  R.  R.  Co.     585 
v.  La  Rue  128 

v.  Los  Angeles  R'y  Co.  458 

v.  Manhattan  Co.  453,  460 

v.  Manhattan  Gas  Light  Co.        454 
v.  Marshall  667 

v.  Metropolitan  R'y  Co.       224,  563 
v.  Milk  Exchange  459 

v.  Montecito  Water  Co.  468 

v.  Mott  808 

884. 


SECTION 

People  v.  National  Bank  483 

v.  National  Trust  Co.  437 

v.  N.   Y.   C.  and  II .  R.  R.  R. 

Co.  455,  502 

v.  North  Chicago  Railway  Co.     459 
v.  North  River  S.  R.  Co. 

51,  130,  3096 
v.  N.  Y.,  L.  E.  and  W.  R.  R. 

Co.  454,  455 

v.  Oakland  County  Bk.  121 

v.  (>' Brien  128,  504 

v.  Ottawa  Hydraulic  Co.  460 

v.  Pacific  Mail  S.  S.  Co.  585 

v.  Perrin  157 

v.  Pittsburg  R.  R.  Co.  457 

v.  Pullman  Car  Co.  128,  460 

v.  Roberts  400,  480 

v.  Robinson  578 

v.  Salem  319,  476 

v.  Saratoga,  etc.,  R.  R.  Co.        474c 
v.  Schlitz  Brew.  Co.  309a 

v.  Security  Life  Ins.  Co.  813 

v.  Selfridge  451 

v.  State  Treasurer  139 

v.  Sterling  M'f'g  Co.  591 

v.  Supervisors  472,  480 

v.  Throop  808 

v.  Twaddell  228,  432,  579 

v.  Ulster,  etc.,  R.  R.  Co.  459 

v.  Utica  Insurance  Co. 

120,  161,  293,  457,  459 
v.  Wabash,  etc.,  R'y  Co.  474c 

v.  Walker  432 

r.  Weaver  484 

v.  Wemple  57,  485 

People's  Bank  v.  Kurtz  793 

u.  National  Bank  239,  241 

People's  Ferry  Co.  v.  Balch  518 

People's  Gas  Light  Co.  v.   Chi- 
cago Gas  Light  Co.  454 
People's  L.  S.  Ins.  Co.,  In  re         720 
People's  Mut.   Ins.  Co.  t3.  West- 

cott  190,  540,  573,  574 

People's  Savings  Bank  v.  Cupps    199 
Peoria  and  P.  V.  Ry.  Co.  v.  Chi- 
cago, etc.,  R'y  Co.  362 
v.  Peoria  and  F.  R'y  Co.    155,  163a 
Peoria  and  P.  W.  R.    R.  Co.  v. 

United  States  R.  R.  Co.  362 

Peoria  and  R.  I.  R.  R.  Co.  v.  Coal 

Valley  M'g  Co.  305 

13.  Lane  170 

v.  Preston  518,  530 

Peoria  and  Springfield  R.  R.  Co. 

v.  Thompson  270,  280 

Peoria  P.    and   I.    R.   R.    Co.  v. 

Black  179 

Percy  v.  Millaudon  228,  620 

Perin  v.  Carey  128 

Perkins  v.  Church  722 

v.  Eastern  R.  R.  Co.  369 


TABLE    OF    CASES. 


SECTION 

Perkins  v.  Missouri,  K.  and  T. 

R.  R.  Co.  347,  378 

v.  New  York  Central  R.  R.  Co.  353 
v.  Sanders  704 

v.    Union    Button-hole,     etc., 

Machine  Co.  519 

v.  Watson  298 

Perley  v.    N.    T.    C.  and  H.  R. 

R.  R.  Co.  355 

Perriue  v.  Chesapeake  and  Dela- 
ware Canal  Co.  122 
Perry  v.  Hale                                      104 
v.  Little  Rock,  etc.,    Railway 

Co.  86 

v.  Pearson  698 

v.  R.  R.  Co.  170 

v.  Simpson   Waterproof  M'f'g 

Co.  212 

v.  Thompson  359 

v.  Turner  725 

v.  Tuscaloosa  Co.  140,  258,  629,  688 
Pertli  Amboy  G-.  L.  Co.  v.  Mid- 
dlesex Co.  Bank  672 
Peru  Iron  Co.,  Ex  p arte  204 
Peter  v.  Un.  M.  Co.  5226 
Peterborough      R.      R.      Co.     v. 

Nashua  and  L.  R.  R.  Co.  212 

Peters    v.    Lincoln   and   N.    W. 

R.  Co.  185 

Petersburg  Savings,  etc.,   Co.  v. 

Lumsden  605 

Petre  v.  Eastern  Counties  R'y  Co.  88 
Petition  of  P.  &M.  R'y  Co.  4G0 

Pettibone   v.    Lake  View  Town 

Co.  237 

Petty  v.  Brunswick  R'y  Co.  146 

Petty  v.  Myers  319 

Pew  v.  Gloucester  Nat.  Bank  647 
Pewabic  Mining  Co.  v.  Mason  788 
Peychard  v.  Hood  745 

Pfeifer  v.  Sheybogan,    etc.,    R. 

R.  Co.  415 

Pfister     v.    Milwaukee    Electric 

R.  Co.  678 

Pfleger  v.  Hastings  178 

Pfohl  v.  Simpson     669,  705,  725,  813, 

814,  825,  826 

Pfyfe  v.  Eimer  400 

Phelan  v.  Hazard  522c,  702 

Phelps  v.  Farmers',  etc.,  B'k  562 

v.  Illinois  Central  R.  R.  Co.         350 

v.  Wait  752 

Phenix  Bank  v.  Curtis  137 

Philadelphia  &  Balto.  R.  R.  Co. 

v.  Holden  374 

Philadelphia  and  Bait.  Cent.  R. 

R.  Co.  u.  Johnson  6S2 

Philadelphia  and  E.    R.  R.   Co. 

V.  Cake  179 

Philadelphia  and  Reading  R.  R. 

Co.  v.  Derby  335,  350,  352 


Philadelphia   &    Reading 
Co.  v.  Ramsey 
v.  Smith 

SECTION 

R.  R. 

363 
680 

v.  Speaien 
v.  Stitchter 

372 

125,  126 

v.  Yerger 
Philadelphia     and 

368 
Wilmington 

R.  R.  Co.  v.  Maryland 
Philadelphia     Contributionship 

v.  Commonwealth 
Philadelphia,  etc.,   R.  R.  Co.  v. 
Couway 
v.  Hickman 
v.  Knight 
v.  Lewis 
v.  Maryland 
v.  Philada.,  etc., 
v.  Quigley 
Philadelphia,  etc., 

Pennsylvania 
Phila.  Fire  Ass'n  v 
Phila.     Loan     Co. 


S. 


490 
484 

521 

518 

680 

204 

421 

Towboat  Co.    170 

335,  338,  342 

S.  Co.  v. 

485 
New  York      400 
v.     Towner 

298,  313 
Philadelphia    Pass'r    R'y    Co.'s 

Appeal  465,  470 

Philadelphia  v.   Western  Union 

Tel.  Co.  305 

Philadelphia   W.    and    B.  R.    R. 

Co.  v.  Bowers  4766 

v.  Kent  County  R.  R.  Co.  409 

v.  Larkin  377 

v.  Lehman  361 

v.  Woelpper  676 

Phillips,  In  re  749 

Phillips  v.  Campbell  193,  197 

v.  Covington,  etc.,  Bridge  Co.    518 
Dunkirk,  etc.,  R.  R.  163.  175a,  473 


v.  Earle 

v.  Library  Co. 

r.  Mercantile  Nat.  Bank 

v.  P.  &  R.  R.  R.  Co. 

v.  Providence  S.  E.  Co. 

r.  Sanger  Lumber  Co. 

v.  Therasson 

v.  Wickham 

v.  Wiuslow 

o.  Wortendyck 
Phillips    Limerick   Academy   v. 

Davis 
Phinizy  v.  Murray 
Phoenix  Bank  v.  Donnell 

v.  Rislcy 
Phoenix  Carpet  Co.  v.  State 
Phoenix     Ins.    Co.    v.    Common- 
wealth 383,  480 

v.  Tennessee  490 

v.  Welch  400,  480 

Phoenix    Iron    Co.   v.    Common- 
wealth 385 
Phoenix     Warehousing     Co.      v. 

iiadger  521 

885 


356 

396,  398 

240 

178 

608 

211 

719 

432,  579 

125,  671 

752 


92 

798 

137 

672 

476a 


TABLE    OF    CASES. 


SECTION 

Phosphate     of    Lime    Co.      v. 

Green  213 

Phosphate  Sewage    Co.  v.   Har- 

•  mont  82 

Picard  v.    Tennessee,    etc.,    R. 

R.  Co.  490 

Pickard    v.    Pullman    Southern 

Car  Co.  485 

Pickering  v.  Hastings  704 

Pickering  v.  Steveuson   231,  275,  622 
v.  Townsend  522c,  660,  702 

Pickett  v.  Abney  263 

Piedmont  M'f'g    Co.   v.  Colum- 
bia, etc.,  R.  R.  Co.  363 
Pier  v.  George  771 
v.  Hanmore                            764,  774 
Pierce  v.  Commonwealth  577 
v.  Crompton                    384,  389,  394 
v.  Drew                                   175,  357 
v.  Emery                         305,  376,  814 
v.  Jersey  Waterworks  Co.  96 
v.  Milwaukee  Construction  Co.  706 
v.  Morse-Oliver  Co.                       258 
v.  R.  R.  Co.                      170,  353,  356 
v.  Security  Co.                               732 
Pike  v.  Bangor,  etc.,  R.  R.  Co.      517 
Pinckney  v.  West  Un.  Tel.  Co.      357 
Pingree  v.  Mich.  C.  R.  R.  Co.  421,  4766 
Pingry  v.  Washburn               309,  4766 
Pinkerton  v.  Perm.  Traction  Co.    170 
Pinney    v.    First    Div.    St.    P., 

etc.,  R.  R.  Co.  360 

Pinney  v.  Nelson  391 

Pindleton  M.  Co.,  In  re,  277 

Pioneer  Paper  Co.,  Matter  of      577a 
Piscatauqua  Ferry  Co.  v.  Jones 

516,  521 
Pitchford  v.  Davis  96 

Pittsburg    Cai-bon     Co.    v.    Mc- 

Millin  813 

Pittsburg  Min.  Co.  v.  Spooner         52 
Pittsburg,     etc.,     Min.       Co.    v. 

Quintrell  87 

Pittsburg  and  C.  R.   R.    Co.  v. 

Bedford,  etc.,  R.  R.  Co.  305 

v.  Pillow  347 

Pittsburg  and  L.  E.   R.   R.  Co. 

v.  Bruce  175a 

v.  Robinson  178,  179 

Pittsburg,     etc.,     Coal    Co.     v. 

Otterson  587 

Pittsburg  R.  R.  Co.  v.  Altoona 

Co.  281 

Pittsburgh,   etc.,    R.     R.    Co.  v. 
Applegate  516,  740 

v.  Bentley  178 

v.  Biggar  517,  518 

v.  Clarke  511,  587,  589 

v.  Gnzzam  511 

v.  Hollowell  350,  361 

v.  Robinson  178 

886 


SECTION 

Pittsburgh,  etc.,  R.  R.  Co.  v.  Ruby  210 
v.  Southwest.  Penn.  R.   R.  Co. 

163a,  475 
v.  Stewart  517 

Pittsburgh,    C.   and    St.   L.   R. 

Co.  v.  Barrett  360 

v.  Nash  360 

v.  Nelson  366 

v.  Theobald  210 

v.  Thompson  349 

v.  Vandiue  348 

v.  Williams  349 

Pittsburgh,      Cincinnati,      etc., 

R.  Co.  v.  Moore  418 

v.  Morton  350 

Pittsburgh,  Ft.  W.  and  C.  R'y 

Co.  v.  Bingham  371 

v.  Divinney  366 

v.  Hazen  361 

v.  Hinds  347 

v.  Lewis  363 

v.  Slusser  377 

Pittsburgh  Ry.  Co.  v.  Board  of 

Public  Works  485 

Pittsburgh  V.    and    C.   R'y  Co. 

v.  Bentley  178 

Pixley    v.     Roanoke  Nav.     Co. 

153,  156,  457 

v.  Western  Pac.  R.  R.  Co.  249 

Place  v.  Union  Exp.  Co.  361 

Plant  v.  Macon  O.  &  I.  Co.     130,  608 

Planters'  Bank  v.  Padgett  148 

v.  Sharp  211,  298,  453 

v.  Whittle  759 

Planters',  etc.,  Mut.  Ins.   Co.  v. 

Selma  Sav.  Bank  604 

Piatt  v.  Archer  435 

v.  Birmingham  Axle  Co.  210,  603 
Players.  Burlington,  etc.,  R'y  Co.  350 
Plimpton  v.  Bigelow  382,  392 

Plow  Co.  v.  Rude  651,  668,  759 

Plumb  v.  Bank  748 

Plummer    v.    Penobscot     Lum- 
bering Ass'n  120 
Plymouth  R.  R.  Co.  v.  Colwell       671 
Pneumatic  Gas  Co.  v.  Berry          622 
Poland  v.  Lamoille    Valley    R. 

R.  Co.  816a,  824 

Pollak  &  Co.  v.  Muscogee  M'f'g 

Co.  655 

Pollard  v.  Bailey  726,  826 

v.  State  483 

Pollock  v.  Carolina  Inv.  B.  &  L. 

Assn.  192 

Pollock  v.  Shultze  224 

v.  National  Bank  593 

Tonieroy's  Lessee  v.  State  Bank    436 
Pompton  v.  Cooper  Union  330 

Ponca  Mills  Co.  v.  Mikesell  555 

Pond  v.  Framingham,    etc.,    R. 

R.  Co.  663 


TABLE    OF    CASES. 


SECTION 

Pond  v.  Vermont  Valley  R.  R.  Co. 

560,  688 
Pondville  Co.  v.  Clark  663 

Pontchartrain  v.  New    Orleans, 

etc.,  R.  R.  Co.  152 

Pontchartrain    R.      R.      Co.    v. 

Heirne  210 

Pool  v.  Falls  Road  R'y  Co.  175 

Pope  v.  Bank  of  Albion  244 

v.  Brandon  668 

v.  Terre  Haute  Car  Manu- 
factory 398,  472 
Port  v.  Russell  628 
Port  of  London  Ass.  Co.'s  Case  311 
Port  Royal  R.  R.  Co.  v.  Ham- 
mond 406,  409 
Port   Royal,    etc.,    R.  R.    Co.   v. 

Branch  558 

Porter  v.   C.   R.  I.  and  P.   R.   R. 

Co.  344 

v.  Chicago  and  R.  I.  R.  R.  Co.    360 
v.     Northern     Missouri,    etc., 

R.  R.  Co.  175a 

v.    Rockford,  etc.,   R.  R.    Co.  477, 
477a,  492a 
v.  Sabin  690 

Portland  Bank  v.  Apthorpe  488 

Portland,  etc.,  R.  R.  Co.  v.  Gra- 
ham 547 
Portsmouth  Brewing  Co.  v.  Ports- 


mouth B.  &  B.  Co. 
Post  v.  Supervisors 

v.  Toledo,  etc.,  R.  R.  Co. 
Postal  Tel.  Co.  v.  Charleston 

v.  Eaton 
Potter  v.  Dear 
v.  Greenwich 
u.  Merchants'  Bank 
v.  Stevens  Machine  Co. 
v.  Thornton 
Potts  v.  Wallace 
Poucher  v.   New  York  C.  R.  R. 

Co. 
Poughkeepsie,     etc.,    Plank     R. 

Co.  v.  Griffin 
Poulton   v.  London   and   South- 
western R'y  Co. 
Powder     River    Cattle     Co.     v 

Custer 
Powell  v.  No.  Missouri  R.  R.  Co 

v.  Pennsylvania  R.  R.  Co. 
Power  v.  Holly 

v.  O'Connor 
Powers    v.    Hazleton,  etc.,    R'y 

Co.  155,  178 

Prather    v.   Jeffersonville,    etc., 

R.  R.  Co.  163,  164 

v.  Western  Un.  Tel.  Co.  162a 

Pratt  v.   Boston  and  Albany  R. 

R.  Co.  593 

v.  Jewett  610 


137 
320 
393 
486 
175 
704 
321 
239 
733 
128 
703 

353 

92 

339 

401 
665 
353 

804 
804 


SECTION 

Pratt  v.  Pratt  556,  562 

v.  Railway  Co.  360 

v.  Short  298,  299 

v.  Taunton  Copper  M'f'g  Co.      593 

Pray  v.  Mitchell  789 

Prendergast  v.  N.  Y.  C.   and   H. 

R.  R.  R.  Co.  372 

Prentice  v.  Decker  353,  359 

Prentis  v.  Nichols  668 

Presbrey  v.  Old  Colony  and   N. 

R.  R.  Co.  178 

Presbyterian   Church  v.   City  of 

New  York  572 

Presbyterian  Society  v.  Auburn, 

etc.,  R.  R.  Co.  175a 

Preston   v.  Liverpool,  etc.,   R'y 

Co.  87, 88 

v.  Melville  800 

v.  Missouri,  etc.,  Lead  Co.  233 

v.  Prather  161 

Pre witt  v.  Trimble  752 

Price  v.  Anderson  800 

Price  v.  C.  &  O.  Ry.  Co.  348 

v.   Grand  Rapids,    etc.,   R.   R. 

Co.  260 

v.  Holcomb  610 

v.  Milwaukee,  etc.,  R.  R.  Co.      178 
v.  New  Jersey  R.  R.  Co.  369 

v.  Oswego,  etc.,  R.  R.  Co.  360 

Price's  Appeal  513 

Priestley  v,  Northern  Ind.,  etc., 

R.  R.  Co.  361 

Prime's  Estate  489 

Primrose  v.  Western  Union   Tel. 

Co.  357 

Prince  v.  Commercial  Bank  137 

Pringle  v.  Eltingham  Cons.  Co.     610 
v.  Woolworth  144 

Printing,  etc.,  Co.,  In  re  614 

Pritchard  v.  Norton  493 

Pritchitt  v.  Trust  Co.  800 

Proctor  Coal  Co.  v.  Finley  577 

Proctor  Sons  Co.  v.  Cooke  522c 

Pronik  v.  Spirits  Dist.  Co.  563 

Produce  Exch.  Co.  v.  Beaverbach  197 
Pronger  v.  Old  Nat.  Bank  337 

Propeller  Niagara  ».  Cordes  350,  351 
Proprietors      of       Locks       and 
Canals      v.      Nashua       and 
Lowell  R.  R.  Co.      162a,  163,  178 
Prospect  Park,   etc.,  R.   R.   Co., 

Re  163a,  420 

v.  Williamson  163a 

Protection  Life    Ins.    Co.   v.  Os- 
good 599 
Proutv  v.  Lake  Shore,  etc.,  R'y 

Co.  426 

v.    Michigan     Southern,    etc., 

R.  R.  Co.  394,  564,  572 

o.  Prouty,  etc.,  Shoe  Co.      137,  668 

Providence  Bank  v.  Billings  488 

887 


TABLE    OF    CASES. 


SECTION 

Provident  Institution  v.  Massa- 
chusetts 482 
Prov.    Savings   Inst.  v.   Jackson 

Place  Skating  Rink  501,  714,  749 
Provident   Trust   Co.   v.   Mercer 

County  319,  330 

Pruitt   v.   Hannibal  and   St.  Jo. 

R.  R.  Co.  193 

Pueblo,  etc.,  R.  R.  Co.  v.  Rubb 

163,  100 
Pugh  v.  Chesseldine  042 

Pugh  v.  Fairmount  M'g  Co.  682 

Pugh  and  Sherman's  Case  742 

Pullen  v.  Cincinnati,    etc.,    R.  R. 

Co.  125,  305,  676 

Pullis  v.  Pullis  248 

Pullman's    Palace    Car     Co.    v. 

Adam  347 

v.  Central  Trans.  Co.  310 

v.  Hall  357 

v.  Pennsylvania  479 

v.  Reed  348 

v.  Smith  347 

Pullman  v.  Upton  541,  587,  741 

Pumpelly  v.  Green  Bay  Co.    173,  473 

Purcell  v.  Southern  Exp.  Co.  353 

Purdy  o.  Erie  K.  R.  Co.  4706 

Putnam  v.  Broad vvav,  etc.,  R.  R. 

Co.  347 

p.  New  Albany  745,  746 

Pylas  v.  Furniture  Co.  668 

Pyrolusite  Manganese  Co.,  Mat- 
ter of  430,  610 
».  Ward  480 

Q. 

Queenan  v.  Palmer  726 

Quested  v.   Newburyport  Horse 

R.  R.  170 

Quick  v.  Lemon  513 

Qui  m  by  v.  Vanderbilt  364 

Quincy  v.  Jackson  333 

v.  Steel  141 

Quincy    Bridge    Co.    v.    Adams 

County  406 

Quincy  Coal  Co.  v.  Hood  210 

Quincy   R.    R.    Co.    v.    Humph- 
reys 824a 
Quiner  v.  Marblehead  Ins.  Co.       589 

R. 

Rabe  v.  Dunlap  556 

Raber  v.  Jones  774 

Racine   and    Miss.  R.  R.    Co.  v. 

Farmers'  L.  and  T.  Co.  248, 

406,  420,  605 

Racine  County  Bank  v.  Ayres        517 

Rafferty  v.  Donald  586 

Ragan  v.  Aiken  131,  309 

v.  McElroy  282,  330 

888 


SECTION 

Ragland  o.  McFall  237 
Kahm  v.  Bridge  Manufactory        209 

Rahrer,  In  re  474o* 

Rahway  v.  Munday  333 

Railroad  ».  Knoxville  97 

v.  New  Oi  leans  494 

v.  Pendleton  490 

v.  Railroad            277,  309,  310,  314 

Railroad  Co.  v.  Alabama  462 
v.  Androscoggin  Mills  362,  363,  364 

v.  Babcock  365 

v.  Baldwin  383 

v.  Barnhill  408 

v.  Barron  170 

v.  Bristol  475 

v.  Brown  305 

v.  Brumley  364 

v.  Commissioners  489 

v.  County  of  Hamblen  490 

v.  County  of  Otoe  819 

v.  Falconer  322 

v.  Fraloff  353,  355 

v.  Fuller  474c 

v.  Furnace  Co.  224 

v.  Georgia  421,  468,  491 

v.  Gladmon  375,  376 

v.  Hambleton  175a 

v.  Hambley  36(5 

v.  Hamersley  475 

v.  Hanning  170 

r.  Harris  408,  412,  489 

v.  Hecht  493,  495 

v.  Houston  308,  374 

v.  Howard             127,  183,  656,  679, 
702,  711 

v.  Husen  474c 

v.  Jackson  479 

v.  Koontz  412 

v.  Lockwood  350,  352 

r.  Lumber  Co.  156 

v.  Maine  491 

v.  Manufacturing  Co.  359,  360 

v.  Maryland  474c,  485 

v.  McClure  468 

v.  National  Bank  318,  408 

v.  Peniston  482 

v.  Pollard  169,  351 

u.  Pratt  362,  363 

v.  Reeves  351 

v.  Richmond  474c,  475,  476 

v.  Rodrigues  548 

v.  Schurmeir  176 

v.  Schutte  210 

».  Skinner  369 

v.  Sneed  541 

v.  Seutter  663,  815 

v.  Stevens  352 

v.  Stout  372,  375 

v.  Telegraph  Co.  276 

».  Tennessee  462 

v.  Vance  477a 


TABLE    OF    CASES. 


SECTION 

Railroad  Co.  v.  Walrath  349 

v.  Yeiser  368 

Railroad  Commission  Cases         4766 

Railroad  Companies  v.  Gaines      489, 

490 
v.  Keokuk  Bridge  Co.        214,  264, 
283a,  308 
Railroad     Com'i-s    v.    Portland, 

etc.,  R.  R.  Co.  454 

Railroad  Tax  Cases  480,  492a 

Railway  Co.  v.  Allerton         133,  227, 

228,  555 
v.  Ailing  645,  651,  684,  757 

v.  Backus  477a,  492a 

v.  Fire  Association  400 

v.  Gill  4766,  490 

v.  Granger  86,  89 

v.  Harris  477a 

v.  Keokuk  Bridge  Co.  310 

v.  Herley  4696 

v.  Hooper  121 

u.  Iron  Co.  130 

v.  Lawrence  175,  175a 

v.  Loftin  489 

v.  McCarthy  121,  362 

v.  Orr  815 

v.  Philadelphia  489 

v.  Renwick  174 

v.  Sprague  674,  680 

v.  State  580 

v.  Stephens  350 

v.  Valleley  348 

v.  Whitton  400,  408,  411,  412 

Raleigh   and  Augusta   Air  Line 

v.  Wicker  178,  179 

Raleigh  and   Gaston  R.    R.  Co. 

v.  Reid  488 

Raleigh    and    G.   R.   R.    Co.    v. 

Davis  163 

Ralls   County   Court   v.    United 

States  333 

Ralston  v.  Bank  599 

Ramsden  v.  Boston  and  A.  R.  R. 

Co.  335 

Ramsey  v.  Peoria,  etc.,  Ins.  Co.     146 
v.  Thompson  M'f'g  Co.  523 

Ramstage,    etc.,    Hotel    Co.    v. 

Montefiore  517 

Ranee's  Case  622 

Randall  v.  Baltimore  and  O.  R. 

R.  Co.  366 

v.  Rhode  Island  Lumber  Co.      636 

v.  Van  Vechten  248,  753 

Ranger  v.  Great  Western  R'y  Co.  335 

Rankine  v.  Elliott  707 

Raritau  and   D.   B.    R.   R.  Co.  v. 

Delaware,  etc.,  Canal  Co.        152 
Rashdall  v.  Ford  754 

Rasmussen  v.  Idaho  474d" 

Rathbone  v.  Gas  Co.  140 


section 
Rathbun  v.  Citizens'  Steamboat 
Co.  360 

v.  Snow  192 

Ratterman  v.  Western  Un.   Tel. 

Co.  486 

Raw  v.  Minnesota  Valley  R.  R. 

Co.  173 

Rawson  v.    Pennsylvania  R.  R. 

Co.  359 

Raymond  v.  Palmer  757 

Raynav  v.  Alexander  97 

Read  v.  Buff  urn  201 

v.  Frankfort  Bank  665 

v.  City  of  Plattsmouth  325 

v.  Memphis  Gayoso  Gas  Co. 

234,  518 
v.  Spaulding  350 

v.  St.  Louis,  etc.,  R.  R.  Co.         361 
Reading    Tr.    Co.     v.      Reading 

Iron  Works  568 

Reagan  v.  Loan  &  T.  Co.  476a 

Real  Estate  Trust  Co.  v.  Bird        569 
Reapers'  Bank  v.  Willard  495 

Reavey's  Case  95,  747 

Reciprocity  Bank,  In  re  740,  747 

Red   River  V.    L.   &   J.    Co.   v. 

Smith  210 

Redinffton  v.  Cornwell  783 

v.  Telegraph  Co.  357 

Redmond  v.  Dickerson  629 

v.  Enfield  M'f'g  Co.  394 

Red   Polled   Cattle   Club  v.  Red 

Polled  Cattle  Club  137 

Red  Wing  Hotel  Co.  v.  Fried- 
rick  109 
Reed  v.  Boston  Machine  Co.  541 
y.  Ginsburg  676 
v.  Head  799 
v.  Home  Savings  Bank  342 
v.  Jones  581 
v.  Richmond  Street  R.  R.  Co. 

99,  451 
v.  St.  Louis,  etc.,  R'y  Co.  353 

Reed  Bros.  v.  National  Bank  415 

Regents  of    University  v.   Wil- 
liams 453 
Regina  v.  Mayor  of  Tewkesbury  577 
v.  Registrar,  etc.  158 
v.  Victoria  Park  Co.                     661 
v.  Wilts,    etc.,  Canal   Naviga- 
tion                                            585 
Richwald  v.    Commercial  Hotel 

Co.  229,  381,  710 

Reid  r.  Commercial  Ins.  Co.  595,  789 

v.  Eatonton  M'f'g  Co.  583,  708,  745 

Reilly  y.  Oglebay  573,  575 

Reisner    v.    Atchison,    etc.,     R. 

R.  Co.  178 

v.  Strong  155 

Relfe  v.  Rundle    27,  28,  120,  264,  390 


889 


TABLE    OF    CASES. 


SECTION 

Relief  Fire  Ins.  Co.  v.  Shaw  248,  254 
Remington  v.  Samana  Bay  Co.  703 
Rendall  v.  Crystal  Palace  Co.  555 
Rentier  u.  Bank  of  Columbia  195 

Rennie  v.  Clarke  76 

Reno  Water  Co.  v.  Lete  236 

Rensselaer,     etc.,     Plank    Road 

Co.  v.  Barton  92,  513,  516 

v.  Wetsel  96 

Rensselaer  R.  R.  Co.  v.  Davis         163 

Republic  Life  Ins.  Co.  v.  Swigert  135 

Republican,  etc.,  Mines  v.  Brown  390 

Revere  v.  Boston  Copper  Co.         433 

Rex  v.  Uicken  460 

v.  Langhorn  573 

v.  Pasmore  14,  449 

v.  Peacock  460 

v.  Wardroper  460 

Reyer  v.  Odd  Fellows'  Assoc.        397 

Reyman  Br'g  Co.  v.  Blister  400 

Reynell  v.  Lewis  77 

Reynolds  v.  Bridentlial  687 

v.  Smith  759 

v.  Collins  248 

v.    Crawfordsville    First    Nat. 

Bank  276,  302 

v.  Hind  man  376 

v.  Kenyon  240 

v.  Simpson  120 

Rhode  Island,   etc.,    R.   R.    Co., 

In  re  153 

Rhodes  o.  Iowa  474d 

Rhodes  v.  Mo.  Sav.  Co.  388 

Rhodes  v.  Webb  628 

Ribon  v.  Railroad  Co.  815 

Rice  v.  Boston,  etc.,  R.  R.  Co.       360 

v.  Hart  360 

v.  Hosiery  Co.  393 

v.  Rockefeller  599 

Rich  v.  State  National  Bank  515 

v.  Town  of  Seneca  Falls  320 

Richards    v.     Merrimack,     etc., 

Co.  305 

v.  Minnesota  Sav.  B'k  432,  739 

v.  New  Hampshire  Ins.  Co.        668, 

692,  759 

Richardson  v.  Abendroth  733 

v.  Buhl  309c 

v.  Graham  83,  522c 

v.  Green  632,  633,  655 

v.  Larpent  692 

v.  Pitts  783 

v.  Railroad  Co.  563 

v.  Richardson  799,  800 

v.  Sibley  125,  305 

v.  Vermont,  etc.,  R.  R.  Co.  510,  572 

v.  Watson  210 

v.  Williamson  754 

Richardson's  Case  742,  747 

Richboro    Dairymen's    Ass'n   v. 

Ryan  546 

890 


SECTION 

Riche  v.  Bar  Harbor  Water  Co.  163 
Richelier  Hotel  Co.  v.  Mili- 
tary E.  Co.  109 
Richmond  v.  Irons  714,  727,  748,  749 
v.  Union  Steamboat  Co.  360 
Richmond  Bank  v.  Robinson  301 
Richmond      Enquirer      Co.      v. 

Robinson  201 

Richmond  R'y  Co.  v.  Brown  455 

Richmond,   etc.,    R.     R.    Co.    v. 

City  of  Richmond  474 

v.  Louisa  R.  R.  Co.  122 

v.  Reed  531 

Richmond's  Case  548,  586 

Richmond's  Ex'rs  Case  747 

Richter  v.  Henningsan  187 

Richwald  v.   Commercial   Hotel 

Co.  89 

Ricketts   v.   Bait,    and   Ohio   R. 

R.  Co.  364 

Ricketts  v.  Birmingham  St.    K'v 

Co.  305 

Ricord  v.  Central  Pac.  R.  R.  Co.  342 
Riddle  v.  Bedford  County  189 

v.    Proprietors   of   Locks   and 

Canals  169,  449 

Rider  v.  Fiitchey  734 

v.  Morrison  551,  586,  745,  749 

Rider  Life  Raft  Co.  v.  Roach  283 

Ridge  v.  P.  R.  R.  Co.  169 

Ridgway  v.  Farmers'   Bank  205, 

225,  233 
Ridgway  Township  v.  Griswold  424 
Ridley  v.  Plymouth  Baking  Co.  262 
Riesterer  v.  Land  &  Lumber  Co.  301 
Riggs    v.    Commercial     Mutual 

Ins.  Co.  187 

v.  Railway  Co.  788 

v.  Taylor  792 

Rikhoff    v.     Browne's     Sewing 

Machine  Co.  99,  538 

Riley  v.  Rochester  128 

Rinesmith   v.    People's    Freight 

R'y  Co.  521 

Ringling  v.  Kohn  240 

Ringo  v.  Biscoe  668 

Ringold  v.  Haven  361 

Risley     v.     Indianapolis,      etc., 

R.  R.  Co.  236 

Rittenhouse      v.       Independent 

Line  of  Telegraph  357 

Rivanna  Nav.  Co.  v.  Dawsons  136 
Rives  v.  Dudley  128 

v.    Montgomery    Plank    Road 

Co.  523 

Road  Co.  v.  Kreeger  537 

Kohl)  o.  Ross  County  Bank  239 

Bobbins  v.  Embry  668 

v.  Justices  737 

v.     Milwaukee      and     H.     R. 

R.  Co.  178,  179 


TABLE    OF    CASES. 


Roberts  v.  Bank 

v.  Easton 

v.  N.  Y.  El.  R.  R.  Co. 
Robert's  Case 


SECTION 

642 

175 

175 

97 


Roberts  M'f'g  Co.  v.  Scblick  77 

Robertson  v.  Bullions  22b 

Robinson  v.  Bank  of  Darien  812 

v.  Bank  of  Attica  668 

v.  Bland  299 

v.  Chartered  Bank  601 

v.  Gardner  502 

v.        Merchants'        Despatch 

Trans.  Co.  359,  361 

v.  National  Bank  587,  589 

v.  Navigation  Co.  392 

v.    Pittsburg,  etc.,  R.    R.    Co. 

521,  779 
v.  Smith  690,  758 

v.  Southern  National  Bank         283 
Rochester  Land  Co.  v.  Roe  522c 

Rochester  S'v'g's  B'k  v.  Averell    185 
Rochester,  etc.,  Ry.  Co.  v.  Ray- 
mond '  586 
Rochester  &  C.  T.  R.  Co.  v.  Pa- 

viour  636 

Rockbold  ».  Canton  Society  123 

Rockford  Grocery   Co.   v.    Stan- 
dard Grocery  Co.  759 
Rockford,  etc.,  R.  R.  Co.  v.  Hill- 

mer  475 

v.  Sage  86,  647 

v.  Wells  170 

Rockland,    etc.,    Steamboat  Co. 

v.  Sewall  137,  518 

Rockville,      etc.,      Turnpike     v. 

Van  Ness  740 

Rockwell  v.  Elkhorn  Bank      125,  254 
Rocky  Mountains  Nat.   Bank  v. 

Bliss  724 

Rodgers  v.  Insurance  Co.  436 

v.  Wells  539 

Rogers  v.  Burlington  319 

v.  Hastings,  etc.,  R'y  Co.  647 

v.  Kennebec,  etc.,  R.  R.  Co.         174 
v.    La     Fayette    Agricultural 

Works     '  560,  688,  689,  690 

v.  New  York,  etc.,  Land  Co.        87 
v.  Pell  225 

v.  Simmons  401 

v.  Wheeler  417 

Rogers    Locomotive    Works     v. 

Erie  R'y  Co.  309 

Rolling  Stock  Co.  v.  People  385 

Rollins  v.  Clay  206,  229 

v.  Shaver  Wagon  Co.  668,  759 

Roman  v.  Dimmick        522c,  660,  702 

v.  Fry  742 

v.  Woolfolk  140 

Rome,  etc.,  R.  R.  Co.  v.  Ontario, 

etc.,  R.  R.  Co.  415 

Rome  R.  R.  Co.  v.  Sullivan    361,  363 


SECTIOX 

Root  v.  Goddard  298 

v.  Great  Western  R.  R.  Co.    .      363 
v.  Long  Island  R.  R.  Co.  309 

v.  Sinnock  720 

v.  Wallace  195,  298 

Rorke  v.  Thomas  768 

Rose  v.  Barclay  565 

v.  Des  Moines  Valley  R.  R.  Co.  353 
v.  Turnpike  Co.  429,  432 

Rosebaum  v.  Credit  System  Co.     648 
Roseboom  v.  Whittaker  632,  813 

Rosecrans  G.  M.  Co.  v,  Morey       614 
Rose  Hill,  etc.,  Road  Co.  v.  Peo- 
ple 145 
Rosenblatt  v.  Johnson                    484 
Rosenfeld  v.  Einstein                       808 
v.  Peoria,  etc.,  R.  R.  Co.             353 
Rosenthal  v.  Weir                              356 
Rosevelt  v.  Brown                            741 
Ross  v.  C.  B.  and  Q.  R.  R.  Co.       533 
v.  Kelly                                             701 
v.  Union  Pacific  R'y  Co.  790 
Roth  v.  Buffalo,  etc.,  R.  R.  Co.      360 
Rotherham  Alum,  etc.,  Co.,  hire    88 
Rothschild    v.     Michigan    Cent. 

R.  R.  Co.  360 

Rothwell  v.  Robinson  556,  689 

Rough  v.  Breitung  187 

Rounds  v.  Carter  366 

Rouse  v.  Merchants'  Nat.  Bank     668 
Rowland   v.    Meader    Furniture 

Co.  738 

Roxbury  v.  Boston  and  P.  R.  R. 

R.  Co.  496 

Royal  British  Bank,   hi  re  Wal- 
ton's Case  253 
Royal  British  Bank  i\  Turquand 

195,  204,  251 
Ruby  v.  Abyssian  Society  187 

Ruby  Chief  M.  &  M.  Co.  v.  Pren- 
tice 647 
Rudd  v.  Robinson                              263 
Rue  v.  Missouri  Pac.  R'y  Co.          391 
Ruffner  v.  Cincinnati,  etc.,  R.  R. 

Co.  368 

Ruggles  v.  Brock  523 

v.  State  of  Illinois    453,  476a,  4766 
Rule  v.  Owega,  etc.,  Co.  393 

Piumsey  v.  People's  R'y  Co.  814 

Rundle  v.  Delaware,  etc.,  Canal 

174,  177 

Runner  v.  Dwiggins  721 

Rnnyan  v.  Coster  303 

v.  Coster's  Lessee  383.  384 

Russel  v.  Mc.Lellan  263,  429,  432 

v.  Wakefield  Water  Works  142 

Russell  v.  Bristol  513 

v.  Easterbrook  587 

v.  Jones  401 

v.  Pacific  R'y  Co.  393 

Russian  Iron  Works,  In  re  523 

891 


TABLE    OF    CASES. 


SECTION 

Rutherford  i\  Hill  148,  739 

Rutland  and  B.  R.  R.  Co.  v.  Proc- 
tor 308 
v.  Thrall         517,  532,  54G,  571,  572 
Rutland  R.  R.  Co.  v.  Chaffee 

162a,  165 
Rutland  R.  R.  Co.  v.  Ranehau  355 
Rutland  Canadian  R.  R.  Co.  v. 

Central  Vt.  R.  R.  Co.  163a 

Rutz  v.  Esler,  etc.,  M'f'g  Co.  523,  529 
Ryan  v.  Chicago  and  N.  W.  R'y 
Co.  365 

v.   Cumberland   Valley   R.  R. 

Co.  366 

v.  Dunlap  241 

v.  Fowler  365 

v.  Hayes  417 

v.  Leavenworth,  etc.,  R'y  Co. 

631,  637,  638,  688 
v.  Martin  159 

v.  Valaudingham  146 

Ryder  v.  Alton,  etc.,  R.  R.  Co. 

516,  576 
Rylander  v.  Sheffield  634 

Rye's  Case  110 

Ryman  v.  Gerlach  795 


S. 


Sacalaris  v.   Eureka,  etc.,  R.  R. 

Co.  202 

Sackett's  Harbor  Bank  v.  Blake    723 

Sadler  v.  Langhani  163 

v.  Nicholson  725 

Safety  Deposit  Life  Ins.  Co.  v. 

Smith  86 

Safford  v.  Wyckoff  253,  285 

Sage,  Matter  of  585 

v.  Central  R.  R.  Co.  816 

v.  Culver  688 

v.  Memphis,  etc.,  R.  R.  Co.         820 

Sager  v.  Portsmouth,  etc.,  R.  R. 

Co.  353 

Sagory  v.  Debois  513,  546 

Saint  Mary's  Gas  Co.  v.  Elk  153 

Salem  Bank  v.  Gloucester  Bank  195, 

231,  253 
Salem  Iron  Factory  v.  Danvers  477a 
Salem  Mill  Dam  Co.  v.  Ropes         90, 

133,  527 
Salem  Nat,  Bk.  v.  Prescott  432 

Salina  Nat.  Bk.  v.  Prescott  642 

Salisbury    v.    Metropolitan   R'y 

Co.  696 

Salisbury  Mills  v.  Townsend  596,  698 

Salmon  v.  Hamborough  Co.  661 

v.  Richardson  755 

Salmon    River    Mining    Co.     v. 

Dunn  281 

Salt  Co.  c.  East  Saginaw  489 

Salter  v.  Utica,  etc.,  R.  R.  Co.        374 
892 


SECTION 

Salt  Lake  City  v.  Hollister     264,  335 
Saltmarsh  v.  Planters',  etc.,  M. 

Bank  435 

v.  Spaulding  225,  381,  632 

Samuels    v.     Central    Overland 

Express  Co.  142 

v.  Halliday  142 

San  Antonio  v.  Jones  520 

v.  Mehaffy  330 

Sanborn  v.  Firemen's  Ins.  Co.        254 

v.  Lefferts  770,  772 

San  Buenaventura  M'f'g  Co.  v. 

Vassault  574,  577a 

Sandal  v.  Atl.  L.  &  I.  Co.  383 

Sanford  v.  Railroad  Co.  309,  556 

San    Diego    v.    San   Diego  and 

Los  Angeles  R.  R.  Co.      640,  642 
San   Diego,   etc.,   R.    R.   Co.    v. 

Pacific  Beach  Co.  644 

San  Diego  Water  Co.  v.  Flume 

Co.  309c 

Sands  v.   Manistee  River    Imp. 

Co.  474c 

Sandy  River  v.  Merchants',  etc., 

Bank  240 

Sandy  River  R.  R.  Co.  v.  Stubbs   627 
San  Francisco,  etc.,  R.  R.  Co.  v. 

Bee  657 

v.  Caldwell  163,  179 

v.  Gould  166 

v.  State  Board  480 

San    Francisco    Water     Co.     ». 

Pattee  629 

Sanger  v.  Upton  537 

San  Joaquin  Land,    etc.,  Co.   v. 

Beecher  109 

v.  West  109 

San  Joaquin  Valley  B'k  v.  Bours  618 
San  Jose  Bank  v.  Sierra  Lumber 

Co.  189 

San  Jose  Savings  Bank  v.  Pharis  728 
Santa  Clara  County  v.   Southern 

Pac.  R.  R.  Co.  480 

Santa   Clara   Female    Academy 

v.  Sullivan  384 

Santa  Clara  M'g  Ass'n  v.  Mere- 
dith 647 
Santa  Cruz  R.  R.  Co.  v.  Schwartz  518 
v.  Spreckles  632 
Santa  Fe  E.  Co.  v.  Hitchcock  638,  657 
Sapp  v.  Northern  Cent.  R'y  Co.  304 
Sappington  v.   L.   R.   M.   R.   and 

T.  R.  R.  Co.  415 

Sargont  v.  Essex  Marine  R'y  Co.  796 

v.  Franklin  Ins.  Co.  796 

v.  Kansas  Mid.  R.  R.  Co.  698 

v.  Webster      184,  225,  260,  261,  573 

Sater  o.  Burlington,  etc.,   Plank 

Road  Co.  178 

Savage  r.  Ball  578 

v.  Bartlett  523,  526 


TABLE    OF    CASES. 


SECTION 

Savage  ».  Miller  759 

v.  Peoples'  B  &  L.  Ass'n  584 

v.  Russell  384 

Savannah    and  Memphis   K.    R. 

Co.  v.  Lancaster  125,  679 

Savannah  Bank  v.  Hartridge  210 

Savings  Bank  v.  Baltimore  593 

v.  Bates  668 

v.  Butchers,  etc.,  Bank  729 

v.  Caperton  617,  625 

v.  Davis  248 

v.  Elevator  Co.  280 

v.  Stove  Co.  702 

v.  Wulfekuhler  135,  627 

Sawyer  v.  City  of  Acton  464 

v.  Dubuque  Printing  Co.  608 

v.  Dulaney  350 

v.  Hoag  542,  704,  710,  729 

v.  Pawner's  Bank  647 

v.  Upton  655 

v.  Winnegance  Mill  Co.  137 

Sayers  v.  First  Nat.  B'k  137 

Sayles  v.  Bates  720 

S.  A.  &  A.  P.  R'y  Co.  v.  S.  W.  T. 

&  T.  Co.  386 

S.    C.    and  St.    Paul   R.    Co.    v. 

Osceola  County  326 

Scadden  ».  Flat  G.  M.  Co.  87 

Scammon  ».  Kimball  670 

Scanlan  ».  Crawshaw  430 

Scarlett  v.  Academy  of  Music  521 
Scbaeffer  v.  Missouri  Home  Ins. 

Co.  511,  737,  744 

Schallard  ».  Eel  River  Nav.  Co. 

204,  263 
Schalucky  v.  Field  716,  725 

Schenck  v.  Andrews  723 

Schenectady,  etc.,   Plank   Road 

Co.  v.  Thatcher  533 

Schew  v.  Erie  R'y  Co.  360 

Schilling  v.  Schneider  612 

Scbleider  v.  Dielman  435 

Schley  v.  Dixon  757 

Schloss  v.  Montgomery  Trade  Co.  538 
Schmidlapp  v.  La  Confiance  Ins. 

Co.  392 

Scbmidt  v.  Hennepin,  etc.,  Co.  604 
Schmitt  &  Bros.  Co.  v.  Maboney  435 
Schoenwald      v.      Metropolitan 

S'v'gs  B'k  199 

Schofield  v.  Henderson  774 

Scbollenberger,  Ex  parte  412 

Scbollenberger  v.  Penna.  414d 

School  District  v.  Boston,  Hart- 
ford and  Erie  Co.  353 
v.  Insurance  Co.                             451 
v.  Stone                                    321,  332 
Schooner  v.  Hinckley                       542 
Scbrieker  v.  Ridings  723 
Scbroeder  v.   Detroit,   etc.,  R'y 

Co.  *    loo 


8ECTION 

Schufeldt  v.  Smith  668,  759 

Scbulenberg  v.  Harriman  153 

Scbultz  v.  Sutter  543 

Schumm  v.  Seymour  258 

Schurneier  v.  St.   Paul,  etc.,  R. 

R.  Co.  175a 

Schurz  v.  Cook  816 

Schuyler's  Steam  Tow  Boat  Co., 

In  re  690 

Schuylkill  Nav.  Co.  v.  Thoburn    178 
Schwartz  v.   Atlantic,  etc.,  Tel. 

Co.  357 

Schwarzwelder  v.   Germ.    Mut. 

Ins.  Co.  556 

Scofield  v.  Railway  Co.  309 

v.  State  Nat.  Bank  302 

Scofield     Rolling    Mill     Co.    v. 

Georgia  342 

Scolfield  G.  &  P.  Co.  v.  Scolrield  137 
Scotland  County  Court  v.  Hill 

326,  333,  337 
Scott  v.  Armstrong  670 

v.  Central  R.  R.,  etc.,  Co.  563 

u.  Depuyster  755 

v.  Deweese  738 

v.  Eagle  Fire  Ins.  Co.  563,  566 

v.  Hansbeer  824 

v.  Johnson  236 

v.  Lord  Eburv  76,  87 

v.  Middleton,"etc,  R.  R.  Co.  211,  214 
v.   Nat.  Bank  of  Chester  Val- 
ley 337 
v.  Pequonnock  Nat.  Bank  796 
v.  Snyder,  etc.,  Co.                        523 
Scottish  N.  E.  R'y  Co.  v.  Stewart  141 
Scottish  Union  Ins.  Co.  v.  Heriott 

400,  480 
Scoville  v.  Thayer  541,  661,  709 

Scranton  Electric  Co.'s  Appeal    309c 
Scranton  G.  &  W.  Co.  v.  Northern 

C.  &  I.  Co.  163a 

Screven  Hose  Co.  v.  Philpot  276,  286 
Scripture  v.  Francestown  Soap- 
stone  Co.  589 
Scruggs  v.  Scottish  Mortgage  Co.  400 
Scudder    v.    Trenton    Delaware 

Falls  Co.  163 

Seale  v.  Baker  752,  756 

Seamans  v.  Zimmerman  401 

Searight  v.  Pavne  114,  522c,  752 

Sears  v.  Hotchkiss  688,  690 

Seaverns   ».    Presbyterian    Hos- 
pital 210 
Secombe  v.  Railroad  Co.          468,  473 
Second  Nat.  Bank  v.  Burt      616,  631 
v.  Hall                                      148,  739 
v.  Western  Nat.  Bank  245 
Security  Bank  v.  National  Bank   245 
Security  Co.  v.  Bennington  Mon. 

Ass'n  647 

Security  Saw  Ass'n  v.  Elbert         401 

893 


TABLE    OF   CASES. 


SECTION 

Sedalia  W.    and   S.    R'y  Co.   v. 

Abell  516,  518 

v.  Wilkerson  91 

Seeds  Dry   Plate    Co.    v.    Heyn 

Photo.  Supply  Co.  668,  759 

Seeley  v.  New  York,   etc.,  Nat. 

Exch.  Bank  570 

v.  San  Jose  Mill  Co.      202,  627,  632 
Seeligson  v.  Brown  796 

Seibert  v.  Lewis  333 

Seixas  v.  New  Orleans  436 

Seligman  v.  Charlottesville  Nat. 

Bank  267 

Sellers  v.  Greer  187 

v.  Phoenix  Iron  Co.       558,  627,  688 
Sells  v.  Grocery  Co.  668 

Selma,  etc.,  R.  R.  Co.  v.  Ander- 
son 518,  523 
v.  Harbin  666 
v.  Tipton                                    91,  546 
v.  Tyson                                           392 
Selma"  R.   and   D.    R.  R.    Co.  v. 

Camp  178 

v.  Keith  178 

Semple  v.  Bank  of  British  Co- 
lumbia 401 
v.  Glenn  263,  709 
Seneca  County  Bank  v.  Lamb  583 
Senour  Mfg.  Co.  v.  Church  264 
Sentell  v.  Hewitt  148 
Sercomb  v.  Catlin  143 
Severson  v.  Bi-Metallic  Co.  647 
Sewall  v.   Boston   Water  Power 

Co.  592,  593 

v.  Brainerd  816a 

Seward  v.  City  of  Rising  Sun        479 

Seymour  v.  Cemetery  Ass'n  634 

v.  Chicago  Guaranty,  etc.,  Soc.  277 

v.  Detroit  Rolling  Mills  219 

v.  Sturges  700,  703 

Shackleford  v.  Mississippi  C.  R. 

R.  Co.  427,  665 

v.  New  Orleans,  etc.,  R.  R.  Co.  647 
Shamokin  Valley  R.    R.    Co.    v. 

Livermore  671 

Shanc.k  v.  North.  Cent.  R'y  Co.     365 
Shane   v.   Kansas   City,  etc.,   R. 

R.  Co.  173 

Sharp   v.    Mayor,    etc.,    of  New 

York  342 

Shaw  v.  Bill  681 

v.  Boston  and  W.  R.  R.  Co.        374 
v.  Clark  210 

v.  Davis  5")4 

v.  Norfolk,  etc.,  R.  R.  Co.  426, 

666,  814 
v.    Port  Philip,  etc.,   M'g  Co. 

342,  598 
v.  Quincy  Mining  Co.  413 

v.  Railroad  Co.  814,  816 

v.  Robinson  668 

894 


SECTION 

Shaw  v.  Spencer  598,  797 

Shawhan  v.  Zinn  140 

Shawmut    Bank  v.    Plattsburg, 

etc.,  R.  R.  Co.  308 

Shaw's  Claim  87 

Shay  v.  Tuolumne  County  Water 

Co.  187 

Shayne    v.    Evening  Post   Pub. 

Co.  435 

Sheffield    Nickel   Co.  v.    Unwin 

224,  563 
Sheffield  R'y  Co.  v.  Woodcock  511 
Shelby  Co.  v.  Union,  etc.,  Bank  489 
Shelbyville,  etc.,   Turnpike   Co. 

v.  Barnes  536 

Sheldon  v.  B.  A.  R.  R.  Co.  173 

Sheldon    Hat    Blocking    Co.    v. 

Eickmeyer  Hat,  etc.,  Co.        187, 

213,  225,  229,  609 

Shellenberger  v.  Patterson  190 

Shelliugton  v.  Howland  589,  723, 

724,  748 
Shenandoah    Valley   R.    R.    Co. 

v.  Griffiths  432,  796 

Shenango  and   A.   R.   R.  Co.  v. 

Braham  178 

Shepaug  Voting  Trust  Cases        627 
Shepard  v.  Man.  R'y  Co.  176 

Shepherd  v.  Gillespie  791 

Shepherd's  Case  589 

Shepley  v.  Atlantic,  etc.,  R.  R. 

Co.  125,  3056 

Sheridan    v.    Sheridan    Electric 

Light  Co.  141 

Sheridan   El.    Light  Co.    v.    Na- 
tional Bank  233 
Sherley  v.  Billings                             347 
Sherlock  v.  Ailing                    350,  4746 
Sherman  v.  Fitch              211,  212,  237 
v.  Hudson  River  R.  R.  Co.           361 
v.  McKeown                                     400 
v.  Milwaukee,  etc.,  R.  R.  Co.    175a 
v.  Smith                                           500 
Sherman   Centre,   Town   Co.    v. 

Morris  277 

Sherman   Centre,    Town   Co.    v. 

Swigart  237 

Sherman  County  v.  Simmons        321 
Sherry  v.  Wakefield  lust.  210 

Sherwood  v.  Alvis  401 

v.  A.  &  D.  R.  Co.  415,  416,  454 

v.  St.  Paul  and  C.  R'y  Co.  178 

Shewalteru.  Pirner  276,  303 

Sliihley  v.  Angle  100 

Shickle  v.  Watts  702,  729 

Shields  v.  Ohio  424,  4766 

Shiff  v.  N.  Y.  C.  and  H.  R.  R. 

R.  Co.  364 

Ship's  Case  110 

Shipley  v.  Baltimore,  etc.,  R.  R. 

Co.  179 


TABLE    OF    CASES. 


SECTION 

Shively  v.  Eureka  M.  Co.  687 

Shockley  v.  Fisher  542,  668 

Shoe  Co.  v.  Thompson  668 

Shoe     and     Leather     Bank     v. 

Thompson  137 

Shoemaker   v.    Nat.   Mechanics' 

Bank  161 

v.  Washburn  Lumber  Co.  780 

Shore  Liue  R.  R.  Co.  v.  Maine 

Cen.  R.  R.  Co.  435 

Short  v.  Medbury  734 

v.  Stevenson  82 

Shorter  v.  Smith  453 

Shortridge  v.  Bosanquet  748 

Shortz  v.  Unangst  258,  573 

Shotwell  v.  Mali  696,  755 

Shrewsbury  v.   North   Stafford- 
shire R'y  Co.  88,  291 
Shriver  v.  Sioux  City  353 
Shreyer    v.    Montgomery,    etc., 

Co.  87 

Shropshire,    etc.,     R'ys    Co.    v. 

Queen  511,  598 

Shuey  v.  Holmes  542,  718 

Shultz  v.  Christmau         615,  616,  757 
Shurtleff  v.  Wiscassett  330 

Shurtz  v.  Schoolcraft,  etc.,  R.  R. 

Co.  516 

Sias  i\  Consol.  Lighting  Co.  258 

Sibell  v.  Remsen  298 

Sibley    v.     Quinsigamond     Nat. 

Bank  599,  796 

Siebe  v.  Machine  Works  238 

Silk  M'f'g  Co.  v.  Campbell  138 

Silkstone  Fall  Colliery  Co.,  Re      574 
Silliman  v.  Fredericksburg,  etc., 

R.  R.  Co.  195 

Silsliy  v.  Strong  614 

Silver  Hook  Road  v.  Green  233,  234, 

543 
Silver  Lake  Bank  v.  North     302,  384 
Si  mm  o.   Anglo-American   Tele- 
graph Co.  593 
Simmons  v.  Hill  740 
v.  Steamboat  Co.                           459 
Simon  v.  Sevier  Assoc.                     260 
Simons  v.  First  Nat.  B'k                 302 
v.  Vulcan  Oil  Co.  82 
Simonson  v.  Spencer                         725 
Simpson  v.  Building  Ass'n              276 
v.  Denison                                        308 
v.  Garland                                        189 
v.  Railroad  Co.                               368 
v.  Westminster   Palace   Hotel 
Co.                                               556 
Sims  v.  Street  R.  R.  Co.           219,  224 
Sinclair  o.  Fuller                               767 
v.  Hutchinson                        655,  708 
Singer  v.  Given         148,  729,  737.  745 
v.  Salt  Lake  C.  M.  Co. 

260,  261,  381,  632 


453 

Branch 

453,  488 

363 

610,  693 

Co. 


R 


etc., 


518 
589 
282 

141 
236 
383 
474 
753 
806 


SECTION 

Singer  M'f'g  Co.  v.  Holdsfodt        377 
Single  v.  Supervisors  325 

Singleton   v.     Southwestern     R. 

R.  Co.  170,  305 

Sinking  Fund  Cases  499 

Sinnickson  v.  Johnson  171 

Sioux  City  R.  R.  Co.  v.  N.  A.  Tr. 

Co.  283 

Sioux   City   and  P.    R'y   Co.  v. 

United  States  565 

Sixth  Ave.  R.  R.  Co.  v.  Kerr 

163a, 165,  470 
Skaneateles  Water  Co.  v.  Skane- 

ateles 
Skelly     v.      Jefferson 

Bank 
Skinner  v.  Hall 

v.  Smith 
Skowhegan  and    A.    R 

v.  Kinsman 
Skowhegan  Bank  v.  Cutler 
Slater  Woolen  Co.  v.  Lamb 
Slatterly    v.     St.     Louis, 

Trans.  Co. 

Slattery  v.  North  End  Sav.  B'k 

Slaughter  v.  Commonwealth 

Slaughter  House  Cases 

Slawson  v.  Loring 

Slaymaker  v.  Gundacker 

Slee  v.  Bloom  432,  549,  745 

v.  International  Bank  589 

Sleeper  v.  Goodwin  734 

v.  Norris  432 

Slipher  v.  Earhart  511,  519 

Sloan  v.  Central  Iowa  R'y  Co.        417 

v.  Pacific  R.  R.  Co.  4766 

Slocum  v.  Providence  Steam  and 

Gaspipe  Co.  147,  537,  738 

v.  Warren  537 

Small  v.  Herkimer,  etc.,  Co.  513,  546 

v.  C.  R.  I.,  and  R.  R.  R.  Co.        282 

Smead   v.   Indianapolis,  P.  and 

C.  R.  R.  Co. 
Smelser  v.  Wayne  Turnpike  Co. 
Smith  v.  Alvord 

v.  Bradt  Printing  Co. 

v.      Chesapeake       and      Ohio 

Canal  Co. 
v.  Chicago  and  N.  W.  R'y  Co. 
v.  Colorado  Fire  Ins.  Co. 
v.  Corporation  of  Washington 

167,  177 
v.  Crescent   City   Live   Stock, 

etc.,  Co.  796 

v.  Dorn  260,  689 

v.  Eastwood  Wire  Co.  498 

v.  Exchange  Bank  161 

v.  First  Nat.  Bank  239,  337 

v.  Goldsworthy  133 

v.  Gower  542 

v.  Hannibal,  etc.,  R.  R.  Co.         368 

895 


453 
146 
381 
759 

664 
415 
148 


TABLE    OF    CASES. 


SECTION 

Smith  v.  Heideker 

537 

v.  Huckabee 

725,  783 

v.  Hurd 

615,  690 

v.  Johnson 

70(1 

v.  Londoner 

725,  755 

v.  Long  Island  R.  R.  Co.  647 

v.  Los  Angeles  Im.  Ass'n    628,  636 

v.  McCullough  676 

v.  Mosby  670,  810,  813 

v.  Mutual  Life  Ins.  Co.  393 

v.  Nelson  584 

v.  New  Hartford  Water  Co.  86 

v.  North  Am.  M'f'g  Co.  569 

v.  North  Carolina  R.  R.  Co.        353 

v.  Parker  87 

v.  Plank  Road  Co.  158,  521 

v.  Prattv'le  Mfg.  Co.     553,  562,  694 

v.  Putnam  646,  759 

v.  Railroad  Co.      592,  595,  657,  660 

v.  San  Francisco,  etc.,  R'y  Co.    788 

v.  Silver  Valley  M'f'g  Co.  381, 

382,  449 

u.  Smith  196,  230,  238,  432 

».  Soutb  Royalton  Bank  210 

v.  State  460 

13.  Steel  688,  714 

13.  St,  Louis  Mut.  Life  Ins.  Co.  394 

v.  St.  Louis  &  S.  W.  R'y  Co.    474d 

v.  Weed  Sewing  Machine  Co.     384 

13.  Wells  Mfg.  Co.  238 

B.  Whiting  193 

Smith's  Case  745,  782 

Smith's  Estate  799 

Smoot  v.  Wetumpka  376 

Smyth  y.  Ames  476a,  476b 

Sneath  v.  Valley  Gold  816a 

Snell  13.  Buresh*  169 

u.  Chicago  131 

Sniders'  Sons  Co.  v.  Troy        148,  739 

Snook  13.  Georgia  Imp.  Co.  531 

Snow  13.  Boston  Blank  Book  Co.    556 

i\  Church  559a 

Snyder  v.  Penn.  R.  R.  Co.  175a 

Snyder  Bros.  v.  Bailey  137 

Societe  Fonciere  v.  Milliken  395 

Society  for  Savings  13.  Coite  482 

Society  Perun  13.  Cleveland  145 

Solis  13.  Blank  144 

Solomon's  Lodge  v.  Montmollin    204 

Solomon  It.  R.  Co.  13.  Jones  237 

Somerset  R.  R.  Co.  13.  Clarke         517 

13.  dishing  517,  519 

Somes  13.  Currie  787 

Sonoma  Valley  Bank  o.  Hill  715,  722 

Sonder  13.  Columbia  Nat.  Bank      598 

South    and    North   Alabama   R. 

R.  Co.  13.  Cliappell  335,  342 

13.  Highland   Ave.,  etc.,   R.  R. 

Co.  128,  303 

13.  Henlein  353 

v.  McLendon  377 

S96 


SECTION 

South  and  North  Alabama  R.  R. 

Co.  13.  Wood  350,  360 

South  Bend,    etc.,    Co.  13.  Insur- 
ance Co.  655 
South   Bend   Steel   Plow   Co.  v. 

Cribb  Co.  759 

South  Branch  Ry.  Co.  ».  Long      740 
South  Carolina  v.  Gaillard  494 

South     Carolina    R.    R.    Co.    v. 

Blake  424 

So.  Car.  &  Ga.  R.  R.  Co.  d.  Aug. 

So.  R.  R.  Co.  130 

Ex  parte  164 

South   Georgia,  etc.,    R.  R.    Co. 

13.  Ayres  529 

South  Joplin  Land  Co.  v.  Case  83,84 
South  Mountain  Cons.  M'g   Co., 

In  re  702 

South  School  District  13.  Blakes- 

lee  158,  574 

South  Wales   R'y   Co.    v.   Red- 
mond 308 
South    Yorkshire     R'y    Co.     13. 

Great  Northern  R'y  Co.  291 

Southern  Building  Ass'n  13.  Nor- 
man 383 
Southern    B.    &    L.    Ass'n     v. 
Casa     Grande     Stable     Co. 

130,  295,311 

Southern  Exp.    Co.  13.  Armstead  359 

13.  Caperton  356 

13.  Cook  353 

13.  Uickson  360 

13.  Fitzner  342 

13.  Kaufman  360 

D.Memphis,  etc.,  R.  R.  Co.         309 

13.  Moon  353 

v.  Shea  363 

13.  Van  Meter  360 

Southern  Hotel  Co.  i>.  Newman     263 

Southern   Life  Ins.  Co.  13.  Lanier  529 

Southern   Minn.     R.    R.    Co.   13. 

Stoddard  162 

Southern  Pac.  R.  R.  Co.  13.  Cali- 
fornia 468 
13.  Denton  400 
13.  Orton  451 
13.  Raymond  163 
13.  Reed  175a 
v.  Wilson  166 
Southern    Penn.  R.  R.     Co.   13. 

Stevens  531 

Southern    Ry.    Co.   13.    Carnegie 

Steel  Co.  822 

13.  Franklin    R.  R.  Co.  416 

Southgate  v.  Atlantic   and  Pac. 

R.  R.  Co.  202 

Southwestern   R.  R.    Co.  13.  Fel- 

der  360 

13.  Southern,  etc.,  Tel.  Co.         163a 
13.   Wright  4926 


TABLE    OF    CASES. 


SECTION 

Sovereign  Camp  v.  Fraley  382 

Spaeknian  v.   Evans  550,  780 

Spafford  v.  First  Nat.  Bank  161 

Spahn  v.  Farmers1  Bank  14(3 

Spalding  v.  Oakes  803 

Spangler  v.  Butterfield  114,  202 

Sparks  v.  Accident  Ass' n  402 

v.  Dispatch  Co.  237 

v.  Dunbar  187 

v.  Farmers'  Bank  249 

Sparrow  v.  Evansville,  etc.,  R.  R. 

Co.  536 

Spaulding  v.  Chicago  and  N.  W. 

R'y  Co.  368 

v.   No.   Milwaukee   T.    S.  Co.    629 

Spear  v.  Crawford  92 

v.  Hart  798 

v.  Ladd  233 

Speirs  v.  Union  Drop  Forge    Co.  248 

Spence  v.  Mobile,  etc.,  R.  R.  Co.  264 

v.  Shepard  722 

Spering's  Appeal  620,  623,  626 

Spiller  v.  Paris  Skating  Rink  Co.    87 

Spofford  v.   Bucksport,  etc.,   R. 

R.  Co.  163 

Spohn  v.  Missouri  Pac.  R'y  Co.     347 

Spooner  v.  Phillips  562,  801 

Sprague  v.  Cutler,  etc.,  Co.  400 

v.  N.  Y.  C.  R.  R.  Co.  360 

v.  Illinois  River  R.  R.  Co.  536 

v.  National  Bank  702 

v.  Smith  417 

Sprigg  v.  Western  Tel.  Co.  502 

Spring  Co.  v.  Knowlton  133,  313 

Spring    Valley     Water    Works, 

In  re  451 

v.  San  Francisco  498 

v.  Schofler  464,  477«,  497,  499 

Springer  v.  United  States  478 

Spurlock  v.  Pacific  Railroad  583,  603 
Squire  v.  N.  Y.  Central  R.  R.  Co.  351 
St.  Albans  v.  National  Car  Co.  479 
St.  Anthony  Falls  Co.  v.  East- 
man 376 
St.  Charles  M'f'g  Co.  v.  Britton  537 
St.  Clair  v.  Cox  395,  399,  472 
St.  James's  Parish  v.  Newbury- 

port  Horse  R.  R.  Co.  259 

St.     John     v.     Erie     R'y     Co. 

563,  565,  708 
St.  Johns  M'f'g  Co.  v.  Munger  104 
St.   Joseph,    etc.,    R.    R.    Co.    v. 

Ryan  162 

St.     Joseph,     etc.,    R'y   Co.    v. 

Shambaugh  155,  449 

St.  Joseph  Township  v.  Rogers     330 
St.    Lawrence      Steamboat    Co., 

Re  Election  of  479,  577,  578,  614 
St.  Louis  v.  Western  Un.  Tel.  Co.  486 
St.   Louis  A.  and   C.    R.  Co.   v. 

Dalby  348 

57 


SECTION 

St.  Louis   and  St.  Jo.  R.    R.  Co. 

v.  Richardson  179 

St.  Louis   and   S.  F.    R'y    Co.  v. 

Wilson  599 

St.  Louis  Drug  Co.  v.  Robinson    281 
St.    Louis,     etc.,    Coal     Co.      v. 

Sandoval     Coal      Co.  436, 

437,  608 
St.     Louis,   etc.,    R.     R.   Co.    v. 

Anderson  178,   179 

v.  Cleveland,  etc.,  R.  R.  Co.       822 
v.  Eakins  517 

v.  Gilliam  366 

v.  Kerby  178,  179 

v.  Lamed  362,  363 

v.  Marker  425 

v.  Mathers  162 

v.  Mathews  475 

v.  Miller  415 

v.  Montgomery  360 

v.  Morris  179 

v.  N.  W.  St.  Louis  R'y  Co.  174 

v.  O'Hara  647 

v.  Payne  372 

v.  Terre  Haute,  etc.,  R.  R.  Co.  279 
v.  Tiernan  84,  522c,  646 

o.  Waller  633 

v.  Willis  170 

St.  Louis,    etc.,  R'y  Co.  v.  Belle- 
ville R'y  Co.  145 
v.  James                                           412 
St.    Louis,    K.    C.    and    N.     R'y 

Co.  v.  Piper  353 

St.     Louis      w.      Manufacturers' 

Savings  Bank  488 

St.     Louis    Colonization    Ass'n 

v.  Hennessy  149,  538 

St.  Louis   Domicile,   etc.,    Ass'n 

v.  Augustin  189 

St.  Louis   Gas    Light   Co.  v.  St. 

Louis  150 

St.  Louis,  I.    &   M.  R.  R.  Co.  v. 

Berry  490 

St.  Louis,  I.  &  M.,  etc.,  Ry.  Co. 

v.  Paul  499 

St.  Louis   Perpetual    Ins.    Co.  v. 

Cohen  392 

v.  Goodfellow  603 

St.   Louis   R.    R.    Co.    v.  North- 
western  St.    Louis   R'y  Co. 

152,  174 
St.  Louis  R'y  Co.  v.  Weakly  364 

St.    Louis   R'y   Supplies    Co.    v. 

Harbine  501,  714 

St.     Louis     Stoneware     Co.    v. 

Partridge  282 

St.  Mary's  Church,  Case  of  227 

St.  Paul,  etc.,  R.   R.   Co.  v.  Rob- 
bins  520 
St.  Paul  &  N.  R.  R.  Co.,  In  re      408 
St.  Paul  Fire  Ins.  Co.  v.  Allis  145,  451 

897 


TABLE    OF   CASES. 


SECTION 

Stafford  v.  American  Mills  Co.  394 
Stafford  National  B'k  v.  Palmer 

148,  739 
Stalin  v.  Catawba  Mills  687 

Stamper  v.  Swan  201 

Standley  v.  Hendin  M'f'g  Co.  824a 
Stauge  v.  Hill,  etc.,  St.  K'y  Co.  175a 
Stanhope's  Case  548 

Stanley  v.  Luse  630 

v.  Schwalby  462 

v.  Stanley  501,  589 

Stanton    v.    Alabama,    etc.,    R. 

R.  Co.  815 

v.  New  York,  etc.,  R.  R.  Co.       87 

v.  Wilson  108 

Star  Line  v.  Van  Vliet  182 

Stark  Bank  v.  U.  S.  Pottery  Co.    193 

Starkweather  v.  American  Bible 

Soc'y  387 

Starr  v.  Camden,  etc.,  R.  R.  Co.  175a 

Starrett  v.  Rockland  Fire  Ins.  Co.  515 

State  v.  Accommodation  Bank      449 

v.  American  Cotton  Oil  Trust  309c 

v.  Anniston  Rolling  Mills  479 

v.  Ass'd  Press  309a,  476a 

v.  Atchison  &  N.  R.  R.  Co.         305 

v.  Atherton  199,  240 

o.  Bailey  421,  459 

v.    Baltimore     and     Potomac 

R.  R.  Co.  376 

v.  Baltimore  and  O.  R.  R.  Co.    568 
v.  Bank  477a 

v.  Bank  of  Louisiana  33,  687 

v.  Bank  of  Maryland    130,  432,  668 
v.  Bank  of  Washington  436 

v.  Barron  432,  459 

v   Benefit  Ass'n  647 

v.  Berry  488 

v.  Bienville  Oil  Works  Co.  585 

v.  Bonnel  574 

v.  Boston,  Concord,  etc.,  R.  R. 

Co.  384,  386 

v.  Brown  559 

v.  Building  Association  459 

v.  Butler  432 

v.  Capital  City  Dam  Co.  459 

v.  Carpenter  599 

v.  Central   Ohio  Relief  Ass'n 

451,  459 
v.  Cherraw,  etc.,  R.  R.  Co.  599 

v.  Chute  577 

V.  Cincinnati  460 

v.     Cincinnati,    N.    O.,     etc., 

R.  R.  Co.  309 

v.  Citizens'  Savings  Bank  201 

v.  Commercial  Bank  239 

v.  Commercial  State  Bank  750 

v.  Com'r    of    Railroad    Taxa- 
tion 464 
v.  Constantine  577 
v.  Commissioners  491 

898 


SECTION 

State  v.  Conklin  583 

v.  Consolidation  Coal  Co.  305 

v.  Consolidation  Co.  457 

v.  Coonan  576 

v.  Council  Bluffs  Ferry  Co.  460 
v.  Crawfordsville  T.  P.  Co.  459 
v.  Curtis  190,  583 

v.  Dawson  449 

v.  Dayton,  etc.,  R.  R.  Co.  454 

v.  District  Court  396 

v.  East  Orange  475 

v.  Eastern  and  A.  R.  R.  Co.  163a 
v.  Equitable  L.  &  I.  Co.  459 

v.  Essex  Bank  459 

v.  Ferris  578,  589 

v.  Firemen's  Fund  Ins.  Co.  210, 
335,  309a 
v.  Fourth  N.  H.  Turnpike  460 

v.   Goodwinsville,   etc.,  Road 

Co.  460 

v.  Greer  577 

v.  Hartford  and  N.  H.  R.  R. 

Co.  308,  454 

v.  Hazleton,  etc.,  R'y  Co.  459 

v.  Hogan  459 

v.  Holmes  556 

v.  Irrigating  Co.  132 

v.  Kidd  479 

v.  Krebs  120 

v.  Land  &  Timber  Co.  392 

o.  Leete  614 

v.  Lesauer  421,  430 

v.  Lincoln  Trust  Co.  120,  157 

v.  Macon  County  333 

v.  Maine  Central  R.  R.  Co.  491 

u.  Mansfield  128 

v.  Mayor  of  Manitowoc  333 

v.  McDaniel  577,  614 

v.  McGrath  133 

v.  Merchant  228,  577a 

v.  Merchants'  Exchange  583 

v.  Middletown  Turnpike  Co.  671 
v.  Milwaukee,  etc.,  R.  K.  Co.  459 
o.  Minnesota  Cent.  R'y  Co.  459 
v.   Minnesota  Thresher   M'f'g 

Co.  459 

v.  Mississippi,  etc.,  R.  R.  Co.  460 
v.  Mitchell  140,  230,  430 

v.  Montclair  R.  R.  Co.  163a 

v.  Morgan  125,  490 

v.  Morris  474 

v.  Morristown  Fire  Ass'n  567 

v.  Murphy  474 

v.  Nashville,  etc.,  R.  R.  Co.  464 
v.  National  Bank  416,  667 

v.  Nebraska  Distilling  Co.  309c 
v.  Newark  128 

v.  New  Haven,  etc.,  Co.  162a,  475 
v.  Newman  130 

v.  New  Orleans,  etc.,  R.  R.  Co.  577a 
v.  New  Orleans  Gas  Light  Co.   589 


TABLE    OF    CASES. 


SECTION 

State  v.  Northern  Central  K'y  Co. 

406,  409,  488,  676 
v.  Noyes  453,  475 

o.  Old  Town  Bridge  Co.  460 

v.  Pacific  Brewing  Co.  586 

v.  Patterson,  etc.,  R.  R.  Co.  454 
v.  Pawtuxet  Turnpike  Co.  459,  460 
v.  Payne  430 

v.  Person  464 

v.  Pettineli  575 

v.  Portland  Natural  Gas  Co.  309c 
v.  R'y  Co.  131 

v.  R.  R.  Comm'rs  170,  432 

v.  Railway  Co.  141 

v.  Railway  and  B.  Co.  459 

v.  Real  Estate  Bank  459 

v.  Rio  Grande  R'y  Co.  459 

v.  Rives  432,  671 

v.  Rombaur  599 

v.  Rubber  M'f  g  Co.  759 

v.  Saline  County  Court  328 

v.  Shapleigh  Hardware  Co.  651 
v.  Sherman  131,  305 

v.  Smith  136,  569 

v.  So.  Pac.  R.  R.  Co.  380 

v.  South.  Pac.  R.  R.  Co.  460 

v.  Spartenburg  Ry.  Co.  460 

v.  Stephens  479 

t>.  Standard  Oil  Co.  51,  3096,  400a 
v.  Taylor  460 

v.  Telephone  Co.  454 

v.  Tudor  579,  582 

y.  Union  Stockyards  Bank  721 

v.  Vanderbilt  457,  459 

v.  Water  Co.  131,  384 

r.  W.  U.  M.  Life  Ins.  Co.  401 

o.  Wabash  R'y  Co.  417 

v.  Western,  etc.,  R.  R.  Co.  167,  434 
v.  Western  Un.  Tel.  Co.  480 

v.  Wood  459 

D.  Wright  575 

v.  Young  450 

State  Bank  v.  Chetwood  257 

v.  City  of  Richmond  477a 

v.  Fox  135,  569 

v.  Knopp  453,  488 

State   Board  of    Agriculture   v. 

Citizens'  St.  Ry.  Co.  280 

State     Board     of    Assessors    v. 

Morris  &  E.  R.  R.  Co.  490 

State  Fire  Ins.  Co.,  In  re  659 

State  Freight  Tax,  Case  of  485 

State  Ins.  Co.  v.  Sax  796 

State  Nat.  B'k  v.  Union  Nat.  B'k  381 
State  of  Florida  v.  Florida  Cen- 
tral R.  R.  Co.  138,  256 
State   of    Louisiana  v.    Bank  of 

Louisiana  562 

v.   North    Louisiana    and    T. 
R.  R.  Co.  793 


SECTION 

State  of   Minnesota  v.   Winona, 

etc.,  R.  R.  Co.  476a 

State    of     New    Hampshire     ». 

State  of  Louisiana  462 

State  of   Ohio  v.   Pennsylvania, 

etc.,  Canal  Co.  460 

v.  Sherman  131,  305 

State  of  Oregon  v.  Smith  577 

State  of  Pennsylvania  v.  Wheel- 
ing, etc.,  Bridge  Co.         171,  459 
State  of  Tenn.  v.  Davis  241 

State  Railroad  Tax  Cases     477a,  492 
State     Savings    Ass'n     v.     Kel- 
logg 825 
State     Tax    on     Foreign    Held 

Bonds,  Case  of  479,  492a 

State     Tax    on    Railway     Gross 

Receipts  485 

State  Tonnage  Taxes  480 

State  Treasurer  v.  Auditor  Gen- 
eral 419,  479 
Steacy  v.    Little   Rock,  etc.,  R. 

R.  Co.  522c,  702 

Steamboat  Co.    v.    McCutcheon 

204,  384 
Steamboat  New  World  v.  King  352 
Steam  Engine  Co.  v.  Hubbard  764 
Steam  Navigation  Co.  v.  Weed  276 
Steamship  Co.  v.  Portwardens  4746 
v.  Tugman  412 

Steamship  Dock  Co.  v.  Heron's 

Administratrix  600,  601 

Stearns     Stone    Cutter    Co.     v. 

Scott  751 

Stearns  v.  Minn.  488 

Stebbins  v.  Edmunds  764,  774 

v.  Merritt  575 

Steckle  o.  First  Nat.  Bank  342 

Steele  ».  Russell  346 

v.  Townsend  353 

Steenerson  v.  Great  Northern  R. 

R.  Co.  4766 

Steers  o.  Liverpool,  etc.,  Steam- 
ship Co.  359 
Steiner  v.  Steiner  L.  &  L.  Co.  120, 
267,  285,  295 
Steins  v.  Franklin  County  325 
Steinke  v.  Loofboriow  721 
Steinway,  Matter  of  585 
Steinweg  v.  Erie  Railway  351 
Stephens  v.  Fox  737 
Sterling's  Appeal  175 
Stetler  i\  Chicago,  etc.,  R'y  Co.  366 
Stetson  v.  Chicago  and  E.  R.  R. 

Co.  175a 

Stettaner  v.   N.  Y.,  etc.,    Cons. 

Co.  585 

Stevens  v.   Boston  and  M.  R.  R. 

Co.  360 

v.  Carp  River  Iron  Co.  210 

899 


TABLE    OF    OASES. 


SECTION 

Stevens  v.  Corbitt  515 

v.  Davison  229 

v.  Eden  Meeting  House  Soc'y  573 
v.  Patterson  and  N.  R.  R.  Co.  174 
v.  Pratt  388 

v.  Rutland,  etc.,  R.  R.  Co.  556 

Stewart,  Ex  parte  210 

Stewart  v.  Brooklyn  and  Cross- 
town  R.  R.  Co.  335,  347 
v.  Erie    and  Western   Transp. 

Co.  308,  309,  556 

v.  Firemen's  Ins.  Co.  592 

v.  Hoyt  137 

v.  Lehigh  Valley  R.  R.  Co.        309, 

630,  631 

v.  Printing  Co.  586 

Stewart's  Appeal  305 

Stewart's  Case  110 

Stiles  v.  Laurel  Fork  Co.  436 

Stillman  v.  Dougherty  519 

Stilphen  v.  Ware  736 

Stimson    v.    Connecticut    River 

R.  R.  Co.  355 

Stinchfield  v.  Little  753 

Stinson  v.  Chicago,  St.  P.,  etc., 

R.  R.  Co.  178 

v.  Thornton  795 

Stocker  v.  Wedderburn  112 

Stockholders,  etc.,  v.  Louisville, 

etc.,  R.  R.  Co.  573 

Stockley  v.  Thomas  392 

Stocks  v.  Van  Leonard  707 

Stockton  Sav.  Bank  v.  Staples       128 
Stockton,  etc.,   R.  R.  Co.  v.  City 

of  Stockton  319 

Stoddard  v.  Lum  393 

Stokes  v.  Detrick  212,  213 

v.  Lebanon,  etc.,  Turnpike  Co. 

515,  546 
v.  New  Jersey  Pottery  Co.  202.  236 
v.  Saltonstall  169,  349,  351,  375 

v.  Stickney  771 

Stone  v.  Cartwright  755 

v.  C.  and  N.  W.  R.  Co.  348 

v.  Elliott  327 

v.  Fenno  699 

v.  Illinois  Central  R'y  Co.  170 

v.  Kellogg  585 

v.  Mississippi  474 

Stoneham   Branch   R.   R.   Co.  v. 

Gould  5 17 

Stoney  v.  American  Ins.  Co.  205,  285 
Storage  Co.  v.  Assessors  511 

Storey   v.   New   York    Elevated 

R.  R.  Co.  173,  174,  176 

Story  v.  Concord,  etc.,  R.  R.  Co.    365 

Stough  v.  Ponca  Mills  Co.       668,  759 

Stout  v.  Hubbell  702 

v.  Sioux  City,  etc.,  R.  R.     382,  412 

v.  Y eager  Milling  Co.  759 

v.  Zulick  145,  148,  739 

900 


SECTION 

Stoutmore  v.  Clark  146 

Stover  v.  Flack  742 

Stowe  v.  Flagg  451 

v.  Wyse  184,  201,  573,  574 

Stoystown   Turnpike   Road   Co. 

v.  Craver  258 

Stratt'ou's  Exrs.  Case  748 

Strafford      National      Bank     v. 

Dover  484 

Strand  Music  Hall  Co.,  In  re  675 

Strange  v.  H.  &  T.  C.  R.  R.  Co.  594 
Strasburg  R.  R.  Co.  v.  Echter- 

nacht  109 

Stratton  v.   European,  etc.,  R'y 

417,  815 
v.  Lyons  189,  740 

Street  v.  Ballis  102 

Street  R.  R.  Co  v.  Morrow  477a 

v.  Nolthenins  376 

Stringer's  Case  622 

Stringham    u.    Oshkosh   and  M. 

R.  R.  Co.  260 

Strong   v.    Brooklyn   Crosstown 

R.  R.  Co.  570 

v.  McCagg  611 

v.  Sacramento,  etc.,  R.  R.  Co.    373 

v.  Smith  578 

v.  Wheaton  737 

Stuart  v.  Hayden  749 

Studebaker  v.  Montgomery  146 

».  Perry  727 

Sturges  v.  Burton  764 

o.  Crowinshield  493 

».  Knapp  756,  814 

v.  Stetson  541,  678 

v.  Vanderbilt  432,  703 

Suburban    R.  T.    Co.  v.   Mayor, 

etc.,  of  New  York  163a 

Sugden  r.  Alsbury  800 

Sullivan     v.    Lewiston     Institu- 
tion of  Savings  199 
v.  Triunfo  Mining  Co.                   627 
Summitt  v.  State                       348,  371 
Sumner    v.      Richardson     Lake 

Dam  Co.  167 

Sum  rail  v.  Sun  Mutual  Ins.  Co.  449 
Sun  Pr.  &  Pub.  Ass'n  v.  Moore  202 
Sunderland  v.  Westcott  359 

Sunny    South    L.    Co.    v.    Nei- 

meyer  L.  Co.  400 

Supervisors  v.  Durant  333 

v.  Gabraith  320,  330 

v.  Miss.,  etc.,  R.  R.  Co.  531 

v.  Schenck  325,  330 

v.  Stanley  484,  492 

v.  Wisconsin     Central    R.    R. 

Co.  162a,  3056 

Supply  Ditch  Co.  v.  Elliot  594 

Supreme   Commandery  v.  Ains- 

worth  498,  583 

Supreme  Lodge  v.  Simering  581 


TABLE    OF    CASES. 


SECTION 

Supreme  Order  of  Iron  Hall  v. 

Griggsby  401 

Supreme  Sitting,  etc.,  v.  Baker     431 
Susquehanna  Boom  Co.  v.  West 

Branch  Boom  Co.  468 

Susquehanna  Bridge  Co.  v.  Gen- 
eral Ins.  Co.  125 
Sussex  R.  R.  Co.  v.  Morris  and 

Essex  R.  R.  Co.  308 

Sutherland  v.  Olcott  133 

Sutliff  v.  Lake  County  332 

Sutter  St.  R.  R.  Co.  v.  Baum  632,  634 
Sutton  v.  N.  Y.   C.    and  H.  R. 

R.  R.  Co.  371 

Sutton  M'f'g  Co.  v.  Hutchinson    759 
Sutton's      Hospital,      Case      of 

10,  12,  13.  14 
Suydam  v.  Moore  752 

Swan  v.  Manchester,  etc.,  R.  R. 

Co.  348 

v.  North  British,  etc.,  Co.  593 

v.  Williams  163 

Swan  Land  Co.  v.  Frank  703 

Swann  o.  Clark  822 

v.  Wright's  Ex'r  813 

Swartwout  v.  Mechanics'  Bank      672 

v.    Michigan  Air  Line     R.    R. 

Co.  146,  518 

Swearingen  v.  Dairy  Co.  709 

Sweatland  v.  111.   and  Miss.  Tel. 

Co.  357 

Sweeney  v.   Old  Colony    R.    R. 

Co.  371 

Sweeny  v.  Sugar  Co.  644,  759 

Swepson  v.  Bank  663,  668,  710 

Swift  o.  Smith  187 

v.  Tyson  468 

Swim  v.  Wilson  795 

Swindler  v.  Hilliard  353 

Swing  v.  Bentley  Co.  393 

Swinney  v.  Ft.  Wayne,  etc.,  R. 

R.  Co.  163 

Sykes  v.  People  158 

Symon's  Case  586,  747 

Symonds  v.  Lewis  759 

Syracuse,  etc.,  R.   R.   Co.,  In  re 

Application  of  577a 


Taber  v.  Interstate  B.  &  L.  Ass'n    400 
Tafft  v.  Praesidis,    etc.,    R.    R. 

Co.  594 

Taft  v.  Hartford,  etc.,  R.  R.  Co.    565 
v.  Quinsigamond  Nat.  B'k  672 

Taggart  v.  Western  Md.  R.  R.  Co.  91 
Tait's  Case  110 

Talbot  «>.  Hudson  163,  4696 

Talbott  v.  Silver  Bow  County         483 
Talcott  o.  Wabash  R.  R.  Co.  363 

Talladega  Ins.  Co.  v.  Peacock        193 


SECTION 

Tallmadge  v.   Fishkill  Iron  Co. 

522c,  702,  731 


Talmage  v.  Pell 

273 

Talman  v.  Rochester  City  Bank 

161 

Tammany      Water      Works     v. 

New  Orleans 

474 

Tappan    v.      Merchants'      Nat. 

Bank 

479 

Tarbell  v.  Page 

751 

Tarbell  Admr.  v.   Rutland  R.  R. 

Co. 

365 

Tarble's  Case                             456, 

461 

Tai  box  v.  Gorham 

210 

Tar  River  Co.  v.  Neal 

738 

Tatem  v.  Wright                       383, 

480 

Tatum  v.  Rosenthal 

737 

Tavistack  Ironworks  Co.,  In  re 

Lyster's  Case 

262 

Tawas,   etc.,   R.   R.    Co.   v.   Cir- 

cuit  Judge  415,  657 

Taxpayers  v.  Tennessee  Central 

R.K.  Co.  321 

Taylor     v.     Agricultural,      etc., 

Ass'n  125,  214,  225,  234,  254,  813 


v.  Branham 

382 

v.  Chicester      and      Midhurst 

R'y  Co.                         264,  269, 

291 

u.  Bowker 

736 

v.  Collier 

361 

v.  Earle                                     268, 

608 

v.  Gas  and  Coke  Co. 

382 

v.  Gross,  etc.,  M'f'g  Co. 

725 

v.  Grand  Trunk  R'y  Co.       350, 

377 

v.  Granite  Assoc. 

397 

v.  (xray                                     435, 

759 

o.  Griswold                            577, 

579 

v.  Holmes 

140 

o.  Inll 

719 

v.  Little  Rock,  etc.,  R.  R.  Co. 

364 

v.  Miami  Exp.  Co. 

135 

o.  Mitchell 

759 

r.  North  Star  M'f'g  Co. 

280 

v.  Pliila.  and  Reading  R.  R.  Co. 

126 

v.  South  and   North   Alabama 

R.  Co. 

270 

v.  Street  Ry.  Co.                     145 

175 

&.  Taylor                                  618 

756 

v.  Trust  Co. 

384 

Taylor  &  Co.  v.  Little  Rock,  etc., 

R.  R.  Co. 

353 

Teague  v.  Le  Grand 

660 

Teasdale's  Case                          134, 

550 

Telegram  Newspaper  Co.  v.  Com- 

monwealth 

343 

Telegraph  Co.  v.  Davenport 

592 

v.  Electric  R'y  Co. 

173 

v.  Griswold 

357 

r.  Texas 

486 

Temperance   Ass'n   v.    Friendly 

Soc. 

229 

Temple  v.  Lemon 

701 

901 

TAI3LE    OF    CASKS. 


SECTION  I 

Templin  v.  Chicago,  etc.,  R'y  Co.  236 
r.  Dodge  233 

Ten  Broeck  v.  Boiler  Compound 

Co.  196 

Ten  Eyck  v.  Delaware  and  Rari- 

tan  Canal  Co.  173,  476 

v.  Railroad  Co.  646 

Tennessee  v.  Davis  4696 

v.  Sneed  494 

v.  Whitworth         477,  488,  490,  491 

Tennessee  River  Tr.  Co.  v.  Kava- 

naugh  193 

Tenny  v.  East  Warren  Lumber 

Co.  259 

Terhune  v.  Midland  R.  R.  Co.         611 
p.  Potts  665 

Terre  Haute  and  I.  R.  R.  Co.  v. 

Clark  374 

v.  Earp  530 

v.  Fitzgerald  347 

v.  Jackson  347 

v.  McMurray  201 

Terre  Haute  and  S.  E.  R.  R.  Co. 

v.  Rodel  175a 

Terre  Haute,  etc.,  R.   R.  Co.  v. 

Graham  344 

Terre  Haute  Gas  Co.  v.  Teel  173 

Terrell  V.  Branch  Bank  210 

Territory  v.  Virginia  Road  Co.      460 
Terry  v.  Andersen  493,  703 

v.  Eagle  Lock  Co.         279,  568,  801 
v.  Little  717,  726 

v.  McLure  736 

v.  Merchants',  etc.,  Bank    432,  435 
v.  Martin  725 

v.  Tubman  736 

Texas  and  Pac.  Coal  Co.  v.  Law- 
son  309c 
Texas  and  Pac.  R.  R.  Co.  v.  Archi- 
bald 365 
Texas  &  Pacific  Ry.  Co.  v.  Cal- 
lander                                        360 
Texas  &  Pacific  R'y  Co.  v.  Clay- 
ton 360 
Texas  &  Pacific  R.  R.  Co.  v.  Mur- 
phy                                       376,  425 
Texas  &  Pac.  R'y  Co.  r.  Hoffman  417 
Texas  &   Pac.  R'y  Co.   v.   Inter- 
state    Commerce     Commis- 
sion                                            474(2 
i\  O'Donnell  372 
v.  Reise  360 
Texas   and   St.   L.   R.   R.   Co.  v. 

Robards  162,  212 

v.  Matthews  178 

B.  Orr  371 

Thacher  v.  Dartmouth  Bridge  Co.   163 

v.  King  772 

Tliacherde  v.  Hass  792 

Thames  v.  Central  City  Ins.  Co.     579 

Thames  Haven  Dock  Co.  v.  Rose     262 

902 


SCCTIOK 

Thatcher  v.  Bank  of  the  State  of 

N.  Y.  246 

Thayer  v.  Burchard  361 

v.  Nehalen  Mill  Co.  201,248 

v.  New  Bedford  R.  R.  Co.  174 

v.  New  England  Lithographic 

Co.  770 

v.  Union  Tool  Co.  733,  784 

Thebus  v.  Smiley  728,  731,  825 

Thigpen  v.    Mississippi   Central 
R.  R.  Co.  515,  521 

Third  Ave.   S'v'gs  Bank  v.  Dim- 
ock  276 

Third  National  Bank  v.  Boyd         161 
v.  Stone  483 

Thomas  v.  Boston  and  P.   R.  R. 

Co.  360 

v.  Brownsville,  etc.,  R'y  Co. 

638. 639 
v.  Citizens'  Horse  R'y  Co.  185,  813 
v.  Dakin  17,  58 

v.  Gregg  800 

v.  N.  Y.  &  G.  L.  R.  R.  Co.  675 

v.  Railroad  Co.  114,  120,  305 

v.  Sweet  756,  757 

v.  Western  Car  Co.  824 

Thomas's  Case  549 

Thompson  v.  Abbott  666 

v.  Bemis  Paper  Co.  711 

v.  Duncan  376 

v.  Erie  R'y  Co.  554,  563,  572 

v.  Greely  616 

v.  Gnion  531,  532 

v.  Lambert  125,  203,  279,  286 

v.  Natchez  Water  Co.  381 

v.  North  Missouri  R'y  Co.  376 

v.  Page  92,  108 

v.  Reno  Sav.  Bank  655,  701,  706, 729 
v.  St.  Nicholas  Nat.  Bank  302 

v.  Swain  612 

v.  Valley  R.  R.  Co.  676,  818 

v.  Waters  384,  389,  391 

v.  Western  Un.  Tel.  Co.  357 

v.  Williams  260,  574 

Thompson-Houston  Elec.  Co.  v. 

Murray  655,  703 

Thomson  b.  Allen  Co.  333 

v.  Lee  County  319 

v.  Meisser  716,  728,  731,  733 

v.  Oliver  518 

v.  Pacific  R.  R.  482 

Thorington  v.  Gould  189 

Thornton  v.  Lane  724 

v.    Marginal      Freight      Rail- 
way (Jo.  435,  496 
v.  National  Exchange  Bank        302 

Thorp  v.  Woodhull  91,  511,  516 

Thorpe  v.   New   York   C.   &   H. 

R.  R.  R.  Co.  348 

v.   Rutland,     etc.,    R.    R.   Co. 

152,  163a,  464,  475 


TABLE    OF    CASES. 


SECTION 

Thrasher  v.  Pike  County  R.  R. 

Co.  100 

Throop  v.  Hatch  Lith.  Co.  759 

Thurber  v.  Crumb  794,  796 

v.  Harlem,  etc.,  R.  R.  Co.  374 

Thurston  v.   Union    Pac.   R.   R. 

Co.  348,  350 

Thweatt  v.   Bank  of    Hopkins- 

ville  303 

Tibbals  v.  Libby  723 

Tidewater  Co.  v.  Coster  163 

Tiernan  v.  Rinker  480,  485 

Tierney  v.  N.  Y.   C.  and  H.   R. 

R.  R.  Co.  361 

v.  Parker  523 

Tifft  v.  City  of  Buffalo  325 

Tileston  v.  Newell  187 

Tillinghast  v.  Boston  Co.  395 

Tillson  v.  Downing  759 

Tilson  v.  Warwick  Gas  Light  Co.     87 
Timberlake  v.  Compress  Co.  797 

Tindal  v.  Wesley  462 

Tinkham  v.  Borst  656 

Tinsman  v.  Belvidere  Dela- 
ware R.  R.  Co.  174,  177 
Tipling  v.  Pexall  12 
Tippets  v.  Walker  233,  753 
Tisdale  v.  Harris  789 
Titcomb  v.  Insurance  Co.  437 
Titus  v.  Cairo  and  Fulton  R.  R. 

Co.  225,  236 

v.  Ginheimer  676 

v.    Great    Western     Turnpike 
Road  591 

v.  Mabee  676 

Tobin  v.   Portland,    etc.,   R.   R. 

Co.  371 

Toddv.  Kankakee,  etc.,  R.  R.  Co.  179 

«.  Old  Colony,  etc.,  R.  R.  Co.     374 

v.  Taft  790 

Toledo  and  Ann  Arbor  R.  R.  Co. 

v.  Johnson  147,  153 

Toledo  and    Wabash    R.   Co.  v. 

Daniels  102a,  104 

Toledo  Bank  v.  Bond  453,  488 

Toledo  Com.  Co.  v.  Glen  Co.  400 

Toledo  Tie  Co.  v.  Thomas  401 

Toledo    P.    &    W.    R'y    Co.    v. 

Deacon  475 

Toledo,  Wabash  and  W.   R.  R. 


Co.  v.  Beggs 

v.  Hammond 

».  Jacksonville 

v.  Moore 

v.  Morrison 

v.  Rodrigues 

v.  Williams 

v.  Wright 
Toledo,  etc.,   R.   R.   Co.  v.  Ham 

litem 
Toll  Bridge  Co.  v.  Betsworth 


144,  349,  353 
355 
475,  476 
365 
173 
121 
348 
348 


82-2 
210 


SKCTIOK 

Tolman  v.  Syracuse,  etc.,  R.  R. 

Co.  376 

Tombigbee  R.  R.   Co.  v.  Knee- 
land  381,  384 
Tome  v.  Parkersburgh,  etc.,  R. 

R.  Co.  598 

Tompkins  v.  Augusta  So.  R.  R. 

Co.  421 

Tomkins  v.  Blakely  393 

Tomlinson  v.  Branch  424,  491 

v.  Jessup  497 

Tonica,  etc.,   R.  R.   Co.  v.  Mc- 

Neeley  109 

Tooker  v.  Gormer  360 

Tool  Co.  v.  Howe  759 

v.  Morris  293 

Tootle  v.  Bank  277 

Topeka  Manuf.  Co.  v.  Hale  521 

Topeka  Paper  Co.  v.  Oklahoma 

Pat.  Co.  303 

Totten  v.  Tison  565,  572 

Toucey  v.  Brown  724 

Touche   v.    Metropolitan    Ware- 
housing Co.  87 
Tourtelet  v.  Whithed                        283 
Towers,  etc.,  Co.  v.  Inman             277 
Town  v.  Bank  of  River  Raisin  432,  433 
Town  of  Coloma  v.  Eaves                330 
Town     of     Concord    v.     Ports- 
mouth Savings  Bank        320,  322 
Town    of    Duanesburg    v.    Jen- 
kins                                            325 
Town  of    East  Lincoln  v.  Dav- 
enport                                        324 
Town  of  Queensbury  v.  Culver      319 
Town  of  Reading  v.  Wedder          323 
Town  of  Searey  v.  Yarnell      146,  630 
Town  of  South  Ottawa  v.   Per- 
kins                                            320 
Town    of     Springport    v.    Teu- 

tonia  S'v'gs  B'k  332 

Town  of  Venice  v.  Murdock  318,  330 
Town     of    Weyanvvega    v.    Ayl- 

ing  330 

Townes  v.  City  Council  395 

v.  Nicbols  599 

Townsend  v.  Mclver        589,  590,  599 

v.  N.  Y.  C.  and  H.  R.  R.  R.  Co.  378 

v.  Williams  752 

Township     of     Burlington      v. 

Beaseley  319 

Township    of    East   Oakland  v. 

Skinner  320 

Township  of  Elmwood  v.  Marcy   318 
Township  of  Pine  Grove  v.  Tal- 

cott  318,319 

Township    of     Rock     Creek    v. 

Strong  330 

Tiacey  v.  Guthrie  County  Agri- 
cultural Soc.  211 
0.  Tal Image                    286,  293,  299 

903 


TABLE    OF    CASES. 


SECTION 

Tracy    v.    Elizabethtown,    etc., 

R.  R.  Co.  163 

v.  Yates  718,  719 

Tradesman  Pub.    Co.  v.   Wheel 

Co.  668,  765 

Transit  Co.  v.  Lynch  485 

Transportation  Co.  v.  Chicago       177 

V.  Downer  351 

v.  Wheeling  4696,  485 

Treadwell  v.  Salisbury  M'f'g  Co. 

431,  610 
Tregeur  v.  Water  Co.  567 

Trenton   Mut.    Life  Ins.  Co.    v. 

Perrine  137 

Trenton  Potteries  Co.  v.  Oliphaut 

309c 

Trester  v.  Missouri  Pac.  R'y  Co.  424 

Trevitt  v.  Converse  187 

Triesler  v.  Wilson  581 

Trigg  v.  St.  Louis,  etc.,  R'y  Co.    377 

Trimble  v.  Reid  752 

Trinity  Church  v.  Vanderbilt        773 

Tripp  v.  National  Bank  225 

v.  New  Metallic  Packing  Co.       210 

v.  Swanzey  Paper  Co.        219,  225 

Trippe  v.  Huncheon  737 

Trisconi  w.  Winship  610 

Trott  v.  Sarchett  518 

v.  Warren  263 

Troup  v.  Hornback  522c,  702 

Trow  v.  Verm't  Cent.  R.  R.  Co.     373 

Trowbridge  v.  Hamilton  583 

v.  Scudder  148,  739 

Troy  Mining  Co.  v.  White  574 

Troy  and   Boston   R.   R.    Co.   v. 

Boston  Hoosac  Tunnel,  etc., 

R.  R.  Co.  305 

Troy,  etc.,  R.  R.  Co.  v.  Kerr  432 

v.  Newton  546 

v.  Tibbets  91 

v.  Warren  91 

Troy,  etc.,  Turnpike  Co.  v.  Mc- 

Cliesney  546 

Truckee,  etc.,   Turnpike  Co.   v. 

Campbell  153,  156,  490 

Trust  Co.  v.  Floyd  754 

v.  Germania  Ins.  Co.  400 

v.  Georgia  456 

v.  Loan  Co.  704,  713 

Trust,  etc.,  Co.  v.  Lumber  Co.      583 
Trustees  v.  Flint  583,  782 

Trustees  of  Canandaigua  Acad- 
emy v.  McKechnie  204 
Trustees  of  Christian  Church  v. 

Johnson  248 

Trustees   of   Farmington   Acad- 
emy ii.  Allen  92 
Trustees  of  First  Baptist  Church 

v.  Brooklyn  Fire  Ins.  Co.         254 
Trustees   of    N.   W.    College    v. 

Schwagler  158 

904 


SECTION 

Trust,  of  School  Dist.  v.  Gibbs      449 
Trustees  of  the  W.  and  E.  Canal 

Co.  v.  Beers  507 

Tuchband  v.  Chicago,  etc.,  R.  R. 

Co.  396 

Tuckahoe  Canal  Co.  v.  Tuckahoe 

R.  R.  Co.  453 

Tucker  v.  Ferguson  489 

v.  Gil  man  747 

v.  Mass.  Central  R.  R.  178 

v.  St.  Louis,  K.  C.  and  N.  R'y 

Co.  201 

Tuckerman  v.  Brown  550,  701 

Tullis  v.  L.  E.  &  W.  R.  R.  Co.      475 

Tunesma  v.  Schuttler  725 

Tunney  v.  Midland  R'y  Co.  365 

Turcott  v.  R.  R.  Co.    '  402 

Turnbull  v.  Payson  740 

v.  Prentiss  Lumber  Co. 

663,  668,  669 
Turner  v.  First  Nat.  Bank  337 

v.  Grangers'  Life  Ins.  Co.  744 

v.  Hannibal  and  St.  Jo.  R.  R. 

Co.  170 

v.  Hawkeye  Tel.  Co.  357 

v.  Maryland  480,  485 

v.  Peoria  and  S.  R.  R.  Co.  824 

Turnpike  Co.  v.  Illinois  122,  167 

v.  Montgomery  County  121 

v.  Pass.  R'y  Co.  204 

v.  State  453 

Turnpike  Road  v.  Green  342 

Turquand  v.  Marshall  622,  699 

Tuscaloosa,  etc.,  Ass.  v.  Green      436 

Tuscaloosa  Cotton  Seed  Oil  Co. 

v.  Perry  237 

Tuscaloosa  M'f'g  Co.  v.  Cox  687 

v.  Williams  309a 

Tuthill,  Re  470 

Tuthill  Spring  Co.  v.  Smith  741 

Tuttle  v.  Iron  Nat.  Bank  585 

v.  Michigan  Air  Line  539,  574 

v.  Walton  601,  603 

Tutwilert).  Tuscaloosa  Coal  Co.    140 

Twelfth    Street    Market    Co.   v. 

Jackson  238 

Twenty-second  Street,  hi  re  465 

Twin  Creek,  etc.,  Turnpike  Co. 

v.  Lancaster  92,  109 

Twin  Lick  Oil  Co.  v.  Marbury 

630,  631,  632 
Twyncross  v.  Grant  103,  104 

Tyfer  v.  Trustees  249 

v.  Western  Un.  Tel.  Co.  357 

Tyrell  v.  Cairo,  etc.,  R.  R.  Co.       270 
Tyrrell  v.  Bank  of  London  82 

U. 

Ulmer  v.  Real  Estate  Co.         140,  611 
Ulmsted  v.  Buskirk  72-1,  783 


TABLE    OF    CASES. 


SECTION 

Una  v.  Dodd  618 

Uncas  Nat.  Bank  v.  Rith  125 

Uncles  v.  Colgate  314 

Underbill     v.      Santa      Barbara 

Land  Co.  197,  213,  299,  584 

Union    Agricultural      Ass'n     v. 

Nell  530 

Union  Bank  v.  City  of  Richmond  483 
V.  Ellicott  130,  225,  668 

v.  Gince  557 

v.  Jacobs  125 

v.  Laird  603 

v.  Ridgeley  235 

v.  Wando  M'g,  etc.,  Co.  737 

Union    Branch     R.     R.     Co.    v. 

East  Tenn.,  etc.,  R.  R.  Co.      151 
Union  Bridge  Co.  v.  Troy,  etc., 

R.  R.  Co.  313 

Union  Canal  Co.  r.  Gilfillin    507,  674 
Union  Depot,  etc.,  Co.  v.  Bruns- 
wick 174 
Union  Express  Co.  v.  Graham        353 
Union     Gold     Mining     Co.      v. 

Rocky  Mt.  Nat.  Bank  181, 

202,  236 
Union  Hardware  Co.  v.  Plume, 

etc.,  Co.  311 

Union  Hotel  Co.  v.  Hersee  97 

Union  Improvement  Co.  v.  Com- 
monwealth 497 
Union  Insurance  Co.  v.  Hart  401 
v.  Hoge  510 
Union  Iron  Co.  v.  Pierce  764,  775 
Union    Locks    and     Canals     v. 

Towne  531 

Union  Mut.  Ins.  Co.  v.  Keyser       181 
v.  White  238 

Union     Mut.    Life    Ins.    Co.   v. 

Frear  Stone,  etc.,  Co.  701 

Union  Nat.  Bank  a.  Douglass  656,  757 

v.  Hunt  276,  521 

v.  State  Nat.  Bank  387 

Union     Pacific     R.     R.     Co.    v. 

Credit  Mobilier         638,  639,  642 
v.  Goodridge  474d 

v.  Hall  454 

v.  Lincoln  319 

v.  United  States  565 

Union  Pac.  R'y  Co.  v.  Beatty         193 
v.  Cheyenne  492b 

v.  Railway  Co.  305 

Union  Refrigerator  Transit  Co. 

v.  Lynch  479 

Union  Savings   Assoc.   ».   Selig- 

man  741 

Union      Trust     Co.     v.     Illinois 

Midland  R.  R.  Co.  824 

v.  Library  Hall  Co.  281 

v.  Souther  822 

v.  Walker  822 

Union  Turnpike  Co.  «.  Jenkins       91 


SECTION 

United   Hebrew   Ass'n  v.    Ben- 

shinol  504 

United   Society   of   Quakers    v. 

Underwood  758 

United  States  v.  Central  Pacific 

R.  R.  Co.  565 

v.  City  Bank  236,  241 

v.  Coombs  474a 

o.  County  of  Clark  333 

v.  County  of  Macon  320,  333 

v.  Cruikshank  456,  461 

v.  De  Witt  4696 

v.  Erie  R'y  Co.  479 

v.      Forty-three      Gallons     of 

Whiskey  474a 

v.  Fox  387 

v.  Freight  Ass'n  309a 

v.  Insurance  Companies      137,  149 
v.  Joint  Traffic  Ass'n  309a 

v.  Jones  473 

v.  Kansas  Pacific  R.  R.  Co.         565 
v.  Knight  Co.  309a 

v.  Knox  716,  727 

v.  Lee  462,  467 

v.  New  Orleans  Railroad     333,  318 
v.  Pipe  Co.  309a 

v.  Reynes  172 

v.  Trinidad  Coal  Co.  120 

v.  Un.  Pac.  R.  R.  Co.    452,  493,  502 
United    States    Bank    v.    Bank 

of  Georgia  672 

v.  Planters'  Bank  462 

v.  Stearns  145 

United    States     Express    Co.   v. 

Bockman  359 

v.  Harris  356 

United  States  Ins.  Co.  v.  Schriver  210 
United  States   Mercantile,   etc., 

Assoc,  In  re  158 

United    States   Mortgage    Co.  v. 

Gross  388 

United  States  Rolling  Stock 
Co.  v.  Atlantic  and  Great 
Western  R.  R.  Co.  642 

United   States    S.,   etc.,    Co.    v. 

Scott  387 

United      States      Tel.      Co.     v. 

Gildersleeve  357 

United   States  V.    Co.    v.  Foeh- 

renbach  309c,  529 

v.  Schlegel  309c,  529 

United  Trust  Co.  v.  Lee  388 

v.  Wabash  R'y  814 

Universal     Fire      Ins.      Co.      v. 

Tabor  703 

University  v.   North  Car.   R.   R. 

Co.  505 

v.  People  461,  488,  489 

University    of    Des    Moines    v. 

Livingston  515 

Upham  v.  Worcester  179 

905 


TABLE    OF    CASES. 


SECTION 

Upton  v.  Burnham 

589 

v.  Englehart 

523, 

744 

0.  Ilausbrough 

97, 

51!) 

v.  South  Branch  R.  R. 

Co. 

179 

v.  Triblecock          511. 

513,  522, 

523 

542, 

549,  701, 

744 

Urner  v.  Stollenberger 

523 

Utica  Ins.  Co.  v.  Scott 

298 

v.  Kip 

299 

Utica  Nat.  Brewing  Co 

,  Matter 

of 

427 

Utley  o.  Clark  Gardiner 

M'g  Co. 

401 

v.  Hill 

619 

Utter  v.  Franklin 

325 

V. 


Vail  v.  Hamilton  135,  136,  185 

v.  Jameson  668 

Valdetero  v.  Citizens'  Bank  211 

Vale  Mills  ».  Spalding  588 

Valle  o.  Zeigler  479 

Valley  Bank  v.  Sewing  Society  432 
V;iu  Aernam  v.  Bliestein  56,  57 

Van  Allen  v.  Assessors  477a,  484 

Van  Am  burgh  v.  Baker  769 

Van    Brocklin    v.    Queen    City 

Printing  Co.  668 

Vance  v.  Erie  R'y  Co.  342 

v.  McNabb  Coal  Co.  657 

v.  Phoenix  Ins.  Co.  620,  621 

Van  Cleve  v.  Berkey  702,  702a 

Van  Cott  o.  Van  Brunt  522c 

Vanderbilt  v.  Central  R.  R.  Co.  814 
Vanderpoel  v.  Gorman  388 

Vanderwater  v.  New  York,  etc., 

R.  R.  Co.  368 

Van     Diemen's     Land     Co.    v. 

Cockerell  547,  599 

Van  Doren  v.  Olden  799 

Van  Dyck  v.  McQuade  622,  750 

Vane  v.  Cobbold  104 

Van  Etten  v.  Eaton  767 

Van  Hostrop  v.  Madison  City  331 
Van  Leuren  ».  First  Nat.  Bank  161 
Van  Lindley  v.  Richmond,   etc., 

R.  R.  Co.  360 

Vanneman  o.  Young  451 

Van  Norman  v.  Jackson  Circuit 

Judge  567 

Van  Pelt  v.  Gardner  655,  703,  709,  783 
v.  Home  Bldg.  Assoc.  432 

Van  Rensselaer  v.  Snyder  493 

Vansands  v.  Middlesex  Co.  B'k  600 
Van  Santvoord  v.  St.  John  363 

Van  Steuben  v.  Central  R.  R.  Co.  305 
Van  Weel  v.  Winston  756 

Van  Wyck  v.  Knevals  153,  383 

Varnum  v.  Hart  668 

Vatable  v.  New  York,  etc.,   R. 

R.  Co.  816a 

906 


SECTION 

Vaughan  v.  Taff  Vale  R'y  Co.  368 

Veazie  Bank  v.  Feno  478 

Veeder  v.  Baker  764 

v.  Mudgett  732 
Veiller  v.  Brown  720,  747 
Velt    Hospital    v.    City  of  New 

York  489 

Venner  v.  Atchison,  etc.,  R.  Co.  227 
Vermont    and    C.    R.   R.   Co.   v. 

Vermont      Central      R.      R. 

Co.  288,  3056,  449,  458 

Verner  v.  General,  etc.,  Trust  265 

v.  Sweitzer  359 

Verplanck  v.  Mercantile  Ins.  Co.  135 

Vick  o.  Lane  704 

v.  La  Rochelle  745 
Vicksburg  v.  Tobin  4746 
Vicksburg  and  M.  R.  R.  Co.  v. 

O'Brien  210 
Vicksburg,     etc.,     R'y    Co.    v. 

Dennis  489 
Vicksburg,     etc.,    R.    R.    Co.   v. 

McKean  97,  516,  521 

Victory    Webb    Printing  Co.    v. 

Bucher  773 

Vidal  v.  Girard's  Ex'rs  315 

Viets  v.  Union  Nat.  B'k  672 
Vilas  u.   Milwaukee,  etc.,  R.  R. 

Co.  415 

Vilas  Nat.  B'k  v.  Strait  237 
Vinas  v.   Merchants'    Mut.    Ins. 

Co.  342 
Vincent  v.  Sands  768 
Viner  v.  N.  Y.  and  C.  Steam- 
ship Co.  360 
Vinton's  Appeal  799 
Virginia  &  Ala.  R.  R.  Co.  v.  C. 

R.  R.  &  B.  Co.  of  Ga.  824,  824a 
Virginia    and    T.    R.    R.    Co.   v. 

Henry  178 
Virginia  and  Tenn.  R.  R.  Co.  v. 

Sayers  353 
Virginia    and     Truckee    R.    R. 

Co.  v.  Lovejoy  164 

Virginia  Coupon  Cases  494 

Visalia  Gas  Co.  v.  Sims  304 

Voight  v.  Dregge  718 

Voltz  v.  National  Bank  303 
Von  Glahn  v.  De  Rossett        436,  437 

v.  Harris  725 

Von  Hoffman  v.  City  of  Quincy  333 
Vos  Burgh  v.  Lake  Shore,  etc., 

R.  Co.  365 

Vose  15.  Bronson  815 

v.  Cockcroft  400 

Vreeland  v.  N.  J.  Stone  Co.  511 

W. 

Wabash,  etc.,  Canal  Co.  v.  Beers  815 
Wabash,  etc.,  R'y  Co.  u.  Illinois  474c 


TABLE    OF    CASES. 


SECTION 

Wabash,  etc.,  Ry.  Co.  v.  Jagger- 

man  363 

v.  People  476a 

Wabash  R'y  Co.  v.  McDaniels        365 
Wade  v.  Chicago,  S.,  etc.,  R.   R. 

Co.  676 

v.  Travis  County  318,  468 

Wadsworth  v.  Supervisors  320 

Wager  v.  Troy  Union  R'y  Co.      175a 
Wagner  v.  Meety  32o 

v.  Stall  507 

Waite  v.  Mining  Co.  259 

v.  Santa  Cruz  321,  330 

Wakefield  v.  Fargo  734 

Wakefield  Bank  v.  Truesdale         240 
Wake  man  v.  Dalley  755 

Walburn  v.  Chenaulb  522c 

Waldo  v.    Chicago,    etc.,    R.    R. 

Co.  523 

Waldoborough  v.  Railroad  Co.      608 
Walker,  Ex  parte  158 

Walker  v.  Bartlett  791 

v.  Detroit  R'y  Co.  795 

v.  Devereux  91 

v.  FlemiHg  190 


v.  Johnson 
v.  Lewis 


579,  581 
700 
162 


v.  Mad  River,  etc.,  R.  R.  Co. 
v.   Mobile,  etc.,  Railroad  Co. 

515,  523 

v.  St.  Louis  Nat.  Bank  246 

v.  Whitehead  498 

Walker's  Case  601 

Walkley  v.  City  of  Muscatine        333 

Wall  v.  County  of  Monroe  320 

v.  Livezey  349 

v.  Mining  and  Smelting  Co.  87 

v.  Piatt  417 

Walla    Walla    v.    Walla    Walla 

Water  Co.  474a 

Wallace  v.  Carpenter  Co.  7026 

v.  Clayton  350 

v.  Lincoln  Sav.  Bank  625 

v.  Long  Island  R.  R.  Co.      642,  644 

v.  Loomis  451,  507,  823 

v.  Townsend  515 

Wallachs  v.  Robinson  668 

Walling  v.  Michigan  485 

Walnut  v.  Wade       326,  330,  680,  681 

Walsh  v.  Barton  282 

Walsh  am  v.  Staunton  697 

Walstab  v.  Spottiswood  104 

Walter  v.    Merced   Acad.   Ass'n 

513,  706 
Walther  v.  Warner  163 

Waltonjc  Oliver  148 

v.  Riley  146 

Walworth  County  Bank  v.  Far- 
mers' L.  and  T.  Co.  212,  236 
Wann  v.   Western   Union   Tele- 
graph Co.  357 


SECTIOK 

Waoters    v.    International    and 

G.  N.  R.  R.  Co.  162 

Ward   v.    Atlantic    and    Pacific 

Tel.  Co  167 

v.  Davidson  628,  629,  650 

v.  Farwell  495 

v.  Griswoldville  Mfg  Co.  661 

v.  Loudesborough  104 

v.  Johnson  125,  280,  672 

v.  Maryland  485 

v.  N.  Y.  Cent.  R.  R.  Co.  361 

v.  Saint  Vincents'  Hospital         335 

v.  Sea  Ins.  Co.  457 

v.  South  Eastern  R'y  Co.  597 

v.  Stahl  715 

Ward  and  Garfit's  Case  589,  748 

Waidell  v.  Railroad  Co.  612,  638,  639 

Wardner,  etc.,  Co.  v.  Jack  284 

Ware  v.  Bazemore  140 

v.  Galveston  City  Co.  693 

v.  Hamilton  Brown  Shoe  Co.     401 

Warfield    v.      Marshall     County 

Canning  Co.  668,  759 

Warner  v.  B.  and  C.  R.  R.  Co.        350 
».  Calendar  712,  721 

v.    De   Witt  County   National 

Bank  303 

v.  Mower  574 

v.  New  York  Cent.  R.  R.  Co.      376 
Warren   v.  Beers  58 

v.  First  Nat.  Bank  391 

v.  King  565 

v.  Mobile,  etc.,  R.  R.  Co.     426,  666 
v.  Robinson  616,  619 

v.  Rubber  Co.  628 

Warren  Mfg  Co.  v.  J3tna  Ins.  Co.  383, 

397,  399 
Warren  Ehret  Co.  v.  Ice  Co.  83 

Warwick  R.  R.  Co.  v.  Cady  518 

Waseca    County    Bank    v.    Mc- 

Kenna  4926 

Washburn,    etc.,     M'f'g    Co.    v. 

Providence,  etc.,  R.  R.  Co.      363 
Washer  v.   Allensville,   etc.,   T. 

P.  Co.  263 

Washington  Gas  Co.  v.  Lamden  342 
Washington  Inv.  Ass'n  v.  Stanley  146 
Washington  Mill  Co.  v.  Lumber 

Co.  273 

Washington,  etc.,   R.    R.    Co.   v. 

McDade  365 

Washington,  etc.,  T.  Road  v. 
Baltimore  and  Ohio  R.  R. 
Co.  152 

Washington    Savings    Bank     v. 

Butchers'  and  D.  Bank  "         703, 

709,  711 

Washington  Times  Co.  v.  Wilson  211 

Washington  University  v.  Rouse  488 

Water  Co.  v.  Ware  170 

v.  Water  Co.  453 

907 


TABLE    OF    CARES. 


SECTION 

Water  Supply,  etc.,  Co.  v.  Temiey  303 
Water  Valley  Mfg.  Co.  v.  Seaman  523 
Waterbury    v.    Merchants'    Un. 

Express  Co.  611 

Waterford,     etc.,    Ry.     Co.     v. 

Dalbaic  96 

Waterhouse  v.  Jamieson         522,  702 
v.  London  and  S.  W.  R.  Co.        593 
Waterman   v.    Conn,  and   P.    R. 

R.  R.  Co.  173 

Waters  v.  Quimby  774 

Waters  Pierce  Oil  Co.  v.  Texas   400a 

Watkins  v.  Eames  92 

Watkins  Land  Co.  v.  Elliott  396 

Watson  v.  Eales  547 

v.  Earl  Charlemont  104 

v.  Fairmont  R.  R.  Co.  171 

v.  Memphis,  etc.,  R.  R.  Co.  193 

v.     Pittsburgh,     etc.,     R.     R. 

Co.  178 

Watts  v.  Gantt  303 

v.  Salter  104 

Watt's  Appeal  125,  688,  693,  694 

Waukon,  etc.,  R.  R.  Co.  v.  Dwyer  513 

Way  v.  American  Gease  Co.  451,  569 

Waycross  K.  R.  Co.  v.  Offerman    187 

Wayne  Pike  Co.  «.  Hammons        560 

Wayne  Title  Co.  v.  R.  R.  Co.  195 

Weare  v.  Gove  754 

Weatherley     v.      Capital      City 

Water  Co.  435 

Weaver  v.  Miss.,  etc.,  Boom  Co.  173 
Webb  v.   Baltimore,  etc.,  R.   R. 

Co.  511,  516.  517,  567 

v.  Com' is  251 

v.  Graniteville  M'f'g  Co.  592 

v.  Ridgeley  581 

v.  Smith  210 

Webber  v.    Great   Western   R'y 


Co. 

363 

v.  Virginia 

485 

Weber  v.  Bullock 

796 

v.  Fickey        719,  731,  732, 

744, 

783 

Webster  v.  Turner 

610 

v.  Upton                  513,  587, 

719 

747 

Webster's  Case 

110 

Webster  Telephone  Case 

454 

Weckler  v.  First  Nat.  Bank 

161, 

336, 

338 

Weed    v.     Little  Falls,   etc. 

,   R. 

R.  Co. 

637 

v.  Panama  R.  R.  Co. 

361 

Weeden   v.    Lake   Erie,    etc 

,  R. 

R.  Co. 

518 

Weeks  v.  Love 

725 

v.   N.    Y.,     N.    H.  and    H 

R. 

R.  Co. 

347 

355 

v.  Propert 

754 

Wehn  v.  Fall 

703 

Wehrmnn  v.  Reakert 

718 

Weigand  v.  All.  Sup.  Co. 

432 

908 

SECTION 

Weight  v.  Liverpool,    etc.,  Ins. 

Co.  395 

Weihenmeyer  v.  Bittner  585 

Weihl  v.  Atlantic  Furniture  Co.  633 
Weinman  v.  Passenger  Ry.  Co.  537 
Weir  i\  Barnett  755 

v.  Express  Co.  356 

v.  St.  Paul,  etc.,  R.  R.  Co.  163 

Weisger  v.  Ice  Co.  523 

Weiss  v.  Pennsylvania  R.  R.  Co.  376 
Weisser  v.  Denison  672 

Welch   r.    Boston  and  A.  R.  R. 

Co.  353 

v.    First    Div.    St.    Paul    and 

Pac.  R.  R.  Co.  115,  415 

v.  Importers',  etc.,   Bank  185,  630 
».  Mill  Co.  309c 

v.  Post  320 

v.  Pullman  Palace  Car  Co.  347 

v.  Sargent  586 

Weld  v.  Gorham  195 

Wells  ».  American  Exp.  Co.  210 

v.  Maine  Steamship  Co.  350 

v.  New  York  Central  Railroad 

Co.  353 

v.  Rahway  Rubber  Co.  260 

v.  Rodgers  261,  543,  544 

v.  Supervisors  320 

Welsh  v.  Concord  R.  R.  Co.  359 

v.  German  American  Bank  672 

v.  Pittsburg,    Ft.    W.    and    C. 

R.  R.  Co.  353 

v.  P.  R.  R.  Co.  365 

v.  Sargent  704 

Wei  ton  v.  State  of  Missouri  485 

Wemple  v.  St.   LouiB,  etc.,  R.  R. 

Co.  511 

Wendell  v.  N.  Y.  Cent,  and  H. 

R.  R.  R.  Co.  375 

Wenger  v.   Chicago,  etc.,  R.  R. 

Co.  816a 

Wertheimer   v.   Pennsylvania  R. 

R.  Co.  359 

West  v.  Camden  559a 

v.  Carolina  Life  Ins.  Co.  153 

v.  Crawford  92 

v.    Madison   County    Agricul- 
tural Board  125 
West   Branch,  etc.,  Canal   Co.'s 

Appeal  599 

West   Chester,    etc.,    R.    R.    Co. 

v.  Jackson  563,  564,  565,  572 

v.  Miles  348 

Wostcott  v.  Fargo  353 

West  End  Co.  v.  Claiborne  516 

West   End,   etc.,""  R.    R.    Co.   v. 

Atlantic,  etc.,  R.  R.  Co.  502 

West  End  R.  R.  Co.  v.  Dameron    544 

West  Jersey  K.  R.  Co.  v.  Abbott  368 

West   Jersey   R.   R.   Co.  v.  Cape 

May,  etc.,  R.  R.  Co.  152 


TABLE    OF    CASES. 


SECTION 

West  Jersey  Traction  Co.,  In  re 

204,  211 
West     Missouri      Land    Co.   v. 

Kansas  City,  etc.,  Co.  150 

West  Nashville   Planing  Mill  v. 

Bank  522c  702 

West  of   England  Bank,  In  re, 

Ex  parte  Booker  224 

West  River  Bridge  Co.  v.  Dix        470 
West   Salem    Land  Co.  v.  Mont- 
gomery Land  Co.  212 
West   St   Louis   SVgs   Bank  v. 

Shawnee  County  Bank  206, 

241,  636 
West    Wisconsin    R.    R.    Co.    v. 

Supervisors  488,  489 

Wester  field  v.  Rodde  236 

Western  and  Atlantic  R.  R.  Co. 

v.  McElwee  363 

Western  Bank  v.  Gilstrap  202 

Western   Bank    of    Scotland    v. 

Addie  342,  523 

v.  Mills  298 

Western  Boatman's  Benevolent 

Ass'n  v.  Kribben  210 

Western  H.  &  I.  Co.  v.  Bank  212 

Western    Maryland    R.    R.     Co. 

v.  Franklin  B'k  342,  598 

Western     Nat.     Bank     v.    Arm- 
strong 161,  200,  240 
v.  Lawrence  393 
Western     Pennsylvania     R.      R. 

Co.'s  Appeal  163a,  164 

Western   Pennsylvania  Hospital 

v.  Mercantile  L.  Assn.  815 

Western  Pennsylvania  R.  R.  Co. 

v.  Hill  178 

Western  Plank' d  Co.  v.  Stockton  529 

Western  R.  R.  Co.  v.  Avery     546,  709 

v.  Bayne  237 

v.  Davis  415 

Western  Screw,  etc.,  Co.  v.  Cous- 

ley  86 

Western    Trans'n    Co.    i>.    New- 
hall  351,  353 
Western      Un.     R.      R.      Co.     v. 

Smith  426,  666 

West.  Un.  Tel.  Co.  v.  Adams        357 

v.  Alabama  486 

v.  American  Un.  Tel.  Co.  309 

v.   Atlantic   and    Pacific   Tel. 

Co.  309 

v.  Beals  357 

v.  Blanchard  357 

v.  Burlington,  etc.,  R'y  Co.  309,  314 
V.  Carew  357 

v.  Chicago,  etc.,  R.  R.  Co.  309 

v.  Enbanks  357 

v.  Eyser  377 

v.  Fontaine  357 

v.  Furguson  350 


SFfTION 

West.  Un.  Tel.  Co.  v.  Graham       357 
v.  Hamilton  393 

v.  Jones  357 

v.  Linn  357 

v.  Massachusetts  383 

v.  Meek  357 

v.  Meredith  357 

v.  Meyer  357,  383,  480 

v.  Neill  357 

v.  Pendleton  357,  474(Z 

v.  Pleasants  395 

v.  Reynolds  357 

v.  Sbepard  176 

v.  Short  357 

v.  Taggart  479 

v.  Young  357 

Westinghouse    Machine    Co.    v. 

Wilkinson  280 

Weston     v.     Bear    River,     etc., 

Co.  588,  766 

v.  Bear  River,  etc.,  Water  and 

M'f'g  Co.  796 

Weston  v.  New  Gaston  Co.  816a 

Weston's  Case  586,  601,  747 

Wetherbee  v.  Baker         702,  704,  737 

v.  Fitch  236 

Wetumpka    and     Coosa    R.    R. 

Co.  v.  Bingham  449 

Weymouth  v.  Washington,  etc., 

R.  R.  Co.  395 

Wharf,  etc.,  Co.  v.  Simpson  204 

Whelan  v.  McCready  210 

Wheeler,  Matter  of  228 

Wheeler  v.  Faurat  719,  791 

v.  Frontier  Bank  501 

v.  Land  Co.  259 

v.  Millar  723,  732,  740 

v.  Perry  799 

v.  Pullman  Iron  Co.  431,  437 

v.  San    Francisco   and  A.    R. 

R.  Co.  308,  362 

v.  Smith  255,  754 

Wheeler    &    Wilson    M'f'g  Co. 

v.  Boyce  342 

Wheeless    tj.    Second    National 

Bank  342 

Wheelock    v.    Boston    and    Al- 
bany R.  R.  Co.  376 
v.  Kost                                    738,  741 
v.  Moulton  187 
Wherrv  v.  Hale                          281,  302 
Wbicher  v.  B.  &  A.  R.  R.  Co.         347 
Whipple  v.  Union  Pac.  R'y  Co. 

426,  427 

Whirley  v.  Whiteman  372 

Whitaker  v.  Grummond  549 

v.  Hartford,  etc.,  R.  R.  Co.  680 

v.  Masterton  774 

Whitbeck     v.     Mercantile     Nat. 

Bank  484 

Whitcomb  v.  Fowle  658 

909 


TABLE    OF    CASES. 


White  v.  Coventry 
v.  Franklin  Bank 
v.  How 
v.  Howard 
v.  Knox 


SECTION 

157 
311,  313 

506,  774 
387,391 
669 


v.  New  Bedford  C.  W.  Corp.  657 
v.  Schuyler  790 

v.  Vermont,  etc.,  R.  R.  Co.         679 
White  Hall,  etc.,    R.   R.  Co.  v. 

Myers  97,  521 

Whitehead  v.  Sweet  581,  687 

Whitehall  v.  Jacohs  702 

Whitehouse's  Case  110 

Whiteman's    Ex'r    v.    Wilming- 
ton, etc.,  R.  R.  Co.  344 
White  Mountains  R.   R.    Co.   v. 

Eastman  105,  779 

v.    White    Mountains    R.    R. 

325,  674 
White     River    Lumber     Co.     v. 

Improvement  Association       400 
White  River  T.   Co.  v.  Vermont 

Central  R.  R.  Co.  152,  163a 

Whitewater,    etc.,    Canal   Co.  v. 

Vallette  675 

Whitewater  Valley  R.   R.  Co.  v. 

McClure  178 

Whitford  v.  Laidler  248,  753 

Whiting,  In  re  479 

v.  Sheboygan  319 

v.  Wellington  207 

Whitman  v.  Boston  and  M.  R.  R.  179 

o.  Cox  737 

V.  Oxford  Bank  393 

Whitman,    etc.,    Mining   Co.    v. 

Baker  384 

Whitney  v.  Atlantic,  etc.,  R.  R. 

Co.  305 

v.  Butler  748 

v.  First  National  Bank  161,  337 
v.  Leominster  Savings  Bank  277 
v.  Peay  313 

v.  Wyman  87 

Whitney  Arms  Co.  v.  Barlow 

264,  276,  773 
Whitsitt  v.   Trustees   Presbyte- 
rian Church  92,  109 
Whittenton  Mills  v.  Upton  130 
Whittlesey  v.  Delancy                      669 
v.  Delaney                                       814 
Whitwell  v.  Johnson  195 
v.  Warner                        668,  710,  811 
Whit  worth  v.  Erie  R'y  Co.              364 
Wibert  v.  N.  Y.   and  Erie  R.   R. 

Co.  361 

Wickersham  v.  Chicago  Zinc  Co.     210 

v.  Crittenden    236,  612, 627,  628,  646 

Wickham  »,  Grant  342 

Widrig  v.  Newport  St.  R'y  Co. 

633,  804 
Wiestlingi.-.  Warthen  401 

910 


SECTION 

Wiggin  v.  Free  Will,  etc.,  Church    574 
Wiggins  Ferry  Co.  v.  Chicago  and 

Alton  R.  R.  Co.  308 

v.  East  St.  Louis  453,  485 

Wight  v.  Shelby  R.  R.  Co.  516 

Wight  Co.  v.  Steinkemeyer  701 

Wilbur  c.  Stockholders   267,  701,  703 

v.  Stoopel  219,  559a 

Wilcox  v.  Bickel  140 

v.  Continental  Life  Ins.  Co.         435 

Wild  v.  Bank  of  Passamaquoddy   239 

Wilde   v.    Merchants'   Despatch 

Trans.  Co.  359 

Wilev.  Wilson  281 

Wiles  p.  Suydarn  764 

Wiley  v.  First  Nat.  Bank        161,  337 

v.  West  Jersey  R.  R.  Co.  368 

Wilkens  v.  Thorne  392,  394 

Wilkes  County  v.  Coler  318 

Wilkins  v.  Wrorthen  709 

Wilkinson  v.  Bauerle  668,  759 

v.  Bertock  729 

v.  Uodd  619 

Wilks  v.  Georgia  Pac.  R'y  Co.       276 

Willamette  M'f'g  Co.  v.  Bank  of 

British  Columbia  125,  131 

Willard  v.  Holmes  342 

Willcocks,  Ex  parte  260,  578 

Willey  v.  Parratt  104 

Williams,  Ex  parte  679 

Williams  v.  Bank  311 

v.  Bank  of  Michigan  137 

v.  Boice  708 

v.  Clough  365 

v.  Creswell  384 

v.  Fullerton  696 

v.  Great  Western  R'y  Co.  372 

v.  Halliard  620,  625,  626 

v.  Hanna  718 

tj.  Louisiana  321 

v.  Lowe  600 

v.  McDonald  622,  623 

v.  McKay  619,  756 

v.  Mechanics'  Bank  595 

v.  Montgomery  309r 

v.  Morgan  682 

v.    New   York   Central    R.    R. 

Co.  175  a 

v.  Page  103,  622 

v.  Parker  565 

v.  Pigott  77 

v.  Planters'  Ins.  Co.  342 

v.  Reilley  756 

v.  Riley  616 

v.  Savage  M'f'g  Co.  136,  569 

v.  St.  George's  Harbor  Co.  88 

v.  Western  Union  Tel.  Co. 

565,  567,  801 
Williams's  Case  101,  586,  749 

Williams  Co.  v.  IT.  S.  Baking  Co.  248 
Williamson,  Ex  parte  123 


TABLE    OF    CASES. 


SECTION 

Williamson  v.    Kokoruo    BTd'g 

Ass'n  151 

v.  Mason  342 

v.  New  Jersey,  etc.,  R.  R.  Co.       676 
v.  New  Jersey  Southern  R.  R. 

Co.  814,  815,  818 

o.  Washington  City,  etc.,  R.  R. 
Co.  822,  824 

Williamsport  Gas  Co.  v.  Pinker- 
ton  6S1 
Willis  v.  Chapman  57 
v.  Fry                                        208,  591 
v.  Grand  Trunk  C.  Co.                  353 
v.  Porter                                          556 
Williston   v.    Michigan  S.,    etc., 

R.    R.  Co.  563,  564,  565,  572 

Wilmer  v.  Atlantic,  etc.,  R'y  Co.  409 
Wilmington    C.    and    A.    R.   R. 

Co.   v.  Board  of  Com'rs         477a 
Wilmington,   etc.,  R.    R.    Co.  v. 

Alsbrook  489 

v.  Ling  249 

Wilmington  R.  R.  Co.  v.  Reid        488 

Wilson,  Ex  parte  622 

Wilson  v.  Boyce  676,  817 

v.  Curzon  77 

v.  Fire  Alarm  Co.  392 

v.  Handley  105,  523 

v.  Harry  362 

v.  Gaines  490 

v.  Goodman  754,  804 

V.  Little  794 

v.  Lumman  87 

v.  McNamee  474b 

»•  Metropolitan  El.  Ry.  Co.        636 

v.  Miers  130 

».  Northern  Pacific  R.  R.  Co.      349 

v.  Ohio  and  Miss.  Railway  Co.  476a 

v.  Pittsburgh,  etc.,  Coal  Co.       737 

v.  Proprietors  578 

v.  Rockford,  etc.,  R.  R.  Co.         179 

v.  S;ilamanca  324 

v.  Seligman  740 

v.  Shareholder,  The  734 

v.  Tesson  504 

v.  Wills  Valley  R.  R.  Co.    511,  530 

Wilson's  Case  123 

Wiltbank's  Appeal  799 

Winch   v.    Birkenhead,    etc.,    R. 

R.  Co.  305 

v.  Conservators  of  the  Thames  169 

v.  Tobin  464 

Winchelsea's  Causes  460 

Winchester  v.  Baltimore  and  S. 

R.  R.  Co.  210,  628 

v.  Mabury  763 

Winchester,   etc.,    T.    R.    Co.   v. 

Croxton  476/, 

Winoock  v.  Turpin  721,  725,  783 

Windham    Prov.    Sav.    Inst.    v. 

Sprague  718 


SECTION 

Wing  v.  Bank  240 

v.  Slater  764 

Winget  v  Building  Assoc.  146,  523 
Winnie  v.  111.  Cent.  R.  R.  Co.  301 
Winona,    etc.,     R.      R.      Co.    v. 

Blake  350,  476a 

Winona   and   S.    P.    Ry.    Co.    v. 

Waldron  179 

Winslow    v.    Vermont,    etc.,    R. 

R.  Co.  360 

Winston  v.  Dorsett  Pipe  Co.  779 

v.   Tennessee    and    P.    R.    R. 

Co.  319 

v.  Westfelt  327 

Winter  v.  Baker  756 

v.  Belmont  M.  Co.  795,  797 

v.  Montgomery  G.  L.  Co.  797 

Winton  v.  Little  161,  302 

Wirth      v.      Philadelphia      City 

Pass'r  Ry.  Co.  162a 

Wisconsin,    etc.,    R.    R.    Co.   v. 

Jacobson  474d 

Wisconsin    Cent.    R.    R.    Co.    v. 

Ross  170 

Wishard  v.  Hasen  702 

Withers  v.  Buckley  470 

Witter    v.    Grand    Rapids,    etc., 

Co.  269 

v.  Mississippi,  etc.,  R.  R.  Co.     530 
Wolf  v.  R.  R.  Co.  140 

Wolff  w.  New  Orleans  333 

Wolff  Dryer  Co.  v.  Bigler  Co.         400 
Women's      Christian     Temper- 
ance Union  v.  Taylor  193 
AVonder  v.    Bait,    and   Ohio   R. 

R.  Co.  365 

Wonson  v.  Fenno  790 

Wood  v.  Argyll  77 

v.  Bedford,  etc.,  R.  R.  Co.  305 

v.  Burroughs  705 

v.  C.  M.  and  St.  P.  R.  R.  Co.       193 
v.  Church  B'ld'g  Ass'n  581 

v.  Coosa,  etc.,  R.  R.  Co.  516 

v.  Diwnmer  6-"j5,  656,  708 

v.  Guarantee  Trust  Co.  824a 

v.  Macon,  etc.,  R.  R.  Co.  163a 

v.  New  Bedford  Coal  Co.  369 

v.  Pearce  703,  778 

v.  Whelen  90,  204,  219,  224,  225,  676 
v.  Wicks  714 

v.  Wiley  Construction  Co.  233 

Wood    Hydraulic   Hose   Mining 

Co.  u.*  King  214,  381 

Woodcock  v.  Bank  281 

Woodfolk  v.  Nashville,  etc.,  R. 

R.  Co.  179 

Woodfork  ».  Union  Bank  449 

Woodhouse    v.    Commonwealth 

Ins.  Co.  501 

v.  Crescent  Mut.  Ins.  Co.  592 

Woodlawn  Cemetery  u.  Everett     474 

911 


TABLE    OF   CASES. 


SECTION 

Woodruff  v.  Howes  687 

Woodruff  v.  Erie  Ry.  Co.      287,  3056 
v.  Parham  480 

v.  Sherrard  359 

v.  Town  of  Okolona  321 

v.  Trapnell  507 

v.  We ut worth  580,  788 

Woodruff,     etc.,    Ironworks    v. 

Chittenden  728,  733 

Woodruff  Sleeping,   etc.,   Co.  v. 

Die hi  347 

Wood's  Case  97 

Wood's  Sons  Co.  v.  Schaefer         647 

Woods  v.   Pittsburg,    Cin.    and 
St.  L.  R'y  Co.  817 

Woodson  c.  Milwaukee,  etc.,  R. 

R.  Co.  368 

Woodstock   Iron   Co.    v.   Exten- 
sion Co.  162 

Woodward  v.  St.  Louis,  etc.,  R. 
R.  Co. 

Woodridge  v.  Holmes 

Woodworth  v.  Bolles 

Wooley  r.  Batte 

Woolfolk  v.  January 

Woolverton  v.  Taylor 

Worcester   Corn   Ex. 


Co. 


342 
543 
501,  725 
803 
522c 
765 
In  re 
312,  645 
Worcester    v.    Forty-second    St. 

R.  R.  Co.  169 

Worcester  R.  R.  Co.  c.  Hinds  517 
Workiugmen's  Bank  v.  Converse  149 
Workman  v.   Campbell  162,  515, 

589,  748 
World's  Fair  Ex.  Co.  0.  Gasch  549 
Worth  v.  Commissioners  479 

».  Petersburg  R.  R.  Co.  488 

v.  Wilmington,  etc.,  R.  R.  Co.   488 
Worthin  v.  Griffith  651,  668 

Worthington  v.  R.  R.  Co.  195 

Wright  v.  Bank  of  Metropolis        599 
v.  Bundy  381 

v.  Cent.  Cal.  Co.  577 

v.  Chicago,  etc.,  R.  R.  Co.  392 

v.  Commonwealth  577 

v.  Hughes  123,  125 

v.  McCormack  721,  826 

v.  Milwaukee,  etc.,  Ry.  Co.        415 
v.  Nagle  468 

v.  Nostrand  436 

v.  Oroville  M'f'g  Co.  219,  224, 

558,  688 
v.  Petrie  656 

v.  Pipe  Line  Co.  280 

v.  Ryder  309 

v.  Southwestern  R.  R.  Co.         4926 
v.  Springfield    and   New    Lon- 
don R.  R.  Co.  614 
v.  Wilcox                                         752 
Wright's  Appeal                      591,  597 

912 


SECTION 

Wyandott,    K.    C.    and    N.    W. 

Ry.  Co.  o.  Waldo  178 

Wyeth    H.    &   M.    Co.    v.  James 

Spencer  Co.  668 

Wylie  D.  Northampton  B'k  161 

Wyman  v.    Chicago  and   Alton 

I!.  R.  Co.  364 

i\  Eaton  393 

v.  Hallowell  and  Augusta  B'k   667 
v.  Penobscot,  etc.,  R.  R.  Co.       305 


Williams 
Wynne  v.  Price 


Xenia  Bank  v.  Stewart 


542,  759 
791 


210,  240 


Y. 


Yale  G.  S.  Co.  v.  Wilcox  82,  83 

Yates  v.  Milwaukee  174,  176 

v.  Vann  De  Begert  204 

Yazoo  R.  R.  Co.  v.  Thomas  489 

Yazoo  &M.  V.  Ry.  Co.  v.  Adams  491 
Yeaton  v.  Bank  of  the  Old  Do- 
minion 502 
v.  United  States  764 
Yellow     Jacket     Silver   Mining 

Co.  v.  Stevenson  214,  258 

Yeomans  v.  Contra  Costa  Steam 

Nav.  Co.  350 

Yerkes  ».  Nat.  Bank  161 

Yonge  v.  Kinney  349 

York  and  Cumberland  R.  R.  (Jo. 

v.  Ritchie  234,  547 

York  and   Maryland   Line  R.  R. 

Co.  v.  Winans  305 

York  Co.  v.  Central  Railroad  351 

York,  etc.,   R.  R.  Co.  v.  Hudson 

629,  631 
Yorkshire    Ry.    Wagon    Co.    v. 

McClure  291 

Yorton   v.   Milwaukee,  etc.,   R'y 

Co.  348 

Youohiogheny     Shaft      Co.      v. 

Evans  717 

Young  v.  Clarendon  Township      320 

v.  Farwell  394 

v.  Iron  Co.  392 

v.  Moses  690 

v.  N.  Y.,  etc.,  Steamship  Co.      718 

v.  Rosenbaum  715 

v.  Vough  602 

Younglove  v.  Lime  Co.  736 

Youngman  v.  Elmira,  etc.,  R.  R. 

Co.  670 

Z. 

Zabriskie  v.  Cleveland,   etc.,  R. 

R.  Co.  195,  270,  280,  286,  574 


TABLE    OF    CASES. 


SECTION 

Zabriskie  v.  Hackensack, 

etc., 

R.  R.  Co. 

502 

535 

Z&ng  v.  Adams 

90 

v.  Wyant 

721 

Zearfoss  v.  Farmers1 

Institute 

189 

Zent  v.  Duluth,  etc., 

Co. 

135 

58 

SECTION 

Ziegler  v.  First  Nat.  Bank  342 

Zimmer  v.  State  424 

Zinn  v.  N.  J.  Steamboat  Co.  360 

Ziikel  v.  Joliet  Opera  Co.  549 

Zottman  v.  San  Francisco  312 

Zulueta's  Claim  134,  314,  780 

913 


INDEX. 

[REFERENCES  are  to  the  sections.] 


ABANDONMENT  OF  CHARTER,  433,  434. 

ABUSE    OF    CORPORATE    POWERS,    corporation    liable   for    damage 

caused  by,  169. 
ABUTTING  OWNERS  ON  STREETS,  175-177. 
ACCEPTANCE  OF  AMENDMENT  TO  CHARTER,  227,  530,  note. 

estoppel  to  deny,  146,  note. 

when  shareholder  may  enjoin,  557. 
ACCEPTANCE  OF  BENEFIT.     See  Ratification. 
ACCEPTANCE  OF  CHARTER,  449. 

ACCEPTANCE  OF  SURRENDER  OF  FRANCHISES,  433,  434. 
ACCOMMODATION  CERTIFICATIONS  BY  BANKS.  244. 
ACCOMMODATION     ENDORSEMENTS    BY    BANKS,    244,    note,    236, 

note. 
ACCOUNTING  : 

by  corporations  for  benefits  received  under  ultra  vires  contracts,  310. 

specific  chattels,  311-313. 

money,  311. 

illegal  ultra  vires  contracts,  313. 

by  other  party  for  benefits  received  under  ultra  vires  contracts,  314. 
See  Secret  Profits. 
ACQUIESCENCE.     See  Ratification. 
ACTIONS.     See  Suits  by  and  against  Corporations. 
ACTS  DONE  ON  BEHALF  OF  CORPORATIONS: 

when  franchises  a  protection  from  liability  for,  167-170. 

when  franchises  not  a  protection  from  liability  for,  171-177. 

of  body  corporate,  when  binding,  180-183. 
formalities  required,  184-187. 

See    Agents,    Directors,    President,    Cashier,     Illegal    Acts, 
Torts,  Ultra  Vires. 
ACTS  DONE  WITHOUT   THE   STATE  INCORPORATING  THE   COR- 
PORATION: 

the  two  questions,  379. 

legal  effect  of  the  act  within  the  limits  of  the  home  state,  380-382. 

legal  effect  of  the  act  in  the  foreign  state,  383. 

comity  among  states,  384. 

limits  to  this  comity,  385. 

foreign  corporations  cannot  exercise  special  franchises,  386. 

nor  act  contrary  to  the  laws  or  public  policy  of  the  state,  387,  388. 

nor  do  acts  beyond  their  powers,  389-391. 

915 


916  INDEX. 

References  are  to  the  Sections. 

ACTS  DONE  WITHOUT  THE  STATE,  Etc.— (continued). 
actions  against  foreign  corporations,  392. 
by  one  foreign  corporation  against  another,  392. 

penal  provisions  not  enforced  outside  the  state  enacting  them.     Stat- 
utory liability,  393. 
jurisdiction  over  assets  of  foreign  corporations,  394. 
service  on  foreign  corporations,  395,  396. 
statutes  regulating  service,  397. 
New  York  doctrine,  398. 
proceedings  in  rem,  399. 

statutes  imposing  terms  on  foreign  corporations,  400. 
effect  of  non-compliance  with  these  statutes,  401. 
statutes  of  limitations,  402. 

status  of  a  body  of  men  incorporated  by  the  legislation  of  two  or  more 
states,  403-408. 
ADJOURNED  MEETINGS,  574. 
ADMINISTRATOR,  foreign  corporation  as,  384. 
ADMISSIONS  OF  CORPORATE  AGENTS,  210. 

of  president,  235  note. 
AGENTS  OF  CORPORATIONS: 

promoters  in  what  respects  agents,  82-84. 
need  not  be  appointed  by  deed  under  the  corporate  seal,  248. 
validity  of  their  acts,  general  principles,  191-193. 
effective  limitations  on  authority  of,  194. 

Class  L.  where  other  party  is  charged  with  notice,  195. 
effect  of  by-laws,  196,  197. 

Class  II.,  where  other  party  bas  actual  knowledge,  198,  199. 
Class  III.,  where  course  of  agent's  employment  indicates  the 
limitations,  200,  202. 
authority  of,  dependent  on  actual  functions,  202. 
effect  of  extrinsic  facts  on  validity  of  contract  of,  203-206,  284,  285. 
certification  of  their  authority  by,  207-209. 
fraud  of,  when  corporation  cannot  plead,  207. 
fraud  of,  subscriptions  obtained  by,  523-526. 
admissions  of,  210. 
notice  to,  210. 

ratifying  unauthorized  acts  of,  211-217,  256. 
delegation  of  authority  by,  233,  234. 
authority  of,  when  expires,  235. 
mariner   of  action,  non-observance    of  formalities   by,  247-262.      See 

Formalities. 
approval  of  acts  by  other  agents,  252. 
cannot  bind  corporation  by  ultra  vires  acts,  265,  267. 
cannot  represent  corporation  when  dealing  with  themselves,  628-631. 
compensation   of,   646-G48.     See   Directors,    President,    Cashier, 
Treasurer,    Secretary,    Station  Agent,    Insurance   Agent, 
Teller,  Torts. 
AGREEMENT  BETWEEN  THE  CORPORATORS,  31. 


INDEX.  917 

References  are  to  the  Sections. 

ALIENATE  PROPERTY,  power  of  corporations  to,  130. 

ALLOT  SHARES,  power  to,  directors  cannot  delegate,  234.     See  Shakes 

of  Stock. 
ALTERATION  OF  CHARTERS  OR  ENABLING  ACTS: 

state  cannot  alter  unless  it  has  reserved  the  power  to,  450,  453,  557. 

power  to,  may  be  reserved  to  the  state,  464. 

by  statute  or  constitutional  provision,  464,  496. 

power  reserved  to  prevents  existence  of  contracts  between  corporation 
and  state,  496,  497. 

contract  between  corporators  subject  to  it,  498. 

limitations  in  the  power  to,  499-502. 

effect  of  on  subscriptions  to  shares,  530-535. 

release  of  subscribers  thereby,  531-535. 
AMALGAMATION.     See  Consolidation. 

AMENDMENT   OF    CHARTER,  acceptance  of,  227,  449,   note,  530,  note, 
557. 

See  Alteration  of  Charters. 
AMOTION,  14,  note,  649,  650. 

court  of  equity  cannot  pronounce  judgment  of,  581. 
ANALOGY,  danger  of  reasoning  from,  67-69,  717. 
ANALYSIS  OF  THE  NOTION  OF  A  CORPORATION,  23-51. 

the  two  meanings  of  the  term  "  corporation,"  23. 

meaning  of  the  terms  "legal  institution,"  and  "legal  relation,"  24-27. 

the  constitution  of  a  corporation,  28-30. 

incorporation,  28-30. 

fundamental  agreement  between  the  corporators,  31. 

the  corporate  funds,  32,  33. 

legal  relations  in  respect  to  the  corporate  funds,  34,  35. 

result  of  the  analysis,  36. 

persons  between  whom  exist  the  legal  relations  in  respect  of  the  cor- 
porate enterprise,  37. 

corporate  management,  38. 

order  of  treatment,  39. 

general  nature  of  the  legal  relations  existing  in  respect  of  the  corporate 
enterprise,  40. 

trust  relations,  41-47. 

the  corporation  also  a  body  of  men,  48-50. 

the  legal  person,  51. 
ANNUAL  REPORTS.     See  Reports. 
APPEAR  AS  DEFENDANT,  a  corporation  can,  143. 

a  foreign  corporation  can,  396,  note. 
APPOINTMENT  OF  AGENTS,  248. 

ARBITRATION,  corporations  may  refer  matters  to,  137. 
ASSAULT,  liability  of  corporations  for,  344. 
ASSENT,  of  shareholders  to  mortgage.  185,  186. 

corporation  cannot,  as  shareholder  in   itself,  assent  to  mortgage,  136, 
note. 
ASSESSMENTS.     See  Calls. 


918  INDEX. 

References  are  to  the  Sections. 

ASSETS  OF  CORPORATIONS: 

status  of,  32,  33. 

legal  relations  in  respect  to,  34,  35,  41-47. 

trust  fund  for  creditors,  654,  655. 

creditors  may  follow,  656,  657. 

restrain  misapplication  of,  657-659. 

assignments  of  for  creditors,  130,  668. 
ASSIGNEE   OF    INSOLVENT    CORPORATION,  may  sue  for  subscrip- 
tions, 542. 
ASSIGNMENTS  FOR  CREDITORS,  130,  668. 

made  by  directors,  225,  230,  note,  668,  note. 
ASSIGNMENT    OF    SUBSCRIPTIONS    TO    SHARES    IN  A   FUTURE 

CORPORATION,  101,  102. 
ASSOCIATIONS.     See  Joint  Stock  Associations. 
ATTACHMEMT  OF  SHARES,  796. 

does  not  incumber  property  of  tbe  corporation,  567,  note. 

in  foreign  corporation,  392,  note. 
ATTORNEY,  corporation  may  appear  by,  143. 

managing  officers  may  employ,  202. 
AUSTIN'S  ANALYSIS  OF  A  LAW,  439. 
AUTHORITY,  delegation  of  by  directors,  233. 
AUTHORITY  TO  FORM  A  CORPORATION: 

in  the  Roman  law,  4. 

in  the  common  law,  12. 

BAGGAGE,  liability  of  carriers  for,  355. 
BANKRUPTCY.     See  Insolvency,  Winding-up. 
BANKS : 

when  cannot  establish  branches,  121,  note. 

may  loan  money,  161. 

may  deal  in  exchange,  161. 

may  purchase,  discount,  and  collect  notes  and  bills,  161. 

may  receive  special  deposits  as  gratuitous  bailee,  161,  337. 

liability  for  special  deposits,  161,  337,  346. 

may  convey  property,  161. 

power  of  to  guarantee,  267. 

may  make  covenants  of  warranty,  161. 

may  not  subscribe  to  stock  in  a  railroad  company,  161,  267. 

liability  on  checks  certified  by  cashier  or  teller,  242-245. 

liability  on  raised  checks  certified  by,  245,  246. 

liability  for  money  paid  on  forgeries,  199,  672. 

relations  to  depositors,  672. 

lien  on  deposits,  673. 

prohibited  loans  by,  301. 

excessive  interest  taken  by,  298. 

prohibited   circulating    notes    issued    by,    298,   299.     See    National 
Banks,  Savings  Banks,  Cashier. 
BENEFIT    OF    TRANSACTION,    acceptance    of,    211,   214.     See    Rati- 
fication. 


INDEX.  919 

References  are  to  the  Sections. 

BENEFIT,  set-off  against  amount  of  compensation  for  property  taken,  179. 
BEQUEST  OF  SHARES,  right  to  dividends,  799,  801. 
BILLS  AND  NOTES,  issued  by  corporations,  205,  285,  299. 
BILLS  OF  LADING  : 

effect  of  provisions  in  to  limit  liability  of  carrier,  358,  359. 

liability  of  railroad  company  to  those  who  make  advances  on,  201. 
BLACKSTONE'S  view  of  a  corporation,  14,  15. 
BOARD  OF  DIRECTORS.     See  Directors. 
BODY  CORPORATE  : 

consists  of  whom,  48-50. 

acts  of,  when  binding,  180-183. 

manner  of  acting,  184-187.     See  Legal  Effect  of  Acts  done  by  ob 

ON  BEHALF  OF  CORPORATIONS,  ULTRA  VlRES. 

cannot  act  outside  the  state,  382. 
BONDS : 

corporation  may  issue,  125. 

issued  before  incorporation,  90,  note. 

situs  of  for  taxation,  479. 

when  negotiable,  679. 

effect  of  invalid  provisions  in,  677,  678. 

purchase  of  by  directors,  633. 

that  some  are  invalid  may  not  affect  mortgage  security  for  the  rest  of 
the  issue,  678,  note.     See  Municipal  Bonds. 
BONDS  CONVERTIBLE  INTO  STOCK,  541,  note,  679. 
BONDHOLDERS,  674-682. 

officers  of  corporations  may  act  as  trustee  for,  629,  note. 

affected  with  notice  of  terms  of  the  mortgage,  674. 

and  bound  by  them,  816. 

under  railroad  mortgages,  676. 

under  mortgages  of  rolling  stock,  676. 

rights  of,  how  affected  by  invalid  provisions  in  mortgages,  677,  678. 

remedies  of,  682,  815,  note. 

when  not  necessary  parties  to  suit  by  trustee  to  foreclose,  815,  notes. 

legal  relations  among,  815-820. 

on  reorganization  of  debtor  corporations,  816a. 
between  and  contractors,  817. 
between  and  other  creditors,  820-824. 

under  mortgages  of  separate  portions  of  railroad,  819. 

appointment  of  receiver  at  suit  of,  821,  822. 

priority  of  receiver's  orders  over  claims  of,  823. 

bonds  held  by,  negotiable,  679. 

coupons,  680.     See  Creditors,   Trustees  under  Railroad  Mort- 
gages. 
"BONUS"  STOCK,  issue  of,  522a,  7026. 
BOOKS  OF  CORPORATION: 

interpolations  in,  263. 

evidence  to  prove  subscriptions,  263. 
to  prove  organization  meeting,  263. 


920  INDEX. 

References  are  to  the  Sections. 

BOOKS  OF  CORPORATION— (continued). 

when  not  against  outsiders,  2(5.3. 
right  of  shareholders  to  inspect,  585. 

of  directors  to  inspect,  808. 

mandamus  to  inspect,  585,  808. 
a  mandamus  lies  to  compel  outgoing  officers  to  surrender,  650,  note. 
BORROW  MONEY : 

power  of  corporation  to,  125-127. 

mining  superintendent  cannot,  202. 

nor  treasurer  of  savings  bank,  202. 

liability  of  corporations  for,  214-216,  232,  286,  311. 

cashier  may,  240. 

power  of  directors  to,  209,  225. 
statutory  limitations  on  amount,  205,  286. 
BRANCHES,  power  of  corporations  to  establish,  121,  note. 
BURDEN  OF  PROOF  OF  CONTRIBUTORS  NEGLIGENCE,  376. 

See  Presumptions. 
BUSINESS,  place  of. 

power  of  corporation  to  change,  121,  note,  382. 
when  foreign  corporations  must  state,  400. 
BY-LAWS  : 

power  of  corporations  to  make,  6,  12,  14,  19,  582. 

where  resident,  582. 

evidence  against  shareholders,  582,  note, 
must  be  reasonable  and  not  contrary  to  law,  583. 
cannot  create  statutory  liability,  583. 
regulating  transfers  and  alienations  of  shares,  583. 
repeal  of,  584. 

creating  lien  on  shares,  601,  602. 

outsiders,  when  not  affected  with  notice  of,  196,  197. 
when  ordinarily  disregarded  do  not  affect  rights  of  outsiders,  197. 
liability  of  savings  bank  for  moneys  paid  in  violation  of,  199  and  note. 
transfers  of  shares  in  violation  of,  589,  594. 
liability  of  directors  for  acts  in  violation  of,  616-619. 
may  provide  for  removal  of  officers,  649. 

CALLS: 

illegally  chosen  officers  cannot  make,  540. 

when  a  condition  precedent  to  enforcing  a  subscription,  517,  543,  7)3. 

authority  to  make  cannot  be  delegated,  233,  234,  543. 

may  be  assigned  when  made,  543. 

action  for  cannot  be  sustained  after  forfeiture  of  shares,  546. 

creditors  can  compel  directors  to  make,  703. 

when  necessary  before  creditors  can  sue  shareholders,  703. 

until  made,  statute  of  limitations  does  not  run  against  unpaid  sub- 
scriptions, 709. 
CAPACITIES  OF  CORPORATIONS  AT  COMMON  LAW,  12,  15. 
CAPITAL  AND  INCOME,  status  of  dividends,  799-801. 


INDEX.  921 

References  are  to  the  Sections. 

CAPITAL  STOCK.     See  Stock. 

valuation  of  for  taxation,  477a,  note. 
CARRIER.     See  Common  Carrier. 
CASHIER: 

powers  of,  202,  239-243. 

appointment  of,  248. 

has  power  to  borrow,  240. 

powers  restricted  to  ordinary  business  of  tbe  bank,  241. 

cannot  bind  bank  as  accommodation  endorser,  241. 

cannot  certify  his  own  cbeck,  241,  note. 

cannot  bind  bank  on  his  own  note,  202,  241. 

fraud  of,  240,  598,  note. 

declarations  of,  240,  note. 

effect  of  notice  to,  215,  240. 

cannot  pledge  assets  for  antecedent  debt,  241,  note. 

certifications  of  checks  by,  243,  244. 

when  not  liable  for  acts  in  violation  of  by-laws,  616,  note. 

prima  facie  entitled  to  compensation,  647,  note. 
CATTLE  ON  RAILROAD  TRACKS,  369. 
CERTIFICATE  OF  INCORPORATION  MUST  BE  FILED,  451,  note. 

liability  of  shareholders,  148.     See  De  Facto  Corporation. 
CERTIFICATE  OF  STOCK.     See  Stock  Certificate. 
CERTIFICATION  OF  CHECKS,  242-240,  636. 
CHANGE  IN  CORPORATE  ENTERPRISE: 

effect  of  on  subscriptions,  530-535. 

directors  cannot  make,  226,  227. 
CHARGES  BY  RAILROAD  COMPANIES,  power  of  state  to  regulate,  475, 

476a,  4766. 
CHARTER: 

when  fraud  in  obtaining  cannot  be  pleaded,  147. 

embodies  a  contract,  438,  448. 

consideration  for  grant  of,  454. 

acceptance  of  necessary,  449. 

surrender  of,  433,  434. 

judicial  notice  of,  264,  note. 

acceptance  of  amendment  to,  227. 

may  contain  exemptions  from  taxation,  488,  491. 

effect  of  alteration  on  subscription  contracts,  500,  501,  530-535. 

creditors  cannot  prevent  alteration,  665. 

when  shareholders  can  prevent  alteration,  557. 

persons  affected  with  notice  of,  118,  195,  264,  note. 

expiration  of,  150,  note.     See  Dissolution. 

repeal  of,  464,  496-504. 

limitations  on  the  reserved  right  of  the  state  to  alter  and  repeal,  496- 
502. 

judicial  decree,  when  necessary  to  repeal,  503. 

effect  of  repeal,  504.     See  Franchises. 
CITIZENS,  in  what  respect  corporations  are  not,  383,  480. 


922  INDEX. 

References  are  to  the  Sections. 

CITIZENSHIP  OF  CORPORATIONS  WITH  RESPECT  TO  THE  JURIS- 
DICTION OF  THE  FEDERAL  COURTS,  410-413. 
classification  of  corporations,  22a,  b,  c,  d,  e, /. 

COKE'S  VIEW  OF  A  CORPORATION,  11-14. 

COLLATERAL   ATTACKS    ON    FRANCHISES.     See  De  Facto  CORPO- 
RATION. 

COLLATERAL  SECURITY,   liability  of   person  holding  shares  as,  741, 

743.     See  Pledge  of  Shares. 
COMBINATION.    See  Monopolies,  Consolidation. 
COMITY  AMONG  STATES,  in  regard  to  foreign  corporations,  384-390. 
COMMERCE,  power  of  Congress  to  regulate,  474ct-474d\  485. 
COMMISSIONERS,  subscriptions  to  shares  received  by,  91  and  notje. 
COMMITTEES  OF  DIRECTORS,  261,  note. 

powers  and  modes  of  acting,  234. 
COMMON  CARRIER: 

of  passengers,  347,  348. 

may  make  reasonable  regulations,  348. 

as  to  tickets,  348. 
liability  for  baggage,  355. 

liability  for  negligence,  349-351. 

cannot  stipulate  against  liability  for  negligence,  352-354. 

may  stipulate  against  liability  for  fire,  351. 

limitations  on  liability  for  goods,  356. 

assent  of  shipper  to  limitations  of  liability,  358,  359. 

implied  from  accepting  bill  of  lading,  358,  359. 

effect  of  notices  to  passengers  and  shippers,  359. 

when  liability  begins  and  ceases,  360. 

misdelivery  a  conversion,  360. 

should  give  notice  to  consignee  of  arrival  of  goods,  360. 

liability  for  delay  in  transportation,  361. 
for  wrong  delivery,  360. 
measure  of  damages,  361. 
for  losses  on  connecting  lines,  354,  362-364. 

not  charged  with  notice  of  contents  of  packages,  369.     See  Railroad 
Companies,  Torts. 

state  may  compel  to  perform  their  functions,  454,  455. 
COMMON  LAW  NOTION  OF  A  CORPORATION,  10-22. 

relation  of  the  common  to  the  Roman  law,  10. 

Coke's  idea  of  a  corporation,  11-13. 

Blackstone's  idea  of  a  corporation,  14,  15. 

perpetual  succession,  16. 

capacity  to  sue  and  use  a  corporate  seal,  17. 

capacity  to  hold  lands,  18. 

capacity  to  make  by-laws,  19. 

dissolution,  20. 

doctrine  that  a  corporation  is  a  person,  21,  22. 
COMPENSATION: 

for  crossing  railroad  tracks,  163u. 


INDEX.  923 

References  are  to  the  Section*. 

COMPENSATION— ( continued). 
for  property  taken,  171-177. 
for  tracks  laid  in  streets,  175-177. 
measure  of,  178. 

when  portion  of  track  is  taken,  178. 
what  benefits  may  be  set  off,  179. 
of  promoters,  86. 

of  directors  and  other  officers  and  agents,  646-648. 
COMPETITION,   arrangements  between    railroad  companies  regarding, 

307-309. 
COMPROMISES  OF  ACTIONS: 
corporations  may  make,  137. 
when  cashier  and  president  may  make,  202. 
directors  may  make,  223  and  note,  224. 
CONDEMNING  LAND.     See  Eminent  Domain. 
CONDITIONS  IN  SUBSCRIPTION  CONTRACTS,  96,  97,  517-521. 

See  Calls. 
CONDITIONS     PRECEDENT     TO    ENFORCING    STATUTORY    LIA- 
BILITY OF  SHAREHOLDERS,  724. 
CONFESS  JUDGMENT,  corporation  may,  137. 
CONGRESS  : 

corporations  created  by,  467.     See  National  Banks. 
power  to  regulate  commerce,  474a-474d,  485. 
power  to  tax,  478. 
CONSENTS  OF  SHAREHOLDERS  TO  MORTGAGE,  185. 
CONSIDERATION  MOVING  TO  STATE  FROM  CORPORATORS,    454. 
CONSIDERATION  OF  SUBSCRIPTION  CONTRACTS,  91-94,  509-512. 
CONSIGNEE  OF  GOODS,  right  of  to  notice  from  the  railroad  company, 

360. 
CONSOLIDATION  : 

of  corporations  created  by  different  states,  403-409. 
differs  from  succession,  415. 

special  authority  requisite,  305,  419,  420,  227,  note, 
effect  of,  421-423. 

on  subscription  contracts,  536. 
unauthorized  when  not  ground  of  forfeiture,  459,  note, 
when  subscriber  may  question  validity  of,  539. 
shareholder  may  enjoin,  536. 
creditors  cannot  prevent,  665. 
of  railroad  companies,  effect  on  power  of  county  to  issue  bonds,  323, 

324. 
liability  of  consolidated  corporation  to  creditors,  425-427,  666. 
capacities  of  consolidated  corporation,  424. 
franchises  vest  in  consolidated  company,  424. 
power  to  mortgage  passes  to  it,  424. 

eminent  domain  passes  to  it,  424. 
exemptions  from  taxation,  how  affected  by,  491. 
CONSPIRACY,  shareholders  may  sue  corporation  and  officers  for,  560. 


924  INDEX. 

References  are  to  the  Sections. 

CONSTITUTION  OF  A  CORPORATION  : 

consists  of  what,  28,  64-66,  448,  453. 

operative  in  regard  to  what  acts,  30. 

dual  nature  of,  438. 

contains  rules  for  corporate  management,  38. 

embodies  a  contract,  448. 

shareholders  may  enjoin  changes  in,  557. 

creditors  cannot  enjoin  changes  in,  6(35. 

effect  of    changes   in   on   subscription   contracts,   530-535,   782.     See 
Charters. 
CONSTRUCTION  COMPANIES,  638,  639. 
CONSTRUCTION  OF  CORPORATE  POWERS  : 

general  principles,  120. 

to  be  construed  reasonably,  121. 

when  to  be  construed  strictly,  122.     See  Corporate  Powers. 
CONTEMPT,  corporation  may  be  punished  for,  143. 
CONTRACT: 

of  promoters,  76-79. 

liabilities  of  corporation  thereon,  87-90. 

cannot  be  enforced  by  corporation  incorporated  for  an  illegal  purpose, 
149. 

effect  of  performance  of  ultra  vires  contracts,  275-281. 

seal,  when  necessary,  248. 

notion  of,  447. 

embodied  in  the  constitution  of  a  corporation,  448,  453. 

between  the  corporation  and  the  state,  450,  453. 

between  the  corporators,  31,  448,  498. 
parties  to  it,  31. 

to  take  shares  in  a  corporation  to  be  formed,  91-112.     See  Subscrip- 
tions to  Shares. 

implied  contracts  of  corporations,  249. 
CONTRACT  OF  MEMBERSHIP.     See  Subscriptions  to  Shares. 
CONTRACTOR'S  LIEN  ON  RAILROADS,  817,  818. 
CONTRIBUTION: 

among  promoters  and  provisional  committeemen,  81. 

among  shareholders,  705,  706,  734,  note,  783,  784. 

among  officers,  803-807. 
CONTRIBUTORY  NEGLIGENCE,  373,  376. 

burden  of  proof,  376. 

child  not  guilty  of,  375. 
CONTROL  OF  THE  CORPORATE  ENTERPRISE: 

vested  in  the  corporation  acting  through  a  majority,  553. 

vested  in  the  board  of  directors,  180-182,  683-685. 

when  courts  will  not  interfere  at  suit  of  a  minority,  554. 

minority  may  restrain  ultra  vires  acts,  555-557. 

minority  may  restrain  improper  appropriation  of  corporate  assets  by 
majority,  558,  559. 


INDEX.  925 

References  are  to  the  Sections. 

CONVERSION: 

of  preliminary  deposits  by  promoters,  104,  106. 

corporation  may  be  liable  for,  342. 

misdelivery  of  common  carriers,  360. 

of  shares,  599,  note,  789,  note. 
CONVEYANCES,  248.     See  Lands. 
CORPORATE  BODY: 

consists  of  whom,  48-50. 

acts  of,  when  binding,  180. 
when  invalid,  181-183. 

must  be  done  in  corporate  meeting,  184. 

special  formalities,  185. 
CORPORATE  CAPACITIES.    See  Corporate  Powers. 
CORPORATE  FUNDS: 

status  of,  32,  33. 

legal  relations  in  respect  of,  34,  35,  41-47.     See  Assets. 
CORPORATE  MANAGEMENT,  8,  38,  118.     See  Control  op   the  Cor- 
porate Enterprise. 
CORPORATE  POWERS: 

meaning  of  term,  114. 

at  common  law,  12,  14. 

at  Roman  law,  7. 

considerations  in  determining,  115-119. 

rules  of  construction,  120,  121. 

when  to  be  construed  strictly,  122. 

to  raise  money,  123-127. 
by  issue  of  stock,  124. 
by  borrowing,  125. 

to  issue  notes  or  bonds,  125. 

to  mortgage,  125. 

to  establish  branches,  121,  note. 

to  change  place  of  business,  121,  note. 

to  issue  deferred  income  bonds,  126. 

to  guaranty,  127,  267. 

to  hold  lands,  18,  128. 

to  acquire  personal  property,  129. 

to  alienate,  130, 

to  lease,  130. 

to  transfer  franchises,  131,  132. 

to  increase  capital  stock,  133,  228. 

to  purchase  stock  in  another  corporation,  130,  note,  161,  267,  309. 

to  purchase  its  own  stock,  134,  135,  552. 

to  issue  preferred  shares,  571,  572. 

to  re-issue  shares,  136. 

to  compromise  actions,  137. 

to  submit  to  arbitration,  137. 

to  sue  and  be  sued,  137-144. 

acts  within  scope  of  body  corporate,  180. 


926  INDEX. 

References  are  to  the  SeotionB. 

CORPORATE  POWERS— (continued). 

to  act  outside  of  the  state,  379-402. 

to  make  by-laws.     See  By-laws. 

not  specially  vested  remain  in  body  of  shareholders,  228,  note. 

of  corporations  created  by  two  states,  403-409. 

persons  dealing  with  corporation  charged  with  notice  of,  195,  264,  389- 
391. 

See  Ultra  Vires. 
CORPORATION: 

a  body  politic,  12,  14. 

meanings  of  the  term,  23. 

analysis  of  meanings,  24-51. 

regarded  as  a  legal  institution,  24-47. 

regarded  as  a  body  of  men,  48-51. 

classification  of,  22a,  6,  c,  a",  e,  /. 

constitution  of,  consists  of  what,  28,  64-66,  448,  453. 

definitions  of,  21,  note,  27. 

common  law  capacities,  12,  15. 

incidents  of,  arising  by  implication,  12,  15. 

notion  of,  in  the  Roman  law,  1-9. 
in  the  common  law,  10-22. 
according  to  Coke,  11-14. 
according  to  Blackstone,  15,  16. 

not  a  "  person  "  in  the  Roman  law,  2. 

"  artificial  persons  "  in  the  common  law,  15,  21,  22. 

resemblances  of,  to  other  legal  institutions,  52-71. 

law  relating  to,  53. 

liability  of,  for  contracts  of  promoters,  87-90. 

may  enforce  subscriptions  made  before  its  organization,  108-110. 

right  of,  to  control  corporate  enterprise,  553. 

de  facto,  when  legal  existence  not  to  be  questioned,  145-157. 

incorporated  for  illegal  purpose  cannot  enforce  contract,  149. 

when  not  liable  for  its  acts  which  cause  damage,  167-169. 

cannot  change  its  name,  158. 

when  liable  after  delegation  of  its  powers,  170. 

liable  for  property  taken  by  it,  171-177. 

acts  of,  when  binding,  180-185.     See  Body  Corporate. 

power  of,  to  act  outside  of  state,  379-402. 

cannot  migrate,  382. 

created  by  two  states,  403-409. 

citizenship  of,  with  respect  to  the  jurisdiction  of  the  Federal  courts, 
410-413. 

how  formed  under  enabling  acts,  114,  note,  451,  note. 

present  methods  of  forming,  Appendix. 

in  what  respect  not  a  citizen,  383,  480. 

rights  of,  against  the  state,  461-463. 

may  be  bound  by  implied  contracts,  249. 

ratification  by,  211,  213,  214. 


INDEX.  927 

References  are  to  the  Sections. 

CORPORATION— ( continued). 

may  be  guilty  of  fraud,  342,  note. 

created  by  Congress,  may  remove  cases  to  Federal  courts,  413,  note, 
not  a  foreign  corporation  in  a  state,  404,  note. 

consolidation  of.     See  Consolidation. 

dissolution  of.     See  Dissolution. 

rights  of,  against  the  state,  461-463. 

law  applicable  to,  53,  64-71.    See  Corporate  Powers. 
CORPORATIONS,  public  and  private,  distinctions  regarding  liability  of, 
177,  315,  316. 

created  by  two  or  more  states,  403-409. 

defectively  organized.     See  De  Facto  Corporation. 
CORPORATORS,  fundamental  agreement  between,  31,  114. 

meaning  of  the  term,  114,  note. 
COUNSEL,  managing  officers  may  employ,  202. 

president  cannot,  236. 
COUPONS,  327,  680,  681. 

bear  interest  when  overdue,  326,  note. 
COUPON  BONDS,  corporation  may  issue,  125. 
CREDITOR'S  BILLS   AGAINST    SHAREHOLDERS,  joinder  of  parties, 

704-706. 
CREDITORS  OF  CORPORATIONS: 

rights  of,  regarding  ultra  vires  acts,  272,  273. 

relations  of,  to  shareholders,  effect  thereon  of  the  reservation  of  the 
right  to  alter  and  repeal  the  charter,  500,  501. 

relations  of,  to  the  state,  507. 

how  relations  of,  to  the  corporation  arise,  651,  652. 

cannot  question  transactions  occurring  before  they  become  such,  651. 

have  no  voice  in  the  corporate  management,  653. 

corporate  assets  a  trust  fund  for,  654-656. 

unpaid  stock  part  of  trust  fund  for,  655. 

may  follow  assets,  657,  708. 

transferred  to  a  new  corporation,  657,  667. 

may  restrain  misapplication  of  assets,  272,  273,  658,  659. 

may  compel  payment  of  debts  due  the  corporation,  660. 

may  compel  payment  of  stock  subscriptions,  660-661,  701,  703. 

may  enjoin  wrongs  threatening  corporation,  662. 

when  entitled  to  a  receiver,  663,  707. 

cannot  prevent  dissolution,  664. 

cannot  prevent  alteration  of  charter,  665. 

cannot  prevent  consolidation,  665. 

liability  to,  of  consolidated  corporation,  425-427,  666. 
of  succeeding  corporation,  667. 

rights  of,  regarding  insolvent  assignments  by  debtor  corporation,  668. 

discretion  of  officers  as  to  order  of  payment  of  claims  of,  668,  note. 

relative  rights  of,  669. 

right  to  set  off,  670. 

rights  of,  against  shareholders  in  absence  of  statutory  liability,  700- 
708. 


INDEX. 

References  are  to  the  Sections. 

CREDITORS  OF  CORPORATIONS— [continued). 

that  shareholders  shall  pay  their  subscriptions,  701,  703. 
exists  though  statute  impose  a  further  liability,  712,  note, 
that  property  received  for  shares  shall  be  worth  their  par  value, 
702,  702a,  7026. 
joinder  of  parties  in  actions  by,  against  shareholders,  704-706. 
calls,  when  necessary  before  bringing  action,  703. 
may  restrain  shareholders  from  withdrawing  corporate  funds,  708. 
shareholders  trustees  for,  in  what  respect,  45,  709-711. 
statutory  liability  of  shareholders  to.     See  Statutory  Liability. 
who  are  also  shareholders  cannot  sue  other  shareholders  at  law,  733, 

784. 
cannot  deny  corporate  existence  to  charge  shareholders  as  partners, 

148,  739. 
what  persons  are  shareholders  as  to  creditors,  740-743. 
when  can  hold  pledgee  of  shares  as  shareholder,  741. 
shareholders  cannot  plead  that  their  subscriptions  were  obtained  by 

fraud  as  against,  744. 
nor  that  they  had  been  released,  745. 
but  compromises  may  hold  good  as  against,  746. 
liability  of  shareholders  to,  effect  on  of  transfer  of  shares,  747-749. 
and  bona  fide  forfeitures  hold  good,  746. 
rights  of,  against  shareholders  on  winding  up,  750,  751. 
rights  of,  against  officers,  756. 

who  misapply  corporate  funds,  757. 
who  neglect  their  duty,  758. 
on  insolvency  of  the  corporation,  759,  760. 
statutory  liability  of  officers  to  creditors.     See  Statutory  Liability. 
rights  of,  who  are  also  shareholders  or  officers,  810,  811. 
legal  relations  among,  812. 

when  corporation  is  insolvent,  272,  273,  813. 

creditors  whose  claims  are  founded  on  the  same  instrument,  815. 
contractors1  liens  on  railroads,  817. 

legal  relations  between  general  creditors  aud  bondholders  on  foreclo- 
sure, 820-824. 
receivers1  orders,  823. 

enforcing  rights  of  against  shareholders  in  foreign  corporations,  393. 
priorities  of,  regarding  statutory  liability  of  shareholders,  825,  826. 
See  Depositors,  Bondholders. 
CUMULATIVE  VOTING,  577. 
CUSTOMS  OF  BANKS,  195. 

DAMAGE : 

when  corporation  not  liable  for,  167,  168. 

when  corporation  liable  for,  169-177. 
DAMAGES  : 

exemplary,  377,  378. 

recoverable  against  corporations  for  torts,  377,  378. 


INDEX.  929 

References  are  to  the  Sections. 

DAM  AGES— ( continued ). 

for  delay  in  carrying  goods,  361. 

for  loss  of  goods  by  carrier,  361.     See  Eminent  Domain. 
DEATH  of  parties,  penal  actions  do  not  survive,  764,  771. 
DEBTS,  what  are,  734,  772,  773. 
DECEIT,  corporation  liable  in  action  for,  342. 
DECLARATIONS  of  officers  or  agents,  210. 

effect  of  when  false  on  subscriptions,  97,  note,  521. 
DECREASE  OF  CAPITAL  STOCK: 

power  of  corporations  to,  133. 

rights  of  shareholders  on,  570. 
DEEDS  OF  CORPORATIONS,  248. 

proof  of,  248,  note. 
DE  FACTO  CORPORATION: 

how  existence  of,  may  be  questioned,  145. 

what  is,  145,  note,  148. 

corporation  organized  under  void  law  is  not,  148. 

subscriber  before  organization  may  deny  existence,  99. 

subscriber  after  organization  may  not,  147,  537-539,  738,  739. 

when  subscriber  may  question  validity  of  consolidation,  539. 

when  parties  contracting  with  estopped  to  deny  existence  of,  146-148. 

when  such  parties  not  estopped,  149,  150. 

when  creditors  estopped  to  deny  existence,  148,  739. 

when  existence  cannot  be  denied  by  parties  affected  with  no  estoppel, 
151-153. 

when  existence  can  be  denied,  154. 

validity  of  special  franchises  may  be  questioned,  154-156. 

cannot  exercise  right  of  eminent  domain,  155. 

defective  organization  remediable,  157. 
DE  FACTO  OFFICERS  : 

who  are,  188. 

general  reputation  does  not  make,  188. 

acts  of,  when  valid,  188-190. 

cannot  make  calls,  540. 

rights  of,  against  other  officers,  809. 
DE    FACTO    ORGANIZATION    OF    CORPORATION,    when    sufficient, 
153.     See  De  P'acto  Corporation. 

when  insufficient,  154-156. 
DEFAMATION,  137,  342. 
DEFECTIVE  ORGANIZATION  OF  CORPORATION,  how  cured,  157. 

liability  of  shareholders  to  creditors  on,  728. 
DEFENDANT,  corporation  may  appear  as,  143. 
DEFERRED  INCOME  BONDS,  126. 
DEFINITIONS  : 

of  corporation,  21,  23,  notes,  27. 

of  legal  effect,  30,  note,  113. 

of  corporators,  114,  note. 

of  corporate  powers,  114. 

59 


930  INDEX. 

References  are  to  the  Sections. 

DEFINITIONS— (continued). 
of  a  valid  act,  118,  note. 
of  a  binding  act,  118,  note, 
of  partnerships,  23,  note,  59. 
of  a  tort,  335,  note. 
of  dissolution,  428. 
of  law,  440,  446. 
of  a  legal  right,  442. 
of  shares  of  stock,  567. 
DELAY  IN  TRANSPORTATION: 
liability  of  carrier,  301. 
measure  of  damages,  361. 

LEGATION  OF  AUTHORITY  BY  DIRECTORS,  233,  234. 
DELEGATION  OF  FRANCHISES,   does  not  relieve   corporation  from 

liability,  170. 
DEPOSITORS: 

in  savings  banks,  199. 
relations  of,  to  bank,  672. 
forgeries,  672. 

lien  of  bank  on  deposits  of,  673. 
DEPOSITS  ON  SUBSCRIBING   FOR  SHARES.    See  Preliminary  De- 
posits. 
DEPOTS: 

railroad  company  may  condemn  land  for,  163. 
power  of  railroad  companies  to  locate,  162. 
contracts  to  locate  by  railroad  companies,  309. 
DEVISES  TO  FOREIGN  CORPORATIONS,  391. 
DIRECTORS: 

on  wrongful  refusal  of  to  sue,  when  shareholders  may,  140. 
effect  of  vesting  corporate  management  in,  180-183,  683-685. 
acts  of,  when  valid,  191-193. 
notice  to,  210,  note. 

presumption  of  knowledge  by,  216,  note, 
cannot  agree  as  to  who  shall  be  directors,  219,  note, 
powers  of  when  corporate  powers  are  vested  in,  219,  220,  224. 
limitations  on,  221. 
to  transact  ordinary  business,  223. 
to  make  compromises,  223,  224. 
to  borrow,  225. 

to  guarantee  debts  of  other  corporations,  224. 
to  mortgage,  225. 

to  make  assignments,  225,  230,  note,  668,  note, 
cannot  change  corporate  enterprise,  226,  227. 

accept  amendment  to  charter,  227,  449,  note,  530,  note. 

increase  capital  stock,  228. 

transfer  or  lease  certain  property,  229. 

change  termini  of  railroad,  229,  note. 

close  the  business,  230. 


INDEX.  931 

References  are  to  the  Sections. 

DIRECTORS— (continued). 

bind  corporation  in  matters  not  relating  to  corporate  business, 
222,  231,  232. 
ratification  by,  211,  and  note. 

of  bonds  issued  before  incorporation,  90,  note, 
acquiescence  of,  in  unauthorized  act,  212. 
delegation  of  authority  by,  233,  234. 
must  act  as  a  board,  258,  259. 
meetings  of,  quorum,  260. 
may  meet  outside  the  state,  381. 
cannot  be  elected  outside  of  state,  382,  note, 
presumptions  in  favor  of  regularity,  261. 
action  of,  special  provisions  regarding,  262. 
record  of  their  acts,  263. 

cannot  bind  corporation  by  ultra  vires  acts,  267. 
liability  of,  for  money  borrowed  from  their  corporation  in  violation  of 

terms  of  a  statute,  301. 
when  illegally  elected  cannot  make  calls,  540. 
elections  of,  577-581. 
fiduciary  position  of,  612,  613. 
when  there  are  no  other  shareholders,  612,  note, 
liability  of,  to  pay  for  qualification  shares,  614. 
when  need  not  be  holders  of  shares,  614,  note, 
duties  of,  enforceable  by  corporation,  615. 

or  by  its  receiver  or  assignee,  615. 
liability  of,  for  neglect  of  duty,  616-619. 

for  fraud,  616-619. 

for  acts  in  violation  of  by-laws,  616-619. 

for  errors  of  judgment,  620,  621,  694. 

for  not  requiring  officers  to  furnish  official  bonds,  619,  note,  621. 

for  ultra  vires  acts,  622,  623,  754. 

may  be  released  from  this  liability,  622,  note. 

for  acts  of  other  corporate  agents,  624-626. 

for  mistaking  corporate  powers,  622,  623. 
should  have  no  interests  opposed  to  the  corporation,  627. 
cannot  contract  with  themselves,  628-631. 
whether  they  may  be  trustees  for  bondholders,  629,  note, 
must  account  for  secret  profits,  629-631. 

cannot  set  up  that  contract  was  ultra  vires,  629. 
loans  by,  to  the  corporation,  632-634,  810,  811. 
transactions  of  fraudulent  as  a  matter  of  law,  630. 

may  be  ratified  by  the  corporation,  630. 

remedies  of  corporation  regarding,  631. 
purchase  by  bonds  of  their  corporation,  633. 

cannot  bind  corporation  when  personally  interested  with  other  con- 
tracting party,  635-639. 
when  may  act  for  two  corporations,  640-644. 
when  may  sue  corporation  like  an  outsider,  634,  note. 


932  INDEX. 

References  are  to  the  Sectiong. 

DIRECTORS— (continued). 

right  of,  to  indemnification,  645,  699. 

to  compensation,  646-648. 
removal  of,  649,  650. 

right  of,  to  manage  corporate  affairs,  645,  683. 
actions  against  by  shareholders,  683-691. 
trustees  for  shareholders,  692. 

only  in  regard  to  management  of  corporation,  698. 
liability  of,  to  shareholders,  692-695. 
liability  of,  for  error,  694. 

for  frauds  of  other  officers,  694. 

for  immediate  injuries,  696,  697. 

for  fraud,  696,  697. 
liability  of,  in  contracting  for  their  corporation,  752,  753. 
liability  of,  in  contracting  for  their  corporation,  when  contract  is  ultra 

vires,  754. 
liability  of,  to  outsiders  for  acts  of  other  corporate  agents,  755. 
liability  of,  to  creditors,  756. 

for  misapplication  of  corporate  funds,  757. 

for  neglect  of  duty,  758. 

for  frauds  of  other  officers,  758. 
discretion  of,  as  to  order  of  payment  of  debts  of  corporation,  668,  note. 
duties  of,  to  creditors  on  insolvency  of  the  corporation,  759,  760. 
cannot  prefer  themselves  over  other  creditors  when  corporation  is  in- 
solvent. 759.  760. 
statutory  liability  of,  to  creditors.    See  Statutory  Liability. 
legal  relations  between,  802. 
contribution  among,  763,  764,  767,  803-806. 
contribution  between,  and  other  officers,  807. 
right  of,  to  inspect  corporate  books,  808. 
rights  of  de  facto  directors,  809. 
rights  of,  when  creditors,  810-811.     See  Officer. 
DISCRIMINATIONS  IN  PAYMENT  OF  DEBTS,  668,  669. 
DISSOLUTION  OF  CORPORATIONS: 
what  is,  428. 
causes  of,  429,  430. 

at  Roman  law,  6. 

at  common  law,  12,  20. 
consolidation  causes,  421. 
decree  when  necessary,  431,  432. 
failure  to  elect  corporate  officers  does  not  cause,  432. 
discontinuance  of  business  does  not  cause,  432. 
insolvency  does  not  cause,  432. 

assignment  of  property  for  creditors  does  not  cause,  432. 
appointment  of  receiver  does  not  cause,  432. 
power  of  majority  to  dissolve,  431,  610. 
power  of  minority  to  dissolve,  610. 
power  of  directors,  230. 


INDEX.  933 

References  are  to  the  Sections. 

DISSOLUTION  OP  CORPORATIONS— (continued). 

by  surrender  of  franchises,  20,  433,  434. 

creditors  cannot  prevent,  664. 

jurisdiction  of  equity  to  dissolve  a  corporation,  611. 

court  cannot  dissolve  a  foreign  corporation,  394. 

consequences  of,  435-437. 
at  common  law,  20,  21. 

consequences  of,  at  Roman  law,  6,  note. 

suits  by  and  against  corporations  abated  by,  150,  note,  435. 

no  rights  can  be  acquired  against  corporation  after,  813,  note. 

corporate  capacities  when  preserved  after,  436. 

lease  to  corporation  not  determined  by,  437,  note. 

relations  between  shareholders  and  creditors  on,  750,  751. 

relations  among  shareholders  on,  786. 

not  always  requisite  to  relieve  officers  from  duty  to  file  annual  reports, 
770. 
DITCHES,  railroad  company  liable  for  obstructing,  173. 
DIVERGENCY    OF    INTEREST    IN    A    CORPORATE    ENTERPRISE, 

116,  117. 
DIVIDENDS: 

directors  cannot  delegate  authority  to  declare,  234. 

evidence  of,  263,  note. 

court  will  not  enjoin  directors  of  foreign  corporation  from  paying,  394. 

shareholders  have  no  absolute  right  to,  before  declaration,  562,  563. 

when  shareholders  may  compel  declaration,  563. 

on  preferred  shares  cumulative,  564. 

payable  only  out  of  profits,  565. 

recovery  of,  when  illegally  paid,  566,  567. 

application  of  statutes  of  limitation,  566,  note, 
transferee  not  liable  to  return  dividends  paid  to  his  transferrer, 
719,  note. 

shareholders  improperly  receiving,  cannot  set  off  debt  against  liability 
to  return,  568. 

after  declaration  belonging  to  shareholders,  568,  750. 

even  as  against  creditors,  750. 

stock  dividends,  568,  800,  801. 

right  to,  as  between  transferrer  and  transferee,  798. 

right  to,  as  between  life-tenant  and  remainder-man,  799-801. 

scrip  dividend,  when  bequest  of  shares  does  not  carry,  798,  note. 
DOMICILE      OF     CORPORATION     CREATED      BY     TWO     STATES, 

407,  note,  409.     See  Federal  Courts,  Foreign  Corporations. 
DOUBLE  TAXATION,  477a. 

DRAINS,  railroad  company  liable  for  obstructing,  173. 
DRUNKEN  PERSON  MAY  BE  EXCLUDED  FROM  CARS,  348. 
DUE  PROCESS  OF  LAW,  470-472,  480,  492,  492a. 

EARNINGS: 

right  to,  as  between  general  creditors  and  mortgagees,  820. 


934  INDEX. 

References  are  to  the  Sections. 

EARNINGS— {continued). 

right  of  insolvent  corporation  to  control,  820. 

agreements  for  division  of,  between  corporations,  224.     See  Dividends. 
ELECTION  OF  OFFICERS,  577-581. 

held  outside  the  state  void,  382,  note, 
court  of  law  tribunal  to  determine  validity,  581. 
EMINENT  DOMAIN: 

how  differs  from  police  and  taxing  powers,  469a. 

legislature  cannot  surrender,  465,  466. 

restrictions  on,  4696-472. 

state  may  take  corporate  property  by,  470-473. 

francbises  may  be  taken  by,  470. 

due  process  of  law,  471,  472. 

just  compensation,  178,  473. 

what  constitutes  a  taking  of  property,  171-177. 

of  railroad  companies,  163-166. 

does  not  arise  by  implication,  163. 
extends  only  to  necessary  property,  163. 
property  devoted  to  a  public  use  may  be  taken  by,  163a. 
not  exhausted  by  single  exercise,  164. 
may  acquire  the  fee,  165. 
not  transferable,  166. 
not  liable  to  sale  on  execution,  166. 
statute  granting  must  be  strictly  followed,  166. 
mode  of  exercising,  166,  473. 
cannot  be  exercised  by  de  facto  corporation,  155. 
injunction  against  exercising,  155,  note, 
nor  by  foreign  corporation,  386. 
passes  to  consolidated  corporation,  424. 
measure  of  compensation,  178,  473. 
set-off  of  benefits,  179. 
EMPLOYES: 

liability  of  corporation  for  torts  of,  343,  344. 

for  injuries  to,  365,  366. 
shareholders'  liability  to,  734. 
ENABLING  ACTS,  formation  of  corporations  under,  451,  note. 
ENDORSEMENTS,  by  corporations,  125,  note,  244,  note. 
EQUITABLE  MORTGAGES,  675. 
ERROR: 

subscriptions  induced  by,  527. 

liability  of  corporations  for  transfers  registered  by,  597. 
directors  when  not  liable  for,  620,  621. 
ERRORS  OF  JUDGMENT,  when  directors  not  liable  for,  620,  621. 
ESTOPPEL: 

principles  of,  apply  to  corporations,  193,  note. 
of  corporation  by  acts  of  agent,  210,  note, 
of  shareholders,  187. 
to  plead  nul  tiel  corporation,  146-151. 


INDEX.  935 

References  are  to  the  Sections. 

ESTOPPEL— (continued). 

of  corporation  to  deny  what  is  certified  by  proper  officer,  186,  207,  208. 

affecting  promoters,  74,  75. 

of  promoter  to  deny  he  acted  as  agent  of  the  corporation,  82. 

or  corporation  by  acts  of  promoters,  88-90. 

of  persons  dealing  with  corporation  to  deny  corporate  existence,  146-151. 

of  persons  dealing  with  corporation,  or  validity  of  amendment  to  char- 
ter, 146,  note. 
or  question  validity  of  acts  of  de  facto  officers,  189,  190. 

by  performance  of  ultra  vires  contract,  276-280. 

of  municipality  by  recitals  in  bonds,  329-332. 

when  corporation  not  escopped  by  interpolations  in  its  books,  263. 

of  subscribers  to  allege  tbeir  subscriptions  were  fictitious,  105. 

of  subscribers  by  their  laches,  111. 

of  subscribers  to  insist  on  performance  of  conditions  by  corporation, 
519. 

of  subscribers  to  plead  nul  tiel  corporation,  537-539. 
in  suit  by  creditors,  738. 

of  creditors  to  deny  corporate  existence  to  charge  shareholders  as  part- 
ners, 739. 

of  subscribers  to  allege  irregularity  of  shares  issued  to  them,  541. 

of  corporation  to  deny  validity  of  transfer  of  shares,  589. 

of  corporation  by  issuing  a  certificate  of  shares,  591,  598. 

of  transferee  of  shares  as  collateral  to  deny  that  he  is  a  shareholder,  741. 
EVIDENCE,  rules  of,  applicable  to  corporations,  263. 

by-laws,  582,  note. 

books  of  corporation  when,  263. 

reports  of  officers,  263,  note. 

general  reputation  as  to  who  are  officers  not,   188.      See  Judgment 
against  Corporation. 
EXAMINATION  OF  BOOKS  OF  CORPORATION: 

by  shareholders,  585. 

by  directors,  808. 
EXCLUSIVE  PRIVILEGES,  to  be  strictly  construed,  122. 

to  shippers,  309. 
EXECUTION  : 

what  corporate  property  exempt,  165,  671. 

property  of  municipal  corporations  exempt,  334. 

returned  unsatisfied,  when  a  condition  precedent  of  statutory  liability 
of  shareholders  to  creditors,  713. 
EXECUTORS,  transfers  of  shares  by,  592. 

EXEMPLARY  DAMAGES,  when  recoverable  for  personal  injuries,  377,  378. 
EXEMPTION  FROM  TAXATION,  487-491. 

may  not  pass  to  succeeding  corporations,  417,  487-491. 
EXPIRATION  OF  CHARTER,  150,  note.     See  Dissolution. 
EXTRA-TERRITORIAL    ACTS    OF    CORPORATIONS.     See    Foreign 

Corporations. 
EXTRINSIC  FACTS,  do  not  affect  validity  of  agents'  acts,  203,  284,  285. 


936  INDEX. 

References  are  to  the  Sections. 

FALSE  IMPRISONMENT,  corporation  liable  for,  342. 
FALSE  REPORT,  liability  of  directors  for  signing,  774. 

enforced  outside  the  state,  393. 
FALSE  REPRESENTATIONS.     See  Fraud. 
FEDERAL  AGENCIES,  exemption  of,  from  state  taxation,  482. 
FEDERAL  COURTS: 

jurisdiction,  410^13,  468. 

when  corporation  cannot  deny  its  incorporation  in  order  to  oust, 
146,  note, 
state  cannot  prohibit  foreign  corporation  to  remove  suits  to,  400. 
how  far  will  follow  decisions  of  state  courts,  318,  468. 
FEDERAL  DECISIONS  REGARDING  RAILWAY  AID  BONDS  OF  MU- 
NICIPAL CORPORATIONS,  318. 
FEE  OF  LAND,  corporation  may  condemn,  128. 
FENCE,  duty  of  railroad  company  to,  369. 

legislature  may  compel  railroad  company  to,  475,  note. 
FICTITIOUS  SUBSCRIPTIONS,  105. 
FIDUCIARY  RELATIONS,  41-47. 
FIRE,  carrier  may  stipulate  against  liability  for,  351. 
FIRES,  caused  by  sparks  from  locomotives,  368. 
FLAGMEN  AT  RAILWAY  CROSSINGS,  368. 
FORBIDDEN  ACTS.     See  Statutory  Prohibitions. 
FORECLOSURE  OF  MORTGAGES: 

given  by  railroads,  appointment  of  receiver,  821-824. 

by  foreign  corporation,  384,  note,  401. 

of    property  of    consolidated  corporation  created  by  two  states,  409, 

note, 
sale  under,  619,  note,  682,  note,  711,  813. 
parties  to,  814,  815,  note. 

puichasers  at,  not  liable  on  judgment  against  corporation,  415. 
but  assume  position  of  former  corporation  for  the  future,  417. 
FOREIGN  CORPORATIONS,  379-402. 
legal  effect  of  their  acts,  383. 
may  purchase  land,  384,  note,  388,  note, 
permitted  by  comity  to  contract  and  sue,  384-390. 
foreclosure  by,  384,  note, 
devises  to,  390. 

cannot  exercise  special  franchises,  386. 

cannot  act  contrary  to  the  law  or  public  policy  of  the  state,  387,  388. 
cannot  act  beyond  their  chartered  powers,  389. 
implied  notice  of  powers  of,  195,  note,  389-391. 
court  will  not  take  judicial  notice  of  powers  of,  389. 

nor  entertain  controversies  relating  to  internal  management  of,  392. 
nor  dissolve,  394. 

nor  compel  distribution  of  assets  of,  394. 
nor  enjoin  dividend,  394. 
nor  appoint  receiver,  394. 
enforcement  of  individual  liability  of  shareholders  in,  393. 


INDEX.  937 

References  are  to  the  Sections. 

FOREIGN"  CORPORATIONS— ( continued). 

enforcement  of  directors'  liability  for  signing  false  report,  393. 
attachment  of  shares  in,  392,  note, 
garnishment  of,  392,  note, 
suits  by  and  against,  392-394,  399. 
jurisdiction  over  assets  of,  394. 
service  of  process  on,  395-399. 
may  appear  as  defendant,  396,  note, 
residence  of,  395,  note. 

proceedings  in  rem  against  property  of,  399. 
statutes  imposing  terms  on,  400,  401. 

state  cannot  prevent  from  removing  cases  to  Federal  courts,  400. 
when  statute  of  limitations  bars  claims  against,  402. 
corporations  incorporated  by  two  or  more  states,  403. 
taxation  of,  by  states,  480. 

corporations  created  by  act  of  Congress  are  not,  404. 
FORFEITURE: 

of  franchises,  457-459. 

suit  for,  must  be  brought  in  the  name  of  the  state,  151. 

liability  to,  does  not  relieve  from  liability  for  damages,  169. 

may  be  waived,  460. 

grounds  of,  not  to  be  taken  advantage  of  collaterally,  460. 

when  judicial  decree  not  necessary,  458,  503. 
of  shares,  special  authority  requisite,  546. 

subscription  cannot  be  enforced  after,  546. 

must  be  regular,  547. 

due  notice  necessary,  547. 

by  illegally  chosen  directors  void,  547. 

for  illegal  assessments  void,  547. 

option  to  declare,  rests  with  corporation,  548. 

when  collusive  may  be  set  aside,  548. 

directors  cannot  delegate  authority  to  forfeit  shares,  234. 
FORGERY: 

liability  of  savings  bank  for  moneys  paid  on  forged  order,  199. 
transfers  of  shares  on  forged  order,  593. 
forged  stock  certificates,  591. 
FORMALITIES: 

required  by  statute,  185,  186. 

in  leases,  185. 

in  mortgages,  185. 

certification  of  fulfillment  of,  186. 

validity  of  acts  as  dependent  on,  247. 

corporate  seal,  248. 

implied  contracts,  249. 

non-observance  of,  250. 

imperative  of  directory,  251. 

approval  of  contract  of  other  officers,  252. 

when  other  contracting  party  has  notice  of,  253. 


938  INDEX. 

References  are  to  the  Sections. 

FORMALITIES— ( continued). 

when  not  applicable,  254. 

when  corporate  agent  and  other  contracting  party  are  not  on  equal 
terras  regarding,  255. 

ratification  of  informal  acts,  256. 

other  party  can  set  up  non-observance  of,  257. 

observable  by  directors.     See  Directors. 
FORMATION  OF  CORPORATIONS: 

in  the  Roman  law,  4. 

under  enabling  acts,  451,  note.    See  De  Facto  Corporation. 

present  methods,  Appendix. 
FRANCHISES: 

transfer  of,  131,  132,  304. 

delegation  of,  170. 

when  delegation  of  does  not  relieve  corporation  from  liability,  170. 

mortgage  of,  304. 

when  not  to  be  questioned  collaterally,  145-157,  168,  460. 
by  a  subscriber  for  shares,  537-539. 
by  creditors,  739. 

vest  in  consolidated  company,  424. 

authority  to  mortgage  passes  to  consolidated  company,  424 

extending  duration  of,  451,  note. 

surrender  of,  433,  434. 

forfeiture  of,  457-459. 

forfeiture  of,  state  may  waive,  460. 

when  not  to  be  taken  advantage  of  collaterally,  460. 

taxation  of,  479,  note,  488,  489. 

valuation  of  for  taxation,  477a. 

when  a  protection  to  the  corporation  from  liability,  167-170. 

when  not  a  protection  to  the  corporation  from  liability,  171-177. 

may  be  exercised  outside  of  the  state,  381. 

exempt  from  execution,  671. 

state  may  take  by  eminent  domain,  470-473. 
FRAUD: 

in  obtaining  charter,  when  cannot  be  pleaded,  147. 

liability  of  corporation  for,  342. 

subscriptions  obtained  by,  97,  note,  103,  523-526. 

liability  of  directors  for,  616-619. 

in  obtaining  subscriptions,  cannot  be  pleaded  against  creditors,  744. 
against  other  shareholders,  781. 

of  vendor  of  shares,  792. 
FRAUDS,  statute  of 

promise  of  shareholder  to  pay  debt  of  corporation  within,  187,  note. 

contract  to  take  shares,  not  within,  511,  note. 
FRAUDULENT  ISSUES  OF  SHARES,  liability  of  corporation,  591. 
FRAUDULENT   SUBSCRIPTIONS    TO   SHARES    IN  THE   STOCK  OF 

A  CORPORATION  TO  BE  FORMED,  105.     See  Subscriptions. 
FRAUDULENT  TRANSFER  OF  SHARES  : 

effect  as  to  corporation,  586. 


INDEX.  939 

References  are  to  the  Sections 

FRAUDULENT  TRANSFER  OF  SHARES— (continued). 

effect  as  to  creditors,  749. 

effect  as  to  other  shareholders,  780. 
FREIGHT  : 

liabilities  of  carrier  regarding,  350,  356. 
FUNDS,  CORPORATE.    See  Corporate  Fund. 

GAIUS,  his  division  of  persons,  2. 
GAMBLERS,  may  be  excluded  from  trains,  348. 
GARNISHMENT,  of  shares,  796,  note. 

of  unpaid  subscriptions,  660,  note. 
GARNISHMENT  OF  FOREIGN  CORPORATION,  392,  note. 
GAS  PIPES,  under  streets,  damages  for  laying,  175,  note. 
GENERAL  AGENTS,  powers  of,  201,  202. 

GENERAL  ISSUE,  plea  of,  admits  corporate  capacity  to  sue,  137. 
GENERAL  PRINCIPLES,  application  of,  in  the  formation  of  new  rules 

of  law,  70,  71. 
GILDA  MERCATORIA,  13. 
GRANT.     See  Charter. 
GRATUITOUS  SUBSCRIPTIONS,  94,  note. 
GRATUITY  TO  EMPLOYES,  229,  note. 
GUARANTY,  power  of  corporations  to,  127,  203,  note,  224,  267. 

by  a  city,  322,  note. 

of  ultra  vires  lease  is  void,  305. 

of  dividends  on  stock  of  another  corporation,  563,  note. 

HEREDITAS  JACENS,  9. 
HIGHWAYS: 

railroads  on,  175-177. 

telegraph  poles  on,  175,  note. 
HORSE  RAILROADS  in  streets,  175. 
HOSPITALS,  liability  in  tort,  335,  note. 
HYPOTHECATION.    See  Pledge  of  Shares. 

ILLEGAL: 

corporations  are,  when  organized  for  prohibited  purposes,  149,  note. 

what  acts  are,  287. 

acts  against  public  policy,  289-291. 

acts  contra  bonos  mores,  293. 

ultra  vires  acts,  292. 

acts  forbidden  by  statute,  294-303. 

acts  against  public  policy,  304-309. 

accounting  for  benefits  received  from  illegal  acts,  313. 
ILLEGAL  CORPORATIONS,  6,  149,  note. 

ILLEGAL  LEGISLATURE,  corporations  incorporated  by,  may  sue,  149. 
ILLEGAL  PURPOSE,  corporation  incorporated  for,  cannot  enforce  con- 
tract, 149. 

nor  subscriptions  to  its  shares,  95. 


940  INDEX. 

References  are  to  the  Sections. 

ILLEGAL  STOCK,  541. 

IMPLICATION,  incorporation  by,  13. 

IMPLIED  CONTRACTS  OF  CORPORATE  AGENTS,  249. 

IMPLIED  NOTICE: 

of  contents  of  packages  carried  by  railroad  companies,  369. 

of  limitations  on  authority  of  corporate  agent,  195,  264,  note. 

of  usages  of  corporations,  195. 

of  by-laws,  196,  197. 

of  formalities  required,  251-253. 

of  corporate  powers  contained  in  charter,  195,  264,  389-391. 

of  powers  of  foreign  corporations,  195,  note,  3S9-391. 
IMPLIED  WARRANTIES  BY  A  CORPORATION,  249,  note. 
INCIDENTS  TACITLY  ANNEXED  TO  A  CORPORATION,  12. 
INCOME,  when  dividends  are  to  be  treated  as,  799-801. 
INCOME  BONDS,  126. 
INCORPORATION: 

effect  of,  at  common  law,  12,  14. 

what  is,  28. 

consequences,  29,  30. 

by  implication,  13. 

lawful  authority  for,  in  common  law,  12. 
in  Roman  law,  4. 

by  two  or  more  states,  403-409. 
INCREASE  OF  STOCK: 

power  of  corporations,  133. 

by  issue  of  stock  dividend,  133,  note,  568. 

rights  of  shareholders  on,  569. 

directors  cannot  authorize,  228. 

when  subscriptions  to  illegally  increased  stock  cannot  be  enforced, 
541. 

right  to,  as  between  life-tenant  and  remainder-man,  800,  801. 
INDEMNIFICATION : 

right  of  promoters  to,  80,  85. 

right  of  directors  to,  645,  699. 

of  transferrer  by  transferee,  791.     See  Contribution. 
INDICTMENT,  corporation  subject  to,  for  nuisance,  167,  note. 
INDIVIDUAL  LIABILITY.     See  Statutory  Liability. 
INFANTS: 

subscription  contracts  of,  95,  515,  note. 

transfers  of  shares  to,  586. 
INFORMALITIES.    See  Formalities. 
INJUNCTION,  from  voting  on  shares,  581. 

by  subscriber  to  prevent  violation  of  subscription  contract,  112. 

by  shareholders  to  prevent  ultra  vires   acts,  555,  556,  687. 

to  restrain  collection  of  tax,  484,  note,  492  b. 
INSOLVENCY  OF  CORPORATION: 

no  defence  to  suit  on  subscriptions,  542. 

by  state  to  restrain  ultra  vires  acts,  457. 


INDEX.  941 

References  are  to  the  Sections. 

INSOLVENCY  OF  CORPORATION—  (continued). 

does  not  cause  dissolution,  432. 

relations  of  directors  to  creditors  on,  759,  760. 

directors,  when  creditors,  cannot  prefer  themselves  to  other  creditors 
on,  759,  760. 

relations  among  creditors  on,  813.     See  Set-off. 
INSOLVENT  ASSIGNMENTS  BY  CORPORATIONS,  130,  668. 

by  foreign  corporations,  394,  note. 
INSPECTION  OF  BOOKS  : 

by  shareholders,  585. 

by  directors,  808. 
INSPECTORS  OF  ELECTIONS,  577,  578. 
INSTITUTION.     See  Legal  Institution. 
INSURABLE  INTEREST  IN  CORPORATE  PROPERTY,  shareholder  has, 

187,  note. 
INTERPOLATIONS  IN  CORPORATE  BOOKS,  263. 
INSURANCE  AGENT  : 

powers  of,  193,  note,  201. 

informal  consents  to  further  insurance,  255. 

compensation,  648. 
INTEREST : 

excessive,  taken  by  banks,  298. 

on  overdue  coupons,  326,  note. 

statutory  liability  of  shareholders  in  national  banks,  727,  note,  750, 
note. 
INTERPLEADER,    when   corporation    entitled  to,   as  against    opposing 

claimants  of  shares,  596. 
INVALID  STOCK,  541. 
IRREGULAR  ORGANIZATION  OF  CORPORATIONS.     See  De  Facto 

Corporation. 
ISSUE  OF  STOCK  : 

rights  of  subscribers  to  shares  in  a  company  to  be  formed,  91. 

corporation  may  raise  money  by,  124. 

below  par,  124,  522o-522c. 

re-issue  of  shares  purchased  by  the  corporation,  136. 

for  property,  522c. 

rights  of  shareholders  on  issue  of  new  shares,  569.     See  Increase  of 
Stock,  Preferred  Shares. 

JOINDER  OF  PARTIES.    See  Creditors'  Bills,  Statutory  Liability, 

Foreclosure  of  Mortgages. 
JOINT  STOCK  ASSOCIATIONS,  55-57,  61,  note. 

suits  against,  55. 
JUDGMENT  AGAINST  A  CORPORATION: 

corporation  may  confess,  137. 

when  evidence  in  an  action  by  a  creditor  against  shareholders,  737. 

not  evidence  in  an  action  by  creditors  against  directors,  763,  note,  770. 


942  INDEX. 

References  are  to  the  Sections. 

JUDICIAL  NOTICE: 

courts  will  not  take,  of  special  charter,  264,  note. 

nor  of  powers  of  foreign  corporations,  389. 
JURISDICTION.     See  Foreign  Corporation,  Federal  Courts. 
JUKY  DUTY,  exemption  of  corporate  officers  from,  424,  note. 
JUST  COMPENSATION.     See  Eminent  Domain. 

KINO,  power  of,  to  create  corporations,  12. 
KNOWLEDGE: 

by  corporation,  presumption  of,  216. 

of  agents  affects  corporation,  210. 

implied  of  corporate  powers,  195,  264,  389-391. 

LABORERS,  liability  of  shareholders  for  debts  due,  734. 

LACHES,  of  subscriber  to  shares  in  a  corporation  to  be  formed,  111. 

of  shareholders,  213,  556,  note,  560,  note. 

of  a  corporation,  what  is  not  as  against  its  directors,  630,  632. 
LANDS: 

power  of  corporations  to  purchase,  12,  14,  18,  128. 

conveyances  of,  to  corporation  presumed  valid,  128. 

though  purchased  without  authority,  corporation  can  convey,  282. 

invalid  conveyances  and  leases  by  shareholders,  181,  187,  note. 

conveyances  by  corporate  agents,  201. 

president  has  no  power  to  convey,  236. 

unauthorized  conveyances  of,  to  corporations,  303. 

acquired  hy  eminent  domain,  103-166. 

foreign  corporation  may  purchase  and  convey,  384,  note,  388,  note. 

devises  of,  to  foreign  corporations,  391. 
LAPSE   OF   TIME,  when  no  ratification,   110,  217.     See  Ratification, 

Laches. 
LAW: 

Austin's  analysis  of,  439,  441. 

definitions  of,  440,  446. 

relating  to  corporations,  53,  64-71.     See  Rules  of  Law. 
LEASES  BY  CORPORATIONS: 

power  of  corporations,  130. 

by  railroad  company  does  not  affect  lessor's  right  to  exercise  eminent 
domain,  166,  note. 

may  not  relieve  lessor  corporation  from  liability  for  injuries,  170. 

when  invalid,  if  executed  by  shareholders,  181. 

consent  of  shareholders  to,  185. 

what  property  directors  cannot  lease,  229. 
of  railroads,  305,  416. 
when  ultra  vires,  305. 

when  shareholders  may  enjoin  ultra  vires  lease,  305. 

rights  of  parties  on  rescission  of  illegal  ultra  vires  lease,  213. 
LEGAL  EFFECTS,  definition  of,  30,  note,  113,  445. 

of  acts,  how  affected  by  incorporation,  29,  30. 


INDEX.  943 

References  are  to  the  Sections. 

LEGAL  INSTITUTIONS: 
meaning  of  term,  24. 
resemblances  between,  52-64. 
analogies  between,  67-69. 
LEGAL  PERSON,  2,  14,  21,  22,  51. 

a  corporation  not,  in  tbe  Roman  law,  2,  3. 
corporations  called  such  in  the  common  law,  14. 
inferences  from  the  fiction,  21,  22. 
LEGAL  RELATIONS: 

definition  of,  24,  note,  25. 

general  nature  of,  existing  in  respect  to  a  corporate  enterprise,  40. 
ai-ising  from  incorporation,  between  whom  existing,  37. 
how  they  arise,  25,  26,  442-144. 
LEGAL     RELATIONS      ARISING     THROUGH     THE     PROMOTION 

OF  A  CORPORATION: 
the  law  applicable,  72. 
two  classes  of  persons  interested,  73. 
liability  of  promoters,  general  principles,  74,  75. 
legal  relations  between  promoters  and  parties  contracting  with  them, 

76. 
responsibility  of  promoters  for  the  acts  of  otber  promoters,  77. 
liability  of  contracting  promoter  whose  contract  binds,  or  is  adopted 

by  other  promoters  or  the  corporation,  78,  79. 
legal  relations  between  promoters,  80,  81. 
legal  relations  between  promoters  and  the  corporation  subsequently 

formed;  promoters'  secret  profits,  82-84. 
right   of   promoters  to  indemuity   from   the  corporation  subsequently 

formed,  85. 
liability  of  corporation  to  compensate  promoters,  86. 
legal  relations  between  the  corporation  when   organized  and  persons 

with  whom  the  promoters  have  contracted  on  its  behalf,  87-90. 
LEGAL     RELATIONS      CONSEQUENT     UPON      AN      AGREEMENT 

TO    TAKE    SHARES    IN   THE    STOCK    OF   A   CORPORATION 

TO  BE  ORGANIZED: 
is  the  agreement  binding,  91. 
consideration,  92-95. 

conditional  agreement  to  take  shares,  96,  97. 
when  deposits  may  be  withdrawn,  98. 
certain  defences,  99. 

legal  relations  arising  from  a  valid  agreement  to  take  shares,  100. 
assignment  of  subscriber's  interest,  101,  102. 
legal  relations  between  subscribers  and  promoters,  103. 
when  promoters  are  liable  to  subscribers  for  deposits,  104. 
fraudulent  subscriptions,  105. 
misapplication  of  deposits,  106. 

subscriptions  in  general  enforceable  by  the  corporation  when  organ- 
ized, 107-109. 
rights  of  subscribers  against  the  corporation,  110. 
effect  of  subscriber's  laches,  111,  112. 


944  INDEX. 

References  are  to  the  Sections. 

LEGAL  RIGHT,  definitions,  442. 

LEGISLATIVE   RECOGNITION,  of  defectively  organized  corporations, 

157. 
LEGISLATURES,  restrictions  on  powers  of,  464-466. 
LIABILITY     OF     SHAREHOLDERS.      See     Statutory      Liability, 

Shareholders. 
LIABILITY    TO    ACCOUNT    FOR    BENEFITS     RECEIVED    UNDER 

ULTRA  VIRES  CONTRACTS.     See  Ultra  Vires. 
LIBEL: 

action  for,  lies  against  corporation,  342. 
lies  in  favor  of  corporation,  137. 
LIEN   OF   BANKS   ON   DEPOSITS,   673. 
LIEN    OF   CONTRACTORS   ON   RAILROADS,  817. 
LIEN   OF   CORPORATION   ON  ITS    SHARES: 
does  not  exist  by  implication,  600. 
power  of  corporation  to  create  by  by-law,  601. 
national  banks  cannot  create,  602. 
effect,  603,  605. 
scope,  604. 
waiver,  606,  607. 
LIEN  OF  CORPORATION  FOR  WORK  DONE,  137,  note. 
LIEN  OF  CREDITORS  ON  CORPORATE  FUNDS,  657,  665. 
LIFE-TENANT      AND     REMAINDER-MAN,     right    to    dividends    as 

between,  799,  801. 
LIMITATIONS    ON    AUTHORITY   OF    CORPORATE    AGENTS.     See 

Agents,  Directors. 
LIMITATIONS      ON      THE     POWER     OF       GOVERNMENT       OVER 

CORPORATIONS,  469a,  469?;  et  seq. 
LIMITATIONS,  STATUTE  OF: 

barring  liability  of  directors  for  misfeasance,  612,  note. 

for  acts  of  other  agents,  626,  note, 
barring  liability  for  unpaid  subscriptions,  709. 
barring  liability,  for  dividends  wrongfully  received,  566,  note. 
statutory  liability  of  shareholders,  736. 

liability  of  directors  to  creditors,  756,  note,  770. 
liability  of  foreign  corporation,  402. 
liability  of  banks  to  depositors,  672,  note, 
actions  by  shareholders  against  officers,  689. 
actions  on  coupons,  326,  680. 
LIMITED  PARTNERSHIPS,  resemblances  of,  to  corporations,   58. 
LIQUIDATION.     See  Winding-up. 
LIS  PENDENS,  implied  notice  of,  327,  795. 
LOANS,  excessive,  by  national  banks,  301. 

LOANS  BY  OFFICERS  TO  THEIR  CORPORATION,  632-634. 
LOCATION  OF  RAILROAD  ROUTE,  162,  162a. 
LOCATION  OF  RAILROAD  STATIONS,  162. 
LOTTERY,  state  may  forbid,  474. 


INDEX.  945 

References  are  to  the  Sections. 

MALICIOUS     PROSECUTION,    action    for,    lies     against    corporation, 

342. 
MALUM  PROHIBITUM,  294-303. 
MANAGEMENT,  corporate,  38,  118. 

creditors  have  no  voice  in,  G53.     See  Control  of  the  Corporate 
Enterprise. 
MANAGING  OFFICERS,  powers  of,  202. 

may  employ  counsel,  202. 
MANDAMUS: 

against  officers  of  municipal  corporations,  333. 

against  corporation  to  compel  performance  of  duties  owing  the  public, 

454,  455. 
against  state  officers,  462,  note. 

to  compel  out-going  officers  to  surrender  books,  650,  note, 
to  obtain  inspection  of  corporate  books,  585,  808. 
to  compel  transfer  of  shares,  599. 

to  compel  officers  to  publish  annual  reports,  688,  note, 
to  compel  officers  to  call  meetings,  575,  note, 
to  compel  officers  to  hold  elections,  688,  note. 
MASTER  AND  SERVANT.     See  Employes  Torts. 
MEASURE  OF  COMPENSATION  FOR  PROPERTY  TAKEN,  178. 
MEASURE  OF  DAMAGES.     See  Damages. 
MEETINGS: 

of  body  corporate,  184,  573-576. 

validity  of  acts  done  at,  184,  185. 
must  be  notified  to  all  the  shareholders,  573. 
what  notice  should  contain,  574. 
adjourned  meetings,  574. 
must  be  called  by  proper  authorities,  575. 
of  body  corporate,  mandamus  to  compel  officers  to  call,  675,  note, 
business  at,  must  be  regularly  done,  576. 
held  outside  of  state,  382. 
voting  at,  576,  577. 
of  directors,  260,  261. 

held  outside  the  state,  381. 
of  corporations  created  by  two  states,  409. 
MEMBERS.     See  Shareholders. 

MERITS,  going  to  trial  on,  admits  corporate  existence,  137. 
METHODS  OF  FORMING  A  CORPORATION,  Appendix. 
MINING  SUPERINTENDENT: 

has  no  implied  power  to  borrow  money,  202. 
notice  to,  210,  note. 
MISAPPLICATION  by  promoters  of  preliminary  deposits,  106. 
MISAPPROPRIATION.  ) 

MISFEASANCE.  \  See  Directors,  Agents,  Officers. 

MISMANAGEMENT.       ) 

MISMANAGEMENT  OF  CORPORATE  AFFAIRS  DOES  NOT  RELEASE 
SUBSCRIBER,  529. 

60 


946  INDEX. 

References  are  to  the  Sections. 

MISNOMER,  159. 

MISTAKE.     See  Error. 

MISTAKE  AS  TO  CORPORATE  POWERS,  liability  of  directors  for,  622, 

623,  694. 
MONEY: 

power  of  corporations  to  raise,  123-127. 

by  issue  of  stock,  124. 

by  sale  of  property,  124. 

by  borrowing,  125. 

and  issuing  security,  125. 

by  issue  of  "deferred  income  bonds,"  126. 

by  guaranty,  127. 

liability  of  corporations  for  money  loaned  officers,  214-216,  225. 

power  of  directors  to  borrow,  225. 

amount  that  may  be  borrowed,  127. 

statutory  limitations  on  amount,  205. 
MONOPOLIES,  not  to  be  presumed,  121,  note. 

corporations  may  not  form,  309a,  etc. 
MORTGAGES  BY  CORPORATIONS: 

power  to  mortgage,  125. 

of  franchises,  125. 

consent  of  shareholders,  185,  186. 

corporation  cannot  assent  to,  as  shareholder  in  its  own  stock,  136,  note. 

shareholders  cannot  make,  187,  and  note. 

defective  execution  of,  254,  note. 

power  of  directors  to  make,  225. 

of  committee  of  directors  to  make,  234. 

president  has  no  power  to  make,  236. 

irregularities  cannot  be  set  up  by  subsequent  grantee  of  premises,  282. 

when  irregularities  cannot  be  set  up  by  creditor  of  corporation,  813. 
or  by  junior  mortgagee,  151,  note. 

equitable,  675. 

of  railroads,  674-682,  815-820. 

provisions  in,  816. 

of  rolling  stock,  678,  819. 

of  future  to  be  acquired  property,  676,  817. 

reorganization  of  debtor  corporation,  816a. 

invalid  provisions  in,  677,  678. 

foreclosure  of,   appointment  of  a  receiver,  821.     See  BONDHOLDERS, 
Municipal  Bonds. 
MORTGAGE-TRUSTEE.    See    Trustees     under     Railroad     Mort- 
gages. 
MORTMAIN,  statutes  of,  12,  18,  128. 
MUNICIPAL  BONDS  IN  AID  OF  RAILROADS,  317-333. 

Federal  decisions  regarding,  318. 

municipality  has  no  inherent  power  to  issue,  319. 
legislature  may  authorize  municipality  to  issue,  319. 

special  authority  requisite,  320. 


INDEX.  947 

References  are  to  the  Sections. 

MUNICIPAL  BONDS  IN  AID  OF  RAILROADS— (continued). 

holders  charged  with  notice,  320. 

municipal  subscription,  what  constitutes,  320. 

constitutional  restrictions,  321,  332. 

for  railroad  not  yet  in  existence,  322. 

consolidation  of  railroad  company,  323,  324. 

may  be  validated,  325. 

negotiable,  326. 

coupons,  326,  327. 

no  implied  notice  of  Us  pendens  affecting,  327. 

presumptions  in  favor  of  validity  of,  328. 

absence  of  seals,  328,  note. 

recitals  in,  329-332. 

registration  of,  332. 

remedy  of  holder,  mandamus,  333. 

effect  on,  of  failure  to  complete  road,  521. 
MUNICIPAL  CORPORATIONS,  177,  315,  316. 

distinction  between  liability  of  and  that  of  private  corporation,   177, 
335,  note. 

power  of,  to  tax,  333. 

property  of,  exempt  from  execution,  334. 

NAME  OF  CORPORATION: 

necessary,  12,  14. 

corporation  may  enjoin  use  of  its  name,  137. 

right  to,  158. 

corporation  cannot  change,  158. 

misnomer,  159. 
NATIONAL  BANKS  : 

may  receive  special  deposits,  161,  337. 

may  exchange  and  deal  in  government  securities,  161. 

may  not  deal  in  stocks,  161. 

nor  sell  railroad  bonds  on  commission,  161,  336,  note. 

excessive  loans  by,  301. 

real  estate  security  taken  by,  161,  302. 

liability  of,  for  loss  of  special  deposits,  337. 

succession  of  to  state  bank,  416,  note. 

state  taxation  of,  483,  484. 

cannot  create  by  by-law  a  lien  on  their  shares,  602. 

relative  rights  of  creditors  of,  669,  note. 

liability  of  shareholders  in,  727. 

in  voluntary  liquidation  not  thereby  dissolved,  432,  niote. 

when  agreements  to  transfer  shares  in,  are  against  public  policy,  790. 
NAVIGABLE  WATERS,  right  of  railroad  companies  to  cross,  162a. 
NEGLIGENCE  : 

liability  of  carrier  for,  349-351. 

carrier  cannot  stipulate  against  liability  for,  352-354. 

liability  for  negligent  injuries  to  trespassers.  370-372. 


948  INDEX. 

References  are  to  the  Sections. 

NEGLIGENCE— (continued). 

contributory,  373-376. 

damages  recoverable  for  personal  injuries  caused  by,  377,  378. 

injuries  to  employes  caused  by,  305,  366. 

to  persous  on  railroad  track  caused  by,  368,  370-372. 
fires  caused  by,  368. 
injuries  to  cattle  caused  by,  369. 
NEGOTIABLE  INSTRUMENTS  OF  CORPORATIONS,  205,  285,  299. 

wbeu  validity  of  not  affected  by  intrinsio  facts,  285.     See  Municipal 
Bonds. 
NET  EARNINGS,  what  are,  565. 
NEW  STOCK,  right  of  shareholders  to  take,  569. 
"NON-ASSESSABLE"  SHARES,  522. 

NON-OBSERVANCE  OF  FORMALITIES.     See  Fobmalities. 
NON-RESIDENT  CORPORATIONS.    See  Foreign  Corporations. 
NON-RESIDENT  SHAREHOLDER,  service  on,  740. 
NOTICE  : 

of  defects  when  not  necessary  to  charge  the  corporation  with  negli- 
gence, 169,  note, 
to  shareholders,  when  not  notice  to  corporation,  187,  note, 
to  corporate  agents,  effect,  210,  215,  216. 
to  cashier,  215,  240. 
to  president,  216. 

judicial  notice  of  charter,  264,  note, 
implied  of  corporate  powers,  195,  264. 
of  usages  of  corporations,  195. 

of  powers  of  foreign  corporations,  195,  note,  389-391. 
of  formalities,  253. 
general  notices  by  railroad  companies  to  passengers  and  shippers,  359- 
railroad  company  should  give  notice  to  consignee  of  arrival  of  goods, 

360. 
when  essential  to  due  process  of  law,  472,  note,  480,  492,  492a. 
to  delinquent  shareholders  before  forfeiting  shares,  547. 
of  corporate  meetings,  574,  575. 
of  directors'  meetings,  260,  261. 
necessary  to  forfeiture  of  shares,  547. 
to  common  directors  of  two  corporations,  641. 
doctrine  of  implied  notice  of  pendency  of  action    does  not  apply  to 

negotiable  bonds,  327,  679,  note, 
bondholders  affected  with  notice  of  mortgage,  674. 
effect  of  notice  to  trustee  under  a  mortgage,  679,  note, 
service  of,  on  non-resident  stockholder,  740. 
NUISANCE: 

corporation  may  sue  to  restrain,  137. 
may  be  indicted  for,  167,  note, 
liable  for,  169  note,  344. 
when  acts  of  corporation  not  a  nuisance,  171. 
NUL  T1EL  CORPORATION,  plea  of,  99,  146-151. 


INDEX.  949 

References  are  to  the  Sections. 
NUMBER  OF  SHARES,  power  of  corporation  to  increase,  133. 

OBJECTS    OF    INCORPORATION,    important  in  determining  corporate 

powers,  114,  120. 
OBLIGATION    OF    CONTRACTS,    333,   448-450,  453,   4(31-468,    487-491, 

493-502,  507. 
OBSERVANCE  OF  FORMALITIES.     See  Formalities. 
OFFICERS: 

de  facto,  validity  of  their  acts,  188-190. 

rights  of,  809. 
illegally  elected  cannot  make  calls,  540. 
election  of,  577-581. 
indemnification  of,  645. 
compensation  of,  646-648. 
removal  of,  581,  649,  650. 

a  court  of  equity  has  no  power  to  remove,  611. 
approval  by,  of  agents1  acts,  252. 
relations  of,  to  state,  506. 

may  act  as  trustees  for  bondholders,  629,  note, 
liability  of,  in  acting  on  behalf  of  their  corporation,  752,  753. 
liability  of,  to  other  contracting  party  when  contract  is  ultra  vires,  754. 
liability  of,  to  outsiders  for  acts  of  other  agents,  755. 
liability  of,  to  creditors,  756. 

for  misapplication  of  corporate  funds,  757. 
for  neglect  of  duty,  758. 
for  frauds  of  other  officers,  758. 
relations  of,  to  creditors  on  the  insolvency  of  the  corporation,  759. 
relations  among,  802. 
contributions  among,  803-807. 

right  of,  to  inspect  corporate  books,  808.     See  Directors,  President, 
Cashier,  Agents,  Statutory  Liability. 
OFFICIAL  BONDS,  249,  note,  257. 

liability  of  directors  for  not  requiring  other  officers  to  furnish,   619, 
note,  621. 
ORDINARY  BUSINESS: 

meaning  of  the  term  with  reference  to  the  powers  of  the  board  of 
directors,  223. 

with  reference  to  powers  of  cashier,  241. 
ORDINARY  CARE,  required  of  directors,  617. 

ORGANIZATION  OF   CORPORATIONS,  cannot  be   affected   outside    of 
the  state,  382,  note, 
when  defective,  is  remediable,  157. 

must  be  a  substantial  compliance  with  enabling  act,  451,  note, 
certificate  must  be  filed,  451,  note.     See  De  Facto  Corporations. 
OWNERSHIP  OF  CORPORATE  PROPERTY,  :5;>. 

PAR,  issue  of  stock  below,  when  illegal,  124,  541.  522o-522c. 
PAROL  DECLARATIONS,  effect  of  on  subscriptions,  97.  note,   103,  note, 
521. 


950  INDEX. 

References  are  to  the  Sections. 

PARTIES  TO   CREDITORS'    HILLS.     See    Creditors'    Bills,    Statu- 
tory Liability. 
PARTIES  TO  FORECLOSURE  SUITS,  814,  815,  note. 
PARTNERS: 

analogy  between  shareholders  and,  68. 

promoters  are  not,  77. 

subscribers  to  shares  before  formation  of  corporation,  not,  100. 

shareholders  not  held  as  on  defective  organization,  148. 
exceptions,  148. 

creditors  cannot  deny  corporate  existence  to  charge  shareholders  as, 
148,  739. 

shareholders  not,  68,  716,  719. 
PARTNERSHIP: 

definitions,  23,  note. 

how  differing  from  a  corporation,  59-61,  719. 

limited,  58. 

whether  corporations  can  form,  130,  note,  364. 
PASS-BOOK  OF  SAVINGS  BANK  DEPOSITORS,  regulations  in,  199. 
PASSENGERS: 

liability  of  railroad  companies  for  injuries  to,  caused  by  another  rail- 
road company,  170. 

liability  of  common  carriers  to,  for  tort  of  employes,  335,  347. 

railroad  regulations  affecting,  348. 

cannot  be  detained  for  non-payment  of  fare,  348. 

tickets,  348. 

liability  of  common  carriers  for  negligence,  350. 

carrier  cannot  stipulate  against  liability  for  negligence,  352. 

persons  travelling  on  pass  may  be,  352. 
PENALTY,  not  enforced  outside  of  state  creating  it,  393.     See  Statutory 

Liability. 
PENDENCY  OF  ACTION: 

doctrine  of  implied  notice  inapplicable  to  negotiable  instruments,  327. 

to  stock  certificates,  795. 
PERFORMANCE  OF  ULTRA  VIRES  CONTRACT,  effect  of,  275-281. 
PERPETUAL  SUCCESSION,  12,  14,  16,  21,  note,  430,  note. 
PERSONAL  LIABILITY.     See  Statutory  Liability. 
PERSONAL  PROPERTY,  power  of  corporation  to  acquire,  129. 
PERSONS: 

legal  or  artificial,  2,  15,  21,  22,  51. 

between  whom  legal  relations  respecting  a  corporate  enterprise  exist,  37. 

interested  in  forming  a  corporation,  73. 
PLACE  OF  BUSINESS: 

power  of  corporation  to  change,  121,  note. 

foreign  corporations  required  to  state,  400. 
PLEADING.     See  Suits,  Creditors'  Bills,  Statutory  Liability. 
PLEDGE  OF  SHARES,  794,  797. 

when  valid  as  against  pledgor's  creditors,  796. 

when  the  pledgor  is  a  trustee,  797. 


INDEX.  951 

References  are  to  the  Sections. 

PLEDGEE  OF  SHARES,  when  held  as  shareholder  to  creditors,  741. 
POLICE  POWER: 

how  differs  from  eminent  domain  and  taxing  power,  469a. 

state  cannot  revoke  franchise  through  exercise  of,  474. 

restrictions  on,  through  power  of  Congress  to  regulate  commerce,  474a. 

its  limits,  475,  476. 

legislature  cannot  surrender,  465,  466. 

regulation  of  railroad  charges  by,  475,  476a,  4766. 

state  may  change  remedy  by  exercise  of,  493-495. 
POOLING  ARRANGEMENTS  OF  RAILROAD  COMPANIES,  309. 
POWERS  OF  AGENTS.     See  Agents. 

POWERS  OF  CORPORATIONS.     See  Corporate  Powers. 
POWERS  OF  DIRECTORS.     See  Directors. 
PREFERENCES,  directors   cannot   make  to  themselves  when  creditors, 

759,  760. 
PREFERENTIAL  ASSIGNMENTS  BY  CORPORATIONS,  668. 
PREFERRED  SHARES: 

power  to  issue,  124,  571,  572. 

right  of  holders  to  dividends,  563. 

dividends  on,  cumulative,  564. 

payable  only  out  of  profits,  565. 

rights  of  holders  as  to  other  shareholders  on  winding-up,  786. 
PRELIMINARY  DEPOSITS: 

when  may  be  withdrawn,  98. 

liability  of  promoters  for,  104,  106. 

effect  of  failure  to  make,  on  validity  of  subscription,  516. 
PRESIDENT: 

powers  of,  190,  note,  192,  note,  202,  236-238. 
enlarged  by  custom,  237. 

cannot  mortgage  corporate  property,  187,  note,  236. 
nor  sell  lauds  of  corporation,  236. 

nor  assign  property  in  payment  of  antecedent  debts,  236,  note, 
nor  bind  it  as  an  accommodation  indorser,  236,  note. 

may  sell  its  goods,  237,  note. 

when  corporation  liable  for  moneys  borrowed  by,  203. 

notice  to,  216. 

admissions  of,  236,  note. 

compensation  of,  646-648. 

of  bank  cannot  certify  his  own  check,  636. 
PRESUMPTIONS  IN  FAVOR  OF  VALIDITY  OF  CORPORATE  ACTS, 
128,  203-206,  251,  261,  263,  328. 

that  land  was  acquired  for  authorized  purposes,  128,  note,  232,  note. 

when  outsider  may  assume  that  agent  is  acting  rightfully,  204. 

outsider  may  not  assume  existence  of  unusual  facts,  206. 

regarding  negotiable  paper,  205,  285. 

assertion  by  agent  of  his  own  authority,  207-209. 

in  favor  of  validity  of  directors'  acts,  232. 

that  corporate  Beal  is  rightfully  affixed,  202,  note. 


952  INDEX. 

References  are  to  the  Sections. 

PRESUMPTIONS  IN  FAVOR  OF  VALIDITY,  Etc.— (continued). 

that  formalities  have  been  observed,  251. 

in  favor  of  regularity  of  directors'  meetings,  261. 

in  evidence,  ordinary  presumptions  apply,  203. 

that  restrictions  on  corporate  powers  have  not  been  violated,  284. 

that  money  is  not  borrowed  by  a  corporation  in  excess  of  authorized 
limit,  286. 

nor  for  an  unauthorized  purpose,  286. 

on  part  of  seller  of  property  that  it  is  proper  for  corporation  to  pur- 
chase, 286. 

in  favor  of  validity  of  municipal  bonds,  328-332. 

in  favor  of  foreign  corporation,  390,  note. 
PRESUMPTION  OF  KNOWLEDGE  BY  CORPORATION,  216. 
PRESUMPTION  THAT  PERSONS  DEALING  WITH  A  CORPORATION 

KNOW  ITS  POWERS,  195,  264,  389-391. 
PRINCIPAL,  when  dividends  are  to  be  treated  as,  799-801. 
PRIVATE  PROPERTY: 

what  is,  171. 

cannot  be  taken  without  compensation,  163. 
PRIVILEGED  COMMUNICATIONS  OF  OFFICERS  TO  MEMBERS  OF 

CORPORATIONS,  342,  note. 
PRIVILEGES,  when  exclusive  to  be  strictly  construed,  122. 
PROCESS,  service  on  corporations,  143,  395-399. 
PROHIBITIONS,  statutory.     See  Statutory  Pkoiiibitions. 
PROMISSORY  NOTES: 

corporations  may  issue,  125. 

of  corporations  are  negotiable,  125,  note. 

when  president  may  issue,  202. 

issued  by  agents,  205. 

title  in  corporation  cannot  be  questioned  by  promisor,  282. 

when  issued  in  contravention  of  statute  void,  298. 
PROMOTERS: 

not  partners  presumptively,  77. 

liability  of,  74-84,  103. 

to  parties  with  whom  they  contract,  76-79. 

for  acts  of  other  promoters,  77. 

for  statements  in  prospectus,  77. 

to  each  other,  80,  81. 

contribution  among,  81. 

to  the  corporation  subsequently  formed,  82-84. 

false  statements  of,  97,  note. 

to  account  for  secret  profits,  82-84. 

to  subscribers,  103. 

for  preliminary  deposits,  104,  106. 

right  of,  to  indemnity  from  the  corporation,  85. 

from  each  other,  80. 

to  compensation,  81,  86. 

liability  of  corporation  for  acts  of,  87-90. 


INDEX.  953 

References  are  to  the  Sections. 

PROMOTION  OF  A  CORPORATION.     See  Legal  Relations  Arising 

THROUGH  THE  PROMOTION  OF  A  CORPORATION. 

PROOF  OF  ACTS  OF  CORPORATIONS,  263. 
PROOF  OF  DEED  OF  CORPORATION,  248,  note. 
PROPERTY: 

what  is,  172. 

power  of  corporations  to  acquire,  128,  129. 

of  a  corporation,  ownership  respecting,  33. 

not  to  be  taken  without  compensation,  171. 
except  when  public,  171. 

what  constitutes  a  taking  of,  173. 

powers  of  corporation  over,  124,  130.     See  Corporate  Powers. 

in  which  the  public  has  an  interest,  474-476. 

a  corporation  may  receive  in  payment  for  its  shares,  522c,  701. 
PROSPECTUS : 

liability  of  promoters  for  statements  in,  77. 

terms  of  become  conditions  in  subscriptions,  96. 
PROVISIONAL  COMMITTEE-MEN,  not  partners  prima  facie,  77. 

not  liable  for  contracts  of  managing  committee,  77,  note. 

remuneration  of,  81. 

contribution  among,  81,  note. 
PROXY,  right  to  vote  by,  579. 
PUBLIC  CORPORATIONS.    See  Municipal  Corporations,  Municipal 

Bonds. 
PUBLIC  POLICY  : 

acts  illegal  as  against,  289,  304-309. 

foreign  corporations  cannot  act  contrary  to,  387,  388. 

agreement  to  sell  shares,  when  against,  790. 
PUBLIC  PROPERTY,  when  corporation  may  take  without  compensation, 

171. 
PUBLIC  USE  : 

what  is,  163. 

property  devoted  to,  may  be  taken  by  eminent  domain,  163a. 
PUNITIVE  DAMAGES,  when  recoverable  for  personal  injuries,  377,  378. 
PURCHASE  BY  CORPORATION  OF  ITS  SHARES,   134,  135,  552,  586, 

747. 
PURCHASE  OF  SHARES.     See  Transfer  of  Shares;  Shares  of  Stock 

IN  ANOTHER  CORPORATION. 

QUALIFICATION  SHARES  OF  DIRECTORS,  614. 
QUANTUM  MERUIT,  corporation  may  be  held  on,  249. 
QUASI  CORPORATION,  58,  note. 
QUO  WARRANTO,  must  be  brought  in  the  name  of  the  state,  151. 

nature  of  action,  460,  note.     See  Forfeiture  of  Franchises. 
QUORUM  necessary  for  transaction  of  business  at  directors1  meetings,  260. 

at  shareholders'  meetings,  577,  note. 
QUORUM  AT  ROMAN  LAW,  8. 


954  INDEX. 

References  are  to  the  Sections. 

RAILROAD  AID  BONDS.    See   Municipal  Bonds   in  Aid  of  Rail- 
roads. 
RAILROAD  COMPANIES: 

power  of,  to  locate  road,  162,  162a. 

to  locate  stations,  162. 

to  change  location  of  route,  162a,  229,  note. 

to  cross  tracks  of  another  railroad,  163a. 
directors  of,  cannot  change  termini,  229,  note. 
right  of  eminent  domain  of,  162,  163. 

may  take  easement  or  fee,  162a,  165. 

for  what  purposes  may  take  land,  163. 
right  of,  to  cross  navigahle  waters,  162a. 
when  may  take  property  devoted  to  a  public  use,  163a. 
railroad  a  public  use,  163. 
right  of,  to  exclusive  use  of  its  track,  162a. 

can  exercise  eminent  domain  though  road  has  been  leased,  166,  note, 
in  condemning  land  must  comply  strictly  with  statute,  166. 
liable  for  throwing  back  surface  water,  173. 

for  obstructing  drains  and  ditches,  173. 

for  obstruction  of  river  navigation,  174. 
liability  to  riparian  owners,  174. 
liability  for  tracks  in  streets,  175-177. 
conditional  subscriptions  to  shares  in,  109,  517. 
collateral  attacks  on  franchises  of,  152. 
liability  of,  for  advances  made  on  bills  of  lading,  201. 
lease  of  road  may  not  relieve  from  liability,  170. 
cannot  relieve  themselves  from  liability  by  delegating  their  franchises, 

170. 
without  special  authority,  cannot  mortgage  or  transfer  their  franchises, 

125,  305. 
nor  lease  their  franchises,  305. 

such  leases  void,  305. 
effect  of  leases  on  right  to  tolls  on  leased  road,  416. 
nor  without  special  authority  can  they  consolidate,  305. 
consolidation  of.     See  Consolidation. 
ultra  vires  acts,  305. 
traffic  arrangements,  307,  308. 
pooling  arrangements,  309. 
contracts  of,  as  to  stations,  309. 
contracts  giving  exclusive  privileges,  309. 
charges  by,  309. 

municipal  bonds  issued  in  aid  of.     See  Municipal  Bonds. 
liable  for  assaults  and  batteries,  344. 

for  trespass,  344. 

for  public  nuisance,  344. 
may  stipulate  against  liability  for  fire,  351. 

cannot  stipulate  against  liability  for  losses  arising  from  negligence, 
352-354. 


INDEX.  955 

References  are  to  the  Sections. 

RAILROAD  COMPANIES— ( continued). 

liability  of  connecting  lines  as  common  carriers,  354,  362-364. 
liability  of,  for  injuries  to  employes,  365,  366. 
to  trespassers,  370-372. 
to  persons  on  track,  368. 
for  negligence  of  flagman,  368. 
for  fires  caused  by  sparks,  368. 
to  fence  railroad,  369. 
not  charageable  with  knowledge  of  contents  of  packages  carried  by 

them,  369. 
may  make  reasonable  regulations  regarding  passengers,  348. 
rigbt  of,  to  tolls  on  leased  roads,  416. 
state  may  compel  them  to  perform  tbeir  functions,  454,  455. 

to  erect  suitable  stations,  454. 
state  may  control  them  by  virtue  of  its  police  power,  475. 
state  may  regulate  fares,  475,  476,  476a. 
taxation  of,  479,  485. 
railroad  tracks  in  streets,  175-177. 
when  liable  in  exemplary  damages,  377,  378. 
liability  for  contracts  of  station  agents,  193,  note,  201. 
when  shareholder  may  enjoin  from  extending  road,  556. 
contractors1  liens,  817,  818. 
provisions  in  mortgages,  816. 

mortgages  of,  covering  property  to  be  acquired,  676,  817. 
covering  rolling  stock,  819. 
covering  separate  portions  of  road,  819. 
foreclosure  sales,  669,  note,  682,  note,  711,  813. 
not  dissolved  by  sale  of  road,  432,  note. 
right  to  earnings  of,  as  between  bondholders  and  judgment  creditors, 

820. 
appointment  of  receiver  in  foreclosure  of,  821,  822. 
priority  of  receiver's  orders,  823,  824. 
payment  of  current  expenses  on  foreclosure,  821,  822. 
incorporated  by  two  states,  403-409.     See  Common  Carriers,  Emi- 
nent   Domain,    Mortgages,    Bondholders,    Trustees    under 
Railroad  Mortgages. 
RAILROAD  CONSTRUCTION  COMPANIES,  638,  639. 
RAISE  MONEY.     See  Money. 
RATES    OF    RAILROAD    COMPANIES,  regulation  of,  by  the  state,  475, 

476a,  4766. 
RATIFICATION: 

of  acts  of  promoters,  86-90. 

of  bonds  issued  before  incorporation,  90,  note. 

of  subscription  contracts  of  infants,  95. 

by  acquiescence,  110,  193,  212. 

formal  ratification  not  requisite,  212. 

by  shareholders,  187,  213.  / 

by  accepting  benefit  of  act,  214. 


956  INDEX. 

References  are  to  the  Sections. 

RATIFICATION— ( continued). 

knowledge  or  implied  notice  of  facts  necessary,  212,  214,  215. 

what  notice  is  sufficient,  212,  210. 

through  lapse  of  time,  110,  217. 

of  informal  acts,  256. 

of  ultra  vires  acts,  269-273. 
by  shareholders,  270,  271. 

by  corporation,  of  contracts  in  which  directors  are  personally  interested, 
630. 
REAL  ESTATE.     See  Lands. 
RECEIVER : 

effect  of  appointment  on  suits  pending,  144,  813. 

court  will  not  appoint  for  foreign  corporation,  394. 

may  recover  subscriptions,  542. 

capacities  of,  542,  615,  814. 

may  enforce  directors'  duties,  615. 

may  enforce  rights  of  creditors  against  officers,  756,  note,  758,  note. 

may  contest  payment  of  ultra  vires  claims,  272,  273,  814. 

pleading  irregularity  of  appointment,  542. 

liability  of,  when  operating  railroad,  417. 

when  necessary  party  in  suits  by  shareholders  against  officers,  690,  note. 

when  creditors  are  entitled  to,  663,  707. 

when  appointed  at  suit  of  creditors  must  determine  amount  of  corpo- 
rate indebtedness  before  enforcing  a  subscription,  707,  note. 

in  foreclosure  suits,  821. 

when  court  will  recognize  foreign  receiver,  819,  note. 

appointment  does  not  cause  dissolution  of  corporation,  432. 
RECEIVER'S  ORDERS.  821-824. 
RECITALS  IN  MUNICIPAL  BONDS,  329-332. 
REDUCTION  OF  CAPITAL  STOCK,  133,  570. 
REGISTRY  OF  MUNICIPAL  BONDS,  332. 
REGISTRY    OF    TRANSFERS    OF    SHARES,    liability   of    corporation, 

592,  593,  597. 
REGULATIONS  BY  CARRIERS,  348. 

RE-ISSUE  OF  SHARES  PURCHASED  BY  CORPORATION,  136. 
RELEASE  OF  SUBSCRIPTIONS  : 

invalid,  549-551. 

no  defence  as  to  creditors,  745,  746. 

no  defence  as  to  other  shareholders,  780. 
REMAINDER-MAN    AND    LIFE-TENANT,   right    to    dividends    as  be- 
tween, 799-801. 
REMEDY  : 

distinction  between,  and  right,  493. 

state  may  control,  493-495.     See  Suits. 
REMOVAL  OF  OFFICERS,  581,  649,  650,  611. 

REMOVE  FROM  PLACE  TO  PLACE,  corporations  cannot,  121,  note. 
REMUNERATION  OF  OFFICERS,  86,  646-648. 
REORGANIZATION  AGREEMENTS,  816a. 


INDEX.  957 

References  are  to  the  Sections. 

REPEAL  OF  CHARTERS  OR  ENABLING  ACTS,  464,  496-504. 

limitations  on  the  reserved  right  to  alter  and  repeal,  496-502. 

judicial  decree,  when  necessary,  503. 

effect  of,  504. 
REPLEVIN    FOR  CORPORATE    PROPERTY,  cannot  be  sustained  by 

sole  shareholder,  187. 
REPORTS: 

failure  to  file,  liability  of  officers,  767-773. 
does  not  survive  death,  771. 

false,  liability  of  officers  signing,  774. 
does  not  survive  death,  771,  note. 
RESEMBLANCES     BETWEEN     CORPORATIONS     AND      CERTAIN 
OTHER  LEGAL  INSTITUTIONS: 

what  law  applicable  to  corporations,  53. 

New  York  statute  of  1875,  54,  55. 

New  York  joint  stock  association,  56. 

comparison,  57. 

limited  partnerships,  58. 

partnerships:  dissimilar  from  corporations  at  common  law,  59. 

points  of  difference  remaining,  60,  61. 

the  element  common  to  these  various  legal  institutions,  62. 

material  questions,  63. 

law  applicable  to  corporations,  how  determinable,  64,  65. 

changes  in  corporation  law,  66. 

the  use  of  analogy,  67-69. 

the  application  of  general  principles,  70,  71. 
RESIDENCE  OF  FOREIGN  CORPORATION,  395,  note. 

of  corporation  created  by  two  states.  407,  note,  409. 
RESTRICTIONS  ON  AUTHORITY  OF  CORPORATED  AGENTS. 

See  Agents,  Directors. 
RESTRICTIONS  ON  STATE  LEGISLATURES,  464. 
RIGHTS,  regarded  as  "property,"  172. 

RIPARIAN  OWNERS,  rights  of,  against  railroad  companies,  174. 
ROLLING  STOCK,  676,  819. 
ROMAN  LAW  RELATING  TO  CORPORATIONS,  1-9. 

early  Roman  view,  1. 

a  corporation  not  a  person  in  the  Roman  law,  2. 

later  Roman  view,  3. 

special  authority  to  form  a  corporation  necessary  only  in  later  times,  4. 

varieties  of  Roman  corporations,  5. 

illegal  corporations  at  Rome,  6. 

dissolution  in  Roman  law,  7. 

corporate  management,  8. 

hereditas  jacens,  9. 
RULES  OF  LAW: 

how  they  become  operative,  25. 

between  whom  they  operate,  26. 

what  rules  brouglit  into  operation  by  incorporation,  27. 

applicable  to  corporations,  52-71. 


958  INDEX. 

References  are  to  the  Sections. 

SALARIES,  646-648. 

SALVOR,  corporation  may  be,  137. 

SAVINGS  BANKS,  when  not  liable  for  money  paid  on  forged  order,  199. 

cannot  purchase  stock  in  another  corporation,  267. 
SCRIP  DIVIDEND,  when  bequest  of  shares  does  not  carry,  798,  note. 
SEAL: 

right  of  corporation  to  use,  12,  14,  17. 

when  necessary,  248. 

presumed  to  be  rightfully  affixed,  204,  note. 

absence  of  in  municipal  bonds,  328,  note. 
SECRET  AGREEMENTS  with  subscribers  void,  521. 
SECRETARY: 

power  of,  201. 

prima  facie  entitled  to  compensation,  647,  note. 
SECRET  PROFITS: 

promoters  must  account  to  corporation  for,  82-84. 

directors  must  account  to  corporation  for,  629-631. 
SECURITY,  corporation  has  implied  power  to  give,  125. 
SECURITIES  COMPANY  3090". 
SELL  PROPERTY,  power  of  corporations  to,  130. 
SERVANTS,  liability  of  shareholders  for  debts  due,  734.     See  Agents, 

Employes,  Torts. 
SERVICE  OF  PROCESS: 

on  corporations,  143. 

mode  may  be  changed,  495. 

on  foreign  corporations,  395-399. 

on  non-resident  stockholders,  740. 
SERVICES,  corporation  may  receive  in  payment  for  its  shares,  522c. 

compensation  for,  86,  646,  648. 
SET-OFF: 

when  debtor  of  corporation  entitled  to,  670,  810,  note. 

by  shareholders,  against  unpaid  subscriptions,  729,  811. 

by  shareholders,  against  claim  for  corporate  funds  improperly  received, 
730. 

by  shareholders,  in  actions  against  the  corporation,  187,  note. 

by  shareholders,  against  statutory  liability  to  creditors,  731.  732. 

of  benefits  against  amount  of  compensation  for  property  taken  oy  emi- 
nent domain,  179. 
SHARES  OF  STOCK: 

right  of  subscribers  to  allotment  of,  91,  110. 

on  increase  of  stock,  569. 

definitions  of,  567. 

increase  in  number  of,  133. 

are  subject  to  attachment,  392,  note,  796. 

attachment  of  does  not  incumber  property  of  the  corporation,  567,  note. 

taxation  of,  477a,  483,  484. 

situs  of  for  taxation,  477a,  note,  479,  note. 

forfeiture  of,  234,  546-548. 


INDEX.  959 

References  are  to  tho  Sections. 

SHARES  OF  STOCK— (continued). 
may  be  paid  for  in  property,  522c. 
See  Shareholders,  Transfers,  Subscriptions. 
SHARES  OF  STOCK  IN  ANOTHER  COMPANY,  power  of  one  corpora- 
tion to  purchase,  130,  note,  161,  267,  309. 
a  savings  bank  cannot  purchase,  267. 
when  a  shareholder  may  restrain  purchase,  556. 
SHAREHOLDERS: 

constitute  body  corporate,  48-50. 

not  partners,  68,  100,  148,  716,  719. 

right  of,  to  sue  on  behalf  of  corporation,  139-142. 

must  be  such  at  time  of  injury,  unless  shares  devolve  on  them  by 
operation  of  law,  140,  note,  141,  note, 
how  incapacitated  from  acting  when  management  vested  in  directors, 

180-183. 
consent  of,  to  mortgages,  185,  186. 
must  act  in  corporate  meetings,  184. 
agreements  among,  to  control  corporation  management,  when  legal, 

5596. 
cannot  act  individually  for  the  corporation,  187. 
not  legal  owners  of  the  corporate  property,  187. 
have  insurable  interest,  187. 
notice  to,  not  notice  to  corporation,  187,  note, 
ratification  by,  187,  203. 

of  ultra  vires  acts,  270. 
relations  to  creditors,  effect  thereon  of  reservation  by  the  state  of  the 

right  to  alter  and  repeal,  500,  501. 
relations  of,  to  the  state,  505. 

to  the  corporation,  how  occasioned,  509-512. 
"non-assessable"  shares  held  by,  522. 
may  enjoin  consolidation,  536. 
may  restrain  improper  and  ultra  vires  acts  on  part  of  corporation  or 

officers,  140,  note,  553-556,  683,  684. 
may  enjoin  acceptance  of  amendment,  557. 
corporation  must  be  managed  in  interests  of  as  such,  558. 
may  sue  corporation  for  conspiracy,  560. 

for  injuries  to  themselves  individually,  561. 
cannot  plead  nul  tiel  corporation,  537-539,  738. 
liability  of,  to  receiver,  542. 
may  pay  for  shares  in  property,  522c,  701. 
cannot  be  released,  549-551,  780. 
right  of,  to  dividends,  562-568. 

to  subscribe  for  additional  shares  on  increase  of  stock,  569. 
rights  of,  regarding  meetings,  573-576. 

elections,  577-581. 
right  of,  to  vote,  578-581. 

to  vote  in  their  own  interest,  5596. 

to  inspect  corporate  books,  585. 


960  INDEX. 

References  are  to  the  Sections. 

SHAREHOLDERS— [continued). 

corporate  affairs  to  be  managed  in  interests  of,  558,  559. 
rights  of,  on  winding-up,  608,  609. 

to  dissolve,  610. 

that  officers  do  no  unauthorized  acts,  685. 
remedies  of,  against  officers,  560,  686-688. 

statute  of  limitations,  689. 
actions  by,  against  officers,  for  corporate  mismanagement,  689-691. 
actions  by,  against  officers,  for  individual  injuries,  696,  697. 
directors  trustees  for,  692,  698. 
liability  of,  to  indemnify  directors,  699. 

to  creditors  in  absence  of  statutory  liability,  700-708. 

in  national  banks,  727. 

to  creditors  to  pay  up  subscriptions,  701,  703. 

to  creditors  on  shares  issued  for  property,  702. 

to  creditors  for  withdrawing  corporate  funds,  708,  719,  note. 
creditors1  bills  against,  joinder  of  parties,  704-706. 
trustees  for  creditors  in  what  respects,  45,  709-711. 
liability  to  creditors  when  enforceable  outside  of  state,  393. 
statutory  liability  of,  to  creditors.     See  Statutory  Liability. 
when  entitled  to  set-off  against  creditors,  729-732,  811. 
when  also  creditors,  cannot  sue  other  shareholders  at  law,  733,  784. 
liability  of,  for  "  debts  "  of  the  corporation,  734. 
estopped  to  deny  corporate  existence  in  suit  by  creditors,  738. 
who  are  such,  as  to  creditors,  740-743. 

release  by  corporation  of,  no  defence  against  creditors,  745. 
forfeiture  of  shares  valid  as  to  creditors,  746. 
compromise  may  be  valid  as  to  creditors,  746. 
liability  of,  to  creditors,  as  ended  by  a  transfer  of  shares,  747. 

not  ended  by  a  transfer  of  shares  to  the  corporation,  747. 

not  ended  by  an  irregular  transfer,  748. 

not  ended  by  a  fraudulent  transfer,  749. 
relations  of,  to  creditors  on  winding-up,  750,  751. 
legal  relations  among,  two  classes,  777,  778. 

right  of,  that  each  shall  bear  his  proportion  of  corporate  burdens,  779. 
rights  of,  against  each  other,  on  a  change  in  the  corporate  constitu- 
tion, 782. 
contribution  among,  734,  note,  783,  784. 
classes  of,  785. 

rigbts  of,  who  hold  shares  more  fully  paid  up,  787. 
equal  rights  of,  788. 

relations  between  transferrer  and  transferee  of  shares,  789-793,  798. 
pledge  of  sbares  by,  794.     See  Subscriptions,  Preferred  Shares. 
SHIPPERS,  when  not  affected  with  notice  of  limitations  on  authority  of 

station  agents,  193,  note. 
SLEEPING-CAR  COMPANIES,  liability  of,  347,  note. 
SOC1I  VECTIGALIUM  PUBLICORUM,  1. 
SOVEREIGNTY,  never  absolute,  456. 


INDEX.  961 

References  are  to  the  Sections, 

SPECIAL  DEPOSITS,  liability  of  banks,  161,  337,  346. 
SPECIFIC  PERFORMANCE: 

of  transfer  of  shares,  right  of  purchaser  as  against  corporation,  599. 
as  between  transferrer  and  transferee,  790. 
STATES  OF  THE  UNION: 
suits  against,  462. 

relations  of,  to  corporations  created  by  them,  438-449,  452,  469. 
contract  between  corporation  and,  450,  453. 

rights  acquired  by  state,  454,  456. 
may  forfeit  franchises,  457-460. 
rights  of  corporation  against,  461,  462. 

limitations  thereon,  463-466. 
limitations  on  power  of  states  over  corporations,  469a,  469b  et  seq. 
eminent  domain  of,  470-473. 
police  power  of,  474-476,  493. 
taxing  power  of,  477-486. 
exemptions  from  taxation  by,  487-491. 
have  control  over  remedies,  493-495. 

reserved  right  of,  to  alter  and  repeal  charters  or  enabling  acts,  496-604. 
relations  of,  to  shareholders,  505. 
to  corporate  officers,  506. 

to  creditors  of  corporations,  507.     See  Taxation. 
STATIONS: 

power  of  railroad  companies  to  locate,  162. 
contracts  of  railroad  companies  to  locate,  309. 
STATION  AGENTS,  powers  of,  193,  note,  201. 
STATUTES: 

of  mortmain,  128. 

regulating  service  on  foreign  corporations,  397. 
imposing  terras  on  foreign  corporations,  400,  401. 
New  York  "business  corporations  "  act  of  1875,54,55. 
New  York  "manufacturing  companies  "  act,  125,  note, 
regulating  joint  stock  associations  in  New  York,  56. 
English  companies  act,  296. 

of  limitations.    See  Limitations,  Statutory  Liability,  National 
Banks. 
STATUTORY  LIABILITY: 

when  enforced  outside  of  state  creating  it,  393. 

how  far  subject  to  alteration  by  subsequent  legislation,  500,  501. 

of  shareholders,  712. 

does  not  deprive  creditor  of  right  to  enforce  unpaid  subscriptions, 

712,  note, 
return  of  execution  unsatisfied,  713,  724. 
when  shareholders  may  be  joined  in  action  against  corporation,  718, 

note, 
nature  of,  714-717. 
ordinarily  not  a  penalty,  714,  note, 
not  released  by  time  given  corporation,  715  and  note. 

61 


962  INDEX. 

References  are  to  the  Section*. 

STATUTORY  LIABILITY— (continued). 
not  the  liability  of  guarantors,  715. 
cannot  be  extended,  715,  note. 
not  the  liability  of  partners,  716,  719. 
must  be  enforced  as  prescribed  by  the  statute,  717,  783. 
attaches  to  what  shareholders,  718-720. 
cannot  be  created  by  by-law,  583. 
creditors  proper  parties  to  enforce,  721. 
corporation  cannot  assign,  721. 
averments  in  pleading,  722. 
under  national  banking  act,  727. 

under  New  York  "  manufacturing  companies"  act,  723. 
set-off  under  New  York  "  manufacturing  companies  "  act,  732. 
conditions  precedent,  724. 
joinder  of  parties,  725,  726. 
survives  death  of  shareholder,  727j  note, 
extinguishment  of,  728. 
right  to  set-off,  731,  732. 
for  debts  of  a  particular  class,  734. 
for  "debts,"  734. 
repeal  of,  735. 
waiver  of,  735. 

when  barred  by  statute  of  limitations,  736. 
evidence  of  judgment  against  corporation,  737. 
existence  of  corporation  cannot  be  denied,  738,  739. 
priorities  of  creditors  regarding,  825,  826. 

not  extinguished  by  transfer  of  shares  to  corporation,  135,  747. 
of  directors,  761-775. 

different  classes,  761-766. 

in  its  nature  penal,  764,  765,  771. 

for  failure  to  file  reports,  767-773. 

does  not  survive  death  of  delinquent,  771. 

what  debts  included,  772,  773. 

for  signing  false  reports,  774. 

enforced  outside  the  state,  393. 
forms  of  action,  joinder  of  parties,  775. 
contribution,  763,  764,  767,  806. 
STATUTORY  PROHIBITIONS,  294-303. 

corporations  organized  for  prohibited  purposes,  149,  note. 

general  prohibitions,  295. 

English  "  Companies'  Act,"  296. 

effect,  general  rule,  297. 

excessive  rate  of  interest,  298. 

forbidden  bills  and  notes,  298. 

first  qualification  to  general  rule,  299. 

second  qualification  to  general  rule,  300. 

third  qualification  to  general  rule,  301. 

excessive  loans  by  national  banks,  301. 


INDEX.  963 

References  are  to  the  Sections. 

STATUTORY  PROHIBITIONS— ( continued ). 

forbidden  loans  by  savings  banks,  301. 

prohibitions  by  implication,  302. 

effect  on  conveyances  to  corporation,  303. 
STOCK: 

corporation  cannot  issue  below  par,  124.  541,  545. 

power  of  corporation  to  raise  money  by  issue  of,  124. 
to  increase  or  decrease,  133. 
to  purchase  its  own,  134,  135,  552. 

to  purchase  stock  in  another  corporation,  130,  note,  161,  267,  309. 
to  re-issue  shares,  136. 

directors  cannot  increase,  228. 

rights  of  shareholders  on  increase  or  decrease,  569,  570. 

issue  of  invalid  stock,  541,  545. 
STOCK-BROKER,  when  not  liable  on  shares  put  in  his  name,  700,  note. 
STOCK  CERTIFICATE: 

issue  of,  not  essential  to  constitute  a  shareholder,  511. 

corporation  estopped  by,  591,  598. 

liability  of  corporation  on  forged,  591-593. 

assignment  of,  effect,  795,  796. 

passes  legal  title  to  shares,  587,  590. 

held  "in  trust,"  797. 

need  have  no  seal,  248. 

is  but  evidence,  587. 

purchaser  of  stolen,  gets  no  title,  795. 
STOCK  DIVIDENDS: 

right  of  shareholders  in,  after  declaration,  568. 

power  of  corporation  to  make,  568,  and  note. 

whether  principal  or  income,  800,  801. 
STOCKHOLDERS.     See  Shareholders. 
STREET  RAILROAD,  franchises  of,  304,  note. 
STREETS,  use  of,  by  railroads,  175-177. 
SUBSCRIBERS  TO  STOCK  OF  A  CORPORATION  TO  BE  FORMED: 

rights  of,  to  shares  after  company  is  formed,  91. 

effect  on,  of  false  statements  of  promoters,  97,  note. 

may  deny  that  corporation  has  been  formed,  99. 

not  partners,  100. 

legal  relations  of,  to  promoters,  103. 

rights  of,  against  corporation,  110-112. 

affected  by  laches,  111.     See  Subscriptions. 
SUBSCRIPTIONS     TO    SHARES     IN     A     CORPORATION     TO     BE 
FORMED,  91-112. 

made  to  commissioners,  91,  and  note. 

of  infants,  95. 

consideration  of,  91-94. 

defence  that  objects  of  incorporation  are  illegal,  95. 

defence  that  corporation  has  not  been  formed,  99. 

conditions  in,  96,  97. 


964  INDEX. 

References  are  to  the  Sections. 

SUBSCRIPTIONS  TO  SHARES,  Ere— (continued). 

when  not  enforceable  until  all  the  stock  subscribed,  96. 
preliminary  deposits,  98,  99,  104,  106. 
legal  relations  arising  from,  100-106. 
assignment  of,  101,  102. 
defence  of  promoter's  fraud,  103. 
fraudulent,  105. 

enforceable  by  corporation  when  formed,  107-109. 
rescission  of,  by  subscribers,  110-112. 
SUBSCRIPTIONS  TO  SHARES: 

forms  of,  and  consideration  for,  509-512,  515,  516. 
promise  implied  by,  to  pay  for  shares,  513-515. 

even  though  corporation  has  also  power  to  forfeit  them,  513. 
offer  to  subscribe  revocable,  515,  note, 
secret  oral  conditions  void,  521. 
infancy  may  be  pleaded,  95,  515,  note, 
conditions  in,  517,  518-521. 
levy  of  assessment,  517. 
calls  for,  when  not  prerequisite,  543. 
obtained  by  fraud,  103,  523-526. 
fraudulent  may  be  enforced,  105. 
effect  on,  of  error,  527. 

of  subsequent  illegal  corporate  action,  528,  529. 

of  change  in  corporate  enterprise,  530-535,  782. 

of  alteration  of  charter,  530-535. 

of  consolidation,  536. 

of  failure  to  make  preliminary  deposit,  516. 

of  purchase  by  the  corporation  of  the  sbares  subscribed  for,  134, 
135,  552. 
may  be  paid  in  property,  522c. 

when  illegal  corporation  cannot  enforce,  95,  145,  note, 
cannot  be  released,  549-551,  745,  746,  780. 
assignment  of,  543. 

purchase  of,  by  another  corporation,  544. 
liability  on,  to  creditors,  701,  703,  745,  746. 
creditors  may  enforce,  660,  661. 

althougb  shareholders  subject  to  statutory  liability,  712,  note, 
receiver  may  enforce,  542. 

debts  owing  subscribers  not  to  be  set  off  against,  729,  811. 
when  nul  tiel  corporation  may  not  be  pleaded  to  suit  on,  99,  537,  539,  738. 
when  it  may,  99,  154. 
when  illegal  election  of  directors  making  calls  may  be  pleaded  to  suit 

on,  540. 
when  illegality  of  shares  issued  may  be  pleaded,  541. 
when  barred  by  statute  of  limitations,  709. 

insolvency  of  the  corporation  may  not  be  pleaded  to  suit  on,  542. 
SUCCESSION: 

perpetual,  12,  14,  16,  430,  note. 


INDEX.  965 

References  are  to  the  Sections. 

SUCCESSION— ( continued). 

by  one  corporation  to  the  property  of  another,  414. 

different  from  consolidation,  415. 

property  passes  by,  subject  to  restrictions,  416. 

succeeding  corporation  takes  the  place  of  former,  417. 

special  exemptions  may  not  pass  by,  418,  487-491. 

liability  of  succeeding  corporation  to  creditors,  667. 
SUITS    AGAINST     DIRECTORS     BY     CREDITORS     TO      ENFORCE 

STATUTORY  LIABILITY  (JOINDER),  775. 
SUITS  AGAINST  JOINT  STOCK  ASSOCIATIONS,  56,  note. 
SUITS  AGAINST    OFFICERS      BY      SHAREHOLDERS     (JOINDER), 

685-691. 
SUITS  AGAINST  SHAREHOLDERS  BY  CREDITORS: 

joinder  of  parties,  703-706. 

statutory  liability  (joinder),  756-760. 
SUITS  AGAINST  STATES  OR  THE  UNITED  STATES,  462. 
SUITS  BY  AND  AGAINST  CORPORATIONS,  137-144,  382-402. 

right  to  sue  and  be  sued  implied  at  common  law,  12,  14. 

at  Roman  law,  7. 

that  corporation  may  sustain,  137. 

should  be  brought  in  the  name  of  the  corporation,  138. 

against  state,  462. 

directors  may  compromise,  137,  224. 

when  may   be  brougbt  by  shareholders,  138,  139,    142,  536,  553-561, 
683,  684,  689-691. 

allegations  in,  when  brought  by  shareholders,  140-142. 

abated  by  dissolution,  435. 

effect  on,  of  appointment  of  receiver,  144. 

service  of  process  on  corporation,  143. 
on  foreign  corporations,  395-399. 

by  and  against  foreign  corporations,  392-402. 

state   cannot  prevent  foreign  corporations  from  removing  to  Federal 
courts,  400. 
SUPERINTENDENT : 

powers  of,  202. 

can  recover  for  services  on  quantum  meruit,  647,  note. 
SURETIES  ON  BONDS  OF  CORPORATE  OFFICERS,  249,  note,  257. 
SURFACE  WATER,  railroad  companies  liable  for  turning  back,  173. 
SURRENDER  OF  CHARTER  OR  FRANCHISES,  20,  433,  434. 

TAXATION  by  municipalities  to  pay  railroad  aid  bonds,  333. 

mandamus  the  remedy  of  bondholders,  333. 
TAXATION  OF  CORPORATIONS,  477-4926. 

taxing  power,  how  differs  from  eminent  domain,  469a. 

double  taxation,  477a. 

taxation  of  shares,  477a. 

situs  of  shares  for  taxation,  477a,  note,  479. 

due  process  of  law,  492,  492a. 


i+66  INDEX. 

References  are  to  the  Sections. 

TAXATION  OF  CORPORATIONS— (continued). 
by  Congress,  478. 

situs  of  corporate  bonds  for  taxation,  479. 
by  state  legislatures,  479. 

of  foreign  corporations,  400,  note,  479,  480. 

restrictions  on,  in  the  Federal  constitution,  480,  481. 

of  Federal  agencies,  482. 

of  corporations  "  doing  business"  in  the  state,  479,  note. 

of  national  banks,  483,  484. 

of  railroad  companies,  479,  485. 

of  telegraph  companies,  486. 

exemptions  from,  487-491. 

restrictions  on,  4696. 

restriction  through  power  of  Congress  to  regulate  commerce,  485. 
jurisdiction  of  equity  to  restrain,  484,  note,  4926. 
what  are  "  profits,"  "  net  earnings,  "  etc.,  565. 
TELEGRAPH  COMPANIES  : 

liable  for  damages  for  erecting  lines  along  highway,  175,  note. 
liability  of,  357. 

penalties  imposed  on,  393,  note, 
taxation  of,  486. 
TELLER : 

powers  of,  193,  note,  246,  note, 
certification  of  checks  by,  244. 
TERMINAL  FACILITIES,  railroad  company  may  take  land  for,  163. 
TICKET-AGENTS,  powers  of,  201. 
TICKETS  : 

railroad  regulations  regarding,  348. 
effect  of  provisions  contained  in,  358,  359. 
TIME,  lapse  of,  when  no  ratification,  217.     See  Ratification. 
TORTS  OF  CORPORATE  AGENTS  AND  SERVANTS : 
liability  of  corporation,  335. 
doctrines  of  ultra  vires,  how  applicable,  336-338. 
when  tort  causes   breach   of  no   special  corporate    obligation,    339, 

367-372. 
summary  of  rules  respecting  liability  for,  341. 
within  scope  of  agent's  authority,  342. 
fraud,  342. 

within  scope  of  tort  feasor's  employment,  343,  344. 
deceit,  342. 
corporation  liable  for  assaults  and  batteries,  343. 

for  trespasses,  343. 
action  for  trover  lies  against  corporation,  342. 
action  for  libel  lies  against  corporation,  342. 

and  action  for  false  imprisonment,  342. 
that  act  of  servant  was  wilful  does  not  relieve  corporation,  344. 
when  tort  causes  breach  of  duty  owed  by  corporation,  345. 
injuries  to  employes,  365,  366. 


INDEX.  •  967 

References  are  to  the  Sections. 

TORTS  OF  COROPRATE  AGENTS  AND  SERVANTS— (continued). 
damages  recoverable  for  personal  injuries,  377,  378.    See  Negligence, 

Common  Carriers. 
liability  of  municipal  corporations,  177,  355,  note. 
TRACKS,  laid  in  street  or  highway,  169,  175-177. 

power  of  railroad  companies  to  locate  and  change,  162,  162a. 
TRADE-MARK,  corporation  may  have,  120,  note. 
TRAFFIC  ARRANGEMENTS  OF  RAILROAD  COMPANIES,  307. 
TRANSFER  OF  FRANCHISES,  131,  132,  305. 
TRANSFER  OF  SUBSCRIPTIONS  TO  SHARES  IN  A  CORPORATION 

TO  BE  FORMED,  10),  102. 
TRANSFERRER  AND  TRANSFEREE  OF  SHARES,  789-798. 
relations  between,  789,  792. 
agreement  to  transfer  not  a  nudum  pactum,  789. 
rights  of,  to  specific  performance,  790. 

transferrer's  right  to  indemnification  from  liability,  719,  note,  791. 
fraud  of  transferrer,  792. 
implied  warranty  by  transferrer,  793. 
right  to  dividends  as  between,  798. 
transferrer  of  shares  as  collateral  security  when  held  as  shareholder  to 

creditors,  741. 
transferee  not  liable  to  creditors  for  dividends  wrongfully  received  by 
his  transferrer,  719,  note. 
TRANSFERS  OF  SHARES: 

in  stock  of  a  corporation  not  yet  formed,  101,  102. 
to  corporation,  134,  135,  552,  586,  747. 

does  not  end  transferrer's  liabilities,  747. 
to  infant,  747. 

general  effect  of  transfer,  586. 
when  corporation  is  insolvent,  586. 
fraudulent,  586,  749,  780. 
liability  of  transferee,  587. 

taking  shares  as  collateral  security,  741. 
irregular,  588,  589,  748,  795,  796. 
cannot  be  established  by  parol,  511,  note, 
liability  of  corporation  in  registering,  592,  595. 
transfers  by  executors  and  trustees,  592. 
transfers  on  forged  orders,  593. 
in  violation  of  by-laws,  594. 
in  disregard  of  uuknown  rights,  595. 
when  corporation  may  compel  rival  claimants  to  interplead,  596. 
liability  of  corporation  in  registering  transfers  by  mistake,  597. 
estoppel  of  corporation  by  issue  of  certificate,  598. 
right  of  purchaser  to,  599,  790. 
specific  performance  of,  790. 

corporation  cannot  refuse  to  register  transfer  because  transferrer  in- 
debted to  it,  600. 
except  when  corporation  has  a  lien,  603. 


068  •  INDEX. 

References  are  to  the  Sections. 

TRANSFERS  OF  SHARES— (continued). 

effect  of,  to  relieve  shareholder  from  liability  to  creditors,  717-720, 
747-749. 
to  relieve  shareholder  from  liability  to  other  shareholders,  780. 

unrecorded,  795,  796. 

validity  as  against  transferrer's  creditors,  796. 
TREASURER,  powers  of,  187,  note,  193,  note,  210,  note,  342,  note. 

prima  facie,  entitled  to  compensation,  647,  note. 
TRESPASS,  corporation  liable  for,  344. 
TRESPASSERS,  liability  of  railroad  companies  to,  370-372. 
TROVER,  corporation  liable  in  action  for,  342. 
TRUST  FUNDS,  32,  33,  62. 

corporate  assets  a  trust  fund  for  creditors,  654-659,  702a. 
"  TRUSTS  "  AND  MONOPOLIES,  illegal,  309a,  etc. 
TRUST  RELATIONS,  41-47. 
TRUSTEES  UNDER  RAILROAD  MORTGAGES  : 

liability  of,  when  operating  railroad,  417. 

officer  of  corporation  may  act  as,  629,  note. 

bondholder  may  contest  compensation  of,  682,  note. 

capacities  of,  814. 

represent  the  bondholders,  816,  note. 

ULTRA  VIRES  ACTS  : 

questions  relating  to,  how  determinable,  264. 

meaning  of  the  term,  264,  note. 

legal  effect  of,  general  rule,  265. 

when  done  by  board  of  directors,  267. 

when  done  by  body  corporate,  268. 

ratification  of,  269-272. 

rights  of  creditors  regarding,  272-274,  814. 

receiver  may  contest  payment  of  ultra  vires  claims,  272-274,  814. 

contracts,  effects  of  performance,  275-281. 

when  other  contracting  party  estopped  to  plead,  276. 

who  cannot  plead,  281-283. 

when  directors  cannot  plead  to  actions  for  an  accounting,  629. 

legal  effect,  qualification  to  general  rule,  284-286. 

apparently  within  scope  of  corporate  powers,  284-286. 

negotiable  instruments,  285. 

purchase  of  property,  286. 

money  borrowed  in  excess  of  statutory  limit,  286. 

when  illegal,  287-292. 

contra  bonos  mores,  293.    ■ 

prohibited  by  statute,  294-303.     See  Statutory  Prohibitions. 

excessive  loans  by  national  banks,  301. 

conveyances  of  real  or  personal  property  to  corporations,  303.  . 

against  public  policy,  304. 

transfer  of  franchises,  305. 

traffic  arrangements,  307. 


INDEX.  969 

References  are  to  the  Section!. 

ULTRA  VIRES  ACTS— (continued). 

pooling  arrangements,  309. 

liability  of  corporations  to  account  for  benefits  received  under  ultra 
vires  contracts,  310-313. 

specific  chattels  to  be  returned,  311. 

money  borrowed,  311. 

liability  of  other  party  to  account  for  benefits  received,  314. 

doctrines  of,  how  applicable  to  the  torts  of  corporations,  336-338. 

liability  of  officers  to  the  corporation  for,  622,  623. 

shareholders  may  restrain  directors  from  committing,  555,  556,  687. 

release  of  shareholders  when,  745. 

liability  of  officers  making  an  ultra  vires  contract  to  the  other  party, 
754. 
UNITED  STATES,  suits  against,  462. 
UNIVEKSITAS,  meaning  in  Roman  law,  1. 
UNPAID  STOCK,  part  of  trust  fund  for  creditors,  655-661. 
UNSUBSCRIBED  STOCK,  power  of  directors  to  place,  224. 
USAGES  OF  BANKS,  195. 
USURY,  298. 

VALID  ACT,  definition  of,  118,  note. 

VERBAL  DECLARATIONS,  effects  of  on  subscriptions,  97,  note,  521. 

VOID  STOCK,  541. 

VOTING  FOR  CORPORATE  OFFICERS,  577-581. 

transfer  books  evidence  of  right,  578. 

by  proxy,  579. 

cumulative  voting,  577. 

corporation  cannot  vote  on  shares  held  by  it,  136. 

right  to,  as  between  pledgor  and  pledgee  of  shares,  794. 

agreements  between  shareholders  as  to,  580,  788,  790. 
VOTING  TRUSTS,  580,  788,  790. 

WARRANTY: 

implied  warranties  by  corporations,  249,  note. 

covenants  by  banks,  162. 

implied  warranty  by  vendor  of  shares,  793. 

implied,  of  authority  to  act,  75,  76,  752-754. 
WATER,  surface,  railroad  company  liable  for  turning  back,  173. 
WINDING-UP: 

rights  of  shareholders  on,  608,  609. 

relations  of  shareholders  to  creditors  on,  750. 

rights  of  shareholders  holding  shares  more  fully  paid  up,  787. 

rights  of  preferred  shareholders,  786.     See  Dissolution. 
WITHDRAWAL  OF  PRELIMINARY  DEPOSITS,  98. 


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